B. Subject Matter Jurisdiction

Both Competitive and UI assert that the Court does not have subject matter jurisdiction over Fujitsu's Sixth through Thirteenth Counterclaims. First, both argue that there is no diversity jurisdiction as to these claims. Second, both argue that the counterclaims do not arise out of the same case or controversy as do UI's infringement causes of action and therefore, that there is no supplemental jurisdiction over Fujitsu's Sixth through Thirteenth Counterclaims. Finally, both argue that even if there is supplemental jurisdiction, the Court should exercise its discretion to decline to hear Fujitsu's counterclaims. For the reasons stated below, the Court concludes that there is diversity jurisdiction over Fujitsu's Sixth through Thirteenth Counterclaims against Competitive and supplemental jurisdiction over these counterclaims against UI.

1. Diversity Jurisdiction

a. UI

UI asserts that there can be no diversity jurisdiction over it because it is an arm of the state and a state is not a citizen for purposes of diversity. See Moor v. County of Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 36 L.Ed.2d 596 (1973) (noting that "[t]here is no question that a State is not a 'citizen' for the purposes of diversity jurisdiction"); see also Univ. of South Ala. v. American Tobacco Co., 168 F.3d 405, 411 (9th Cir.1999) (holding that state university was not a citizen for purposes of diversity jurisdiction and noting that analysis for determining whether entity is a citizen for purposes of diversity jurisdiction is the same as analysis for determining whether entity is entitled to Eleventh Amendment immunity). Fujitsu raises essentially the same arguments on this issue as it does with respect to the Eleventh Amendment immunity analysis. For the reasons stated above, the Court finds that UI is an arm of the state of Illinois and that there is no diversity jurisdiction over Fujitsu's Sixth through Thirteenth Counterclaims against UI.

b. Competitive

In its Reply, Competitive concedes that the requirements for diversity jurisdiction are met as to Counterclaims Six through Thirteen against Competitive. Competitive suggests, however, that the court does not have personal jurisdiction over Competitive. Reply at 2-3.

The Court rejects Competitive's assertion that this Court lacks personal jurisdiction over it. Competitive has provided no authority in support of this argument and has not explained why it has never, in the year since this case was transferred to the Northern District of California, brought a motion to dismiss for lack of personal jurisdiction. Competitive filed this action, and has therefore waived any objection to personal jurisdiction with respect to compulsory counterclaims. See Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 469 n. 1, 94 S.Ct. 2504, 41 L.Ed.2d 243 (1974) (holding that where there is jurisdiction as to claim, no independent basis for federal jurisdiction required for compulsory counterclaim). The fact that this action was transferred from Illinois does not change this result. See Grupke v. Linda Lori Sportswear, Inc., 174 F.R.D. 15, 18 (E.D.N.Y.1997) (rejecting plaintiffs' assertion that court did not have personal jurisdiction with respect to compulsory counterclaims asserted against them, even though action had been transferred on defendants' motion, on the basis that plaintiffs had continued to litigate their claims in transferee forum rather than dismissing claims to avoid trying them in transferee court); Star-Brite Distributing, Inc. v. Gavin, 746 F.Supp. 643 (N.D.Miss.1990) (same). Following transfer, Competitive continued to prosecute this action in this Court, and has appeared before this Court on numerous occasions without ever asserting a lack of personal jurisdiction. Indeed, Competitive moved to dismiss the counterclaims at issue and did not raise personal jurisdiction until its Reply brief. Competitive has waived any objection to personal jurisdiction. The Court finds that it has subject matter jurisdiction over Fujitsu's Sixth through Thirteenth Counterclaims against Competitive on the basis of diversity. [FN 17]

[FN 17] Competitive also asserts that venue is improper as to these counterclaims. Competitive's argument is to no avail. It is well established that where venue is proper for the plaintiff's original claims and additional claims are asserted as counterclaims or cross-claims, a venue objection is unavailable. See Bredberg v. Long, 778 F.2d 1285, 1288 (8th Cir.1985) (recognizing rule); Shapo v. Engle, 2000 WL 198435 (N.D.Ill.) (holding that intervenor was not required to satisfy venue requirements where venue was proper as to the plaintiff's claims); see also Wright & Miller, Federal Practice and Procedure, Juris 2d. § 3808. Because the district court in Illinois already determined that venue was proper in this Court with respect to UI and Competitive's patent infringement claims, Competitive may not now object to venue as to Fujitsu's compulsory counterclaims. See Grupke, 174 F.R.D. at 18 (holding that plaintiffs in transferred action could not object to venue in transferee forum where transferor court had determined that venue was proper in transferee forum as to plaintiffs' claims).

2. Supplemental Jurisdiction

a. Do the Counterclaims Arise out of the Same Transaction or Occurrence?

Because there is no diversity jurisdiction with respect to Fujitsu's Counterclaims Six through Thirteen against UI, the Court must address UI's argument that there also is no supplemental jurisdiction over these counterclaims. Pursuant to 28 U.S.C. § 1367(a), in an action in which the district court possesses original jurisdiction over a federal claim, the district court has supplemental jurisdiction over "all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." Although some courts have suggested that the "case or controversy" test is broader than the "logical relationship test" that is applied to compulsory counterclaims, see, e.g., Rothman v. Emory Univ., 123 F.3d 446, 454 (7th Cir.1997), some have held that supplemental jurisdiction exists only as to compulsory counterclaims and not as to permissive counterclaims. See, e.g., Hart v. Clayton-Parker and Assoc., Inc., 869 F.Supp. 774, 776 (D.Ariz.1994). The Court need not resolve this issue, however, because it finds that Counterclaims Six through Thirteen are compulsory counterclaims, as discussed above. Accordingly, these counterclaims are part of the same case or controversy as UI's claims, regardless of which test is applied. Therefore, the Court may exercise supplemental jurisdiction over Counterclaims Six through Thirteen against UI.

b. Should the Court Decline to Exercise Supplemental Jurisdiction?

UI and Competitive assert that the Court should decline to exercise supplemental jurisdiction over Counterclaims Six through Thirteen under 28 U.S.C. § 1367(c). Section 1367(c) provides as follows:

The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if -

(1) the claim raises a novel or complex issue of State law,

(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction,

(3) the district court has dismissed all claims over which it has original jurisdiction, or

(4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.

28 U.S.C. § 1367(c). UI asserts that the Court should not exercise supplemental jurisdiction because Counterclaims Six through Thirteen will substantially predominate over the patent infringement claims. [FN 18] The Court disagrees. Given that Fujitsu's counterclaims are based on the same facts as are the defenses it will present in this action, the Court finds that Fujitsu's counterclaims will not so substantially predominate as to justify the judicial inefficiency that would result if this Court were to decline to exercise supplemental jurisdiction.

[FN 18] Competitive also argues that supplemental jurisdiction should not be exercised due to "exceptional circumstances" and because Fujitsu's counterclaims raise "complex issue[s] of state law." Because the Court concludes that subject matter jurisdiction over Counterclaims Six through Thirteen against Competitive is based on diversity, it need not reach these issues, which were not raised by UI. Even if the Court were to reach Competitive's arguments, however, the Court would reject them. None of the arguments raised by Competitive for declining to exercise supplemental jurisdiction provides a sufficient basis for reaching such a result.

D. Sufficiency of Fujitsu's Allegations Under Rule 12(b)(6)

UI and Competitive assert that even if this Court has jurisdiction over Fujitsu's Sixth through Thirteenth Counterclaims, all of those counterclaims should be dismissed for failure to state a claim under Rule 12(b)(6). Below, the Court addresses the sufficiency of each of these counterclaims. [FN 19]

[FN 19] The Court does not determine at this stage of the case which state's laws will apply to Fujitsu's counterclaims, as such a determination would be premature. However, where no actual conflict has been demonstrated between the laws of the various states whose laws might be applied, the Court relies on California law.

1. Counterclaim Six (Breach of Confidentiality)

Fujitsu alleges in Counterclaim Six that its discussions with Competitive regarding licensing "were based on the understanding that the existence, status and substance of the discussions would remain in confidence." Answer to Amended Complaint at ¶ 80. Fujitsu further alleges that "CTI, acting with and for UI, repeatedly indicated by its conduct that it knew that the existence, status, and substance of its business discussions with Fujitsu were confidential and could not be disclosed without Fujitsu's permission ." Id. at ¶ 81. In support of this allegation, Fujitsu cites to * * * Id. at ¶ 82. Fujitsu also cites to a provision in a draft license agreement sent to Fujitsu by Competitive which included an anonymity provision. Id. at ¶ 83. That provision prohibited Competitive "from disclosing even the existence of the license without the prior written consent of Fujitsu." Id. at ¶ 83. Finally, Fujitsu alleges that its expectation that the negotiations would be kept confidential was based on a "custom and practice of patent licensing negotiations" that such negotiations be treated as "highly confidential." Id.

Next, Fujitsu alleges that "Counterdefendant CTI, acting with and for UI, with the assistance of others wilfully and repeatedly breached a duty to maintain the existence, status, and/or substance of the business discussions in confidence owed to Counterclaimants * --- Id. at 86. * * * Id. at ¶¶ 87, 90.

UI and Competitive assert that, whether Counterclaim Six is construed as a tort claim for breach of confidence or a contract claim for breach of implied contract, Fujitsu has failed to state a claim.

a. Breach of Confidence

Under California law, a plaintiff may bring an action in tort for breach of confidence. [FN 20] Entm't Research Group v. Genesis Creative Group, Inc., 122 F.3d 1211, 1226 (9th Cir.1997). The court in Entertainment Research explained the claim as follows: "this cause of action recognizes an obligation in law where in fact the parties made no promise. It is not based upon apparent intentions of the involved parties; it is an obligation created by law for reasons of justice." Id. In order to prevail on such a claim, a plaintiff is required to establish the following elements:

(1) the plaintiff conveyed "confidential and novel information" to the defendant; (2) the defendant had knowledge that the information was being disclosed in confidence; (3) there was an understanding between the defendant and the plaintiff that the confidence be maintained; and (4) there was a disclosure or use in violation of the understanding.

Id.

[FN 20] UI represents that there is no claim for breach of confidence in any of the other states whose laws might apply besides California. Fujitsu does not dispute this point. Fujitsu also does not appear to dispute Competitive's assertions that Counterclaim Six does not state a claim for breach of fiduciary duty. Rather, Fujitsu argues that it has stated a claim in Counterclaim Six for breach of confidence under California law and a claim for breach of implied contract under the laws of several other states whose laws might apply to this claim (including California). The Court agrees. Therefore, the court need not now resolve the choice of law issue as to this claim.

UI and Competitive assert that Fujitsu fails to state a claim for breach of confidence because: 1) the information allegedly revealed was not confidential and novel; 2) UI could not be liable for breach of confidence because it is not alleged that UI had a personal relationship with Fujitsu and UI did not authorize the allegedly tortious act; and 3) Fujitsu has not alleged that it was damaged. None of the authority offered by UI and Competitive support the conclusion that dismissal of this claim, assuming it is construed as a breach of confidence claim, is warranted under Rule 12(b)(6).

First, UI and Competitive have presented no authority in support of their assertion that the existence of business discussions cannot constitute confidential and novel information for the purposes of the tort of breach of confidence. Nor does the Court find any such authority.

Second, Fujitsu has alleged sufficient facts to state a claim based on a theory of vicarious liability as to UI. It is well established that a principal may be liable for the tortious conduct of an agent, even if the principal has not authorized the conduct. See Restatement (Second) of Agency, § 216 (1958). Section 216 provides as follows:

A master or other principal may be liable to another whose interests have been invaded by the tortious conduct of a servant or other agent, although the principal does not personally violate a duty to such other or authorize the conduct of the agent causing the invasion.

Restatement (Second) of Agency § 216. The comment to Section 216 explains further:

A principal is often subject to liability for the unauthorized conduct of an agent with respect to matters which, under the agreement creating the relation, he has the right to direct. The range of conduct for which there may be liability is greater in the case of servants than in the case of agents who are not servants but, as to both classes, liability is normally based upon the fact that the tort is brought about in the course of an undertaking for the benefit, and subject to the right, of the principal to control his servant or other agent.

Id., comment a.

The cases relied on by UI do not support a contrary result. In particular, UI asserts that Larsen Chelsey Realty Co. v. Larsen, 656 A.2d 69 (Conn.1995) and A-G Foods, Inc. v. Pepperidge Farm, Inc., 216 Conn. 200, 579 A.2d 69, 74 (Conn.1990) stand for the proposition that a principal may be liable for the tortious acts of its agents only if the tortious conduct was authorized or ratified by the principal. UI misstates the holding of both cases. In Larsen, the court addressed a motion to set aside judgment involving both a claim against a principal based on respondeat superior and a claim in which the plaintiff sought to hold the principal directly liable. The court explained the difference between the two claims as follows:

In the twelfth count of its complaint, the plaintiff alleged that Pearce Company, independent of any vicarious liability, had itself committed the business related torts of interference with contractual relations and unfair competition.... This liability arises apart from, and is distinguishable from, liability under the theory of respondeat superior.... As we indicated previously, the theory of respondeat superior attaches liability to a principal merely because the agent committed a tort while acting within the scope of his employment. "It refers to those acts which are so closely connected with what the servant is employed to do, and so fairly and reasonably incidental to it, that they may be regarded as methods, even though quite improper ones, of carrying out the objectives of the employment." W. Prosser & W. Keeton, Torts (5th Ed.1984) § 70, p. 502. A principal may be directly liable, however, for the acts of its agents that it authorizes or ratifies. Id., ¶ . 501-502; 1 Restatement (Second), supra, § 212 (principal liable for authorized conduct) and § 218 (principal liable for ratified conduct).

Id. at 1023(emphasis supplied). Larsen establishes that authorization or ratification is not necessary for respondeat superior liability.

Similarly, UI has quoted language from A-G Foods, Inc. v. Pepperidge Farm, Inc., 579 A.2d at 74, out of context. UI states that this case, like Larsen, stands for the proposition that a principal may only be liable if it authorizes or ratifies the tortious conduct of its agent. The most cursory reading of this case reveals that it does not stand for that proposition. In A-G Foods, the defendant challenged the trial court's entry of judgment notwithstanding verdict. Id. at 73. The trial court found the defendant liable for the fraudulent acts of its agent and the Connecticut Supreme Court reversed. Id. The court began its discussion by noting, "[w]e have long adhered to the principal that in order to hold an employer liable for the intentional torts of his employee, the employee must be acting within the scope of his employment and in further of the employer's business." Id. The court went on to conclude that the evidence did not support the conclusion that the agent was acting within the scope of his employment and in furtherance of the principal's business. Id. at 74. While the court notes that there is no evidence that the principal knew about the agent's actions, the court does not hold anywhere that the principal's knowledge was required to establish liability. Id. Rather, the court was simply addressing the principal's knowledge as a possible alternative basis for liability.

Third, UI asserts that Fujitsu has not adequately alleged damage. As noted above, Fujitsu alleges that * * * Based on this allegation, the Court cannot say "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) (articulating standard for Rule 12(b)(6) motions). Therefore, the Court rejects UI's assertion that Fujitsu's allegations are deficient with respect to damages.

b. Breach of Implied Contract

Even if the Court ultimately determines that California law does not apply, Counterclaim Six may survive Rule 12(b)(6) scrutiny if it is construed as a claim for breach of implied contract, a claim which is well-established under the laws of many states, including California. "An implied-in-fact contract is 'founded on a meeting of the minds, which ... is inferred, as a fact, from conduct of the parties showing in light of the surrounding circumstances, their tacit understanding.'" Moreno v. Los Angeles Child Care & Dev. Council, 963 F.Supp. 876, 879 (C.D.Cal.1997) (quoting Baltimore & Ohio R.R. v. United States, 261 U.S. 592, 597, 58 Ct.Cl. 709, 43 S.Ct. 425, 67 L.Ed. 816 (1923)). UI and Competitive assert that Fujitsu has failed to state a claim for breach of implied contract. The Court disagrees.

UI argues that Fujitsu fails to allege an implied-in-fact contract because it has only alleged conduct by Competitive and not by Fujitsu showing a meeting of the minds. UI presents no authority, however, suggesting that a claim should be dismissed at the Rule 12 stage where the alleged conduct showing a meeting of the minds was by only one of the parties. Further, the conduct alleged is sufficient to support an inference that there was a meeting of the minds between Fujitsu and Competitive. In particular, Fujitsu alleges that it conducted business discussions based on the understanding that the "existence, status and substance of those discussions" would remain in confidence. Answer to Amended Complaint at ¶ 80. Fujitsu further alleges that this expectation was based on a "custom and practice of patent licensing negotiations" that such negotiations be treated as "highly confidential." Id. at ¶ 83. These allegations are sufficient to support a reasonable inference that there was an understanding between Fujitsu and Competitive that their negotiations would be kept confidential.

UI also asserts that Fujitsu has not stated a claim for breach of implied-in-fact contract because it has not alleged that any damages were caused by Competitive's conduct. Reply at 18. As discussed above, Fujitsu's allegations regarding damages are sufficient to satisfy the requirements of Rule 12(b)(6). Therefore, the Court concludes that Fujitsu has alleged facts sufficient to state a claim for both breach of confidence and breach of implied contract.

2. Counterclaim Seven (Misappropriation of Trade Secrets)

UI and Competitive assert that Fujitsu fails to state a claim for trade secret misappropriation because: 1) Fujitsu has failed to allege the existence of a "trade secret"; 2) as to UI, Fujitsu has alleged neither that the University knew the information alleged to be a trade secret was confidential nor disclosed it; 3) Fujitsu has not adequately alleged damage. These arguments have no merit.

In its Seventh Counterclaim, Fujitsu alleges that "information concerning the existence, status, and/or substance of the confidential business discussions between Fujitsu and CTI, acting with and for UI, and CTI's agents and affiliates constitutes protectible trade secrets." Answer to Amended Complaint at ¶ 93. Fujitsu alleges that it "took precautions to maintain the confidentiality of the information concerning the existence, status and substance of the business discussions." Id. at ¶ 94. Fujitsu further alleges that "CTI, acting with and for UI, misappropriated Fujitsu's trade secrets by wilfully and repeatedly disclosing to others, including competitors of Fujitsu who knew of CTI's breach of confidence, information concerning the existence, status, and substance of the confidential business discussions." Id. at ¶ 95. Finally, Fujitsu alleges that it "suffered injury as a result of the misappropriation in the form of competitive damage and other damages to its business and business interests." Id. at ¶ 96. These allegations are sufficient to state a claim for misappropriation of trade secrets.

First, UI and Competitive's assertion that the existence of licensing negotiations cannot, as a matter of law, constitute a trade secret, is not supported by any authority. Under California law, a trade secret is defined as follows:

(d) "Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and

2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Cal. Civ.Code § 3426.1(d). There is nothing in the language of the definition that precludes information about the existence of negotiations from constituting a trade secret.

Nor do the cases cited by UI support such a conclusion. For example, in Knudsen Corp. v. Ever-Fresh Foods, Inc., 336 F.Supp. 241, 244 (C.D.Cal.1971), the court did not hold generally that information regarding pricing, marketing and sales strategy of a company could not constitute a trade secret, as UI implies in a parenthetical. Rather, it held under the particular facts of that case, that this information had been made public and therefore could not constitute trade secrets. Id. In fact, the implication of Knudson is that if the information had not been publicly available, it could have constituted a trade secret. As the Knudson court notes, "that which constitutes a trade secret must be determined from the facts of each case." Id.

Next, UI asserts that it cannot be held liable for misappropriation of trade secret because Fujitsu does not allege that UI knew the negotiations constituted a trade secret or that UI revealed the existence of the licensing negotiations to anyone. Fujitsu replies that the principal can be liable for misappropriation of trade secrets by its agent, citing to a single case, Bancroft-Whitney Co. v. Glen, 64 Cal.2d 327, 353, 49 Cal.Rptr. 825, 411 P.2d 921 (1966). Fujitsu however, concedes in its parenthetical that the principal in that case ratified the agent's misconduct. Fujitsu has not cited to any authority establishing that a principal may be held liable for misappropriation of trade secrets even where it is unaware that information constitutes a trade secret and does not itself disclose the trade secret. However, the Court finds that Fujitsu has, nonetheless, stated a claim for misappropriation of trade secrets as to UI by alleging that Competitive was "acting with and for UI." In particular, this allegation may be reasonably construed as an allegation that UI ratified or approved Competitive's conduct.

With respect to damages, Fujitsu has alleged that it suffered "competitive injury" as a result of Competitive's and UI's conduct. Again, the Court cannot say without a doubt that there is no set of underlying facts that could establish that Fujitsu has suffered such injury. See Conley v. Gibson, 355 U.S. at 45-46. Therefore, the Court concludes that Fujitsu's counterclaim for misappropriation of trade secrets is adequately alleged.

3. Counterclaim Eight (Fraud)

UI and Competitive argue that Fujitsu fails to state a claim for fraud because: 1) Fujitsu fails to allege any participation by the University in the alleged fraud; 2) Fujitsu fails to allege specifically who made the statements at issue; 3) Fujitsu fails to allege facts showing a duty to disclose * * * 4) Fujitsu's allegation on information and belief that the statements were made with intent to deceive do not meet the specificity requirements of Fed.R.Civ.P. 9(b); 5) Fujitsu does not allege justifiable reliance with specificity; and 6) Fujitsu does not allege any damage that was proximately caused by Competitive's alleged misrepresentation. The Court rejects all of these arguments.

Fujitsu alleges that in a meeting on December 27, 1999, between Fujitsu and "Mr. Fumiya Konishi of Innovation Partners International, Inc., CTI's agent and affiliate in Japan," Mr. Konishi "fraudulently misrepresented that all proceeds from licensing the '349 patent and the '400 patent would go to UI and CTI ." Answer to Amended Complaint at ¶ 98. Fujitsu further alleges that * * * Id. at ¶ 99. Fujitsu alleges that * * * Id. Fujitsu alleges these acts and omissions were made by Competitive, "acting with and for UI." Id. at ¶¶ 98-99. Fujitsu further alleges, on information and belief, that these misrepresentations were false and misleading or were made with reckless indifference to the truth, and that the statements were made with the intent to deceive Fujitsu and to induce it to enter into a license with Competitive for the '349 and '400 Patents. Id. at ¶ 100. Fujitsu alleges that it justifiably relied on these statements when it entered into a comprehensive cross-license with Matsushita. Id. Fujitsu alleges that * * * Id. at ¶ 101. These allegations are sufficient to state a claim for fraud.

"The elements of fraud or deceit (see Cal. Civ.Code, §§ 1709, 1710) are: a representation, usually of fact, which is false, knowledge of its falsity, intent to defraud, justifiable reliance upon the misrepresentation, and damage resulting from that justifiable reliance." Stansfield v. Starkey, 220 Cal.App.3d 59, 72, 269 Cal.Rptr. 337 (1990). Further, Fed.R.Civ.P. 9(b) provides as follows:

In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.

Fed.R.Civ.P. 9(b).

UI argues that it cannot be liable for fraud because there is no allegation that it participated in any way in the alleged fraud. This argument fails, however, because UI may be held liable on the basis that Competitive was acting as its agent in the licensing negotiations with Fujitsu. See Ackerman v. Northwestern Mut. Life Ins. Co., 172 F.3d 467, 471 (7th Cir.1991) (noting in dicta that "[w]hen an agent who is authorized to make a contract on his principal's behalf (and the principal needn't be the agent's employer ...) uses fraud to induce the contract, the principal is liable even if the agent is acting solely to feather his own nest," and that under such circumstances, there is no need to allege a misrepresentation by the principal) (citing to Gleason v. Seaboard Air Line Ry., 278 U.S. 349, 49 S.Ct. 161, 73 L.Ed. 415 (1928)).

The second argument, that it is not clear who made the allegedly false statements, fails as well. It is clear from Fujitsu's allegations that the alleged misrepresentations were made by Fumiya Konishi.

The third argument, regarding the lack of allegations showing a duty to disclose, is correct. Fujitsu essentially concedes this point. See Opposition at 32. However, as Fujitsu points out, the claim also includes affirmative misrepresentations, and it is undisputed that Competitive had a duty not to make affirmative misrepresentations to Fujitsu.

The fourth argument, that the fraud allegations are defective because intent is alleged on information and belief, has no merit. As Fujitsu points out, Rule 9(b) provides that intent may be averred generally. Rather, it is the "circumstances" constituting the fraud that must be alleged with specificity. Both of the cases relied on by UI involve the circumstances -- that is, the time, place and nature -- of the alleged acts, rather than the intent requirement. See Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir.1989); California ex rel Mueller v. Walgren, 175 F.R.D. 631, 635 (N.D.Cal.1997).

The fifth argument, that Fujitsu has not adequately alleged justifiable reliance, has no merit. Fujitsu alleges specific facts in support of its allegation that it justifiably relied on the alleged misrepresentations. In particular, Fujitsu alleges that * * *

The sixth argument raised by UI and Competitive is that Fujitsu fails to allege that the misrepresentations alleged actually caused the damage that resulted. This argument is not entirely unpersuasive. Fujitsu's theory of causation is tenuous, at best. However, as discussed below, the Court is unable to conclude at this stage of the proceeding that there is no set of facts that could establish causation under Fujitsu's allegations. Rather, the Court defers evaluation of Fujitsu's causation theory until the summary judgment phase of the case.

In order to state a claim for fraud, "the plaintiff must plead and prove the 'detriment proximately caused' by the defendant's tortious conduct." Service by Medallion, Inc. v. Clorox, 44 Cal.App.4th 1807, 1818, 52 Cal.Rptr.2d 650 (1996) (quoting Cal. Civ.Code, § 3333). The court in Service by Medallion explained:

Deception without resulting loss is not actionable fraud.... "Whatever form it takes, the injury or damage must not only be distinctly alleged but its causal connection with the reliance on the representations must be shown." (5 Witkin, Cal. Procedure (3d ed. 1985) Pleading, § 680, p. 131.)

Id. (citations omitted).

In support of its argument that Fujitsu has not adequately alleged causation, UI cites to In re Wash. Trust Deed Service Corp. ., 224 B.R. 109 (Bankr.9th Cir.1998). In Washington Trust, a trustee in bankruptcy brought a fraudulent conveyance action in bankruptcy court against a transferee to avoid the conveyance. Id. at 111. Subsequently, the trustee and the transferee entered into a settlement agreement that was contingent on approval by the bankruptcy court. Id. A hearing was scheduled to obtain approval of the settlement, but before the hearing was held, the trustee decided the settlement was not in the best interest of the estate and took the hearing off calendar. Id. The transferee brought a motion to compel the court to place the motion back on calendar, which the court denied. Id. The court explained that it was a "foregone conclusion" that it would not approve the settlement agreement in light of the fact that the trustee no longer recommended approval. Id.

The transferee then brought a state court action claiming that the trustee had fraudulently misrepresented his intent to support the settlement agreement. Id. The trustee removed the state court action to the bankruptcy court, which dismissed the claim. The bankruptcy court explained its holding as follows:

Misrepresentation, even maliciously committed, does not support a cause of action unless the plaintiff suffered consequential damages. And the damages suffered must be referable to, and caused by, the fraud.... In fraud, the pleading must show a cause and effect relationship between the fraud and damages sought; otherwise no cause of action is stated. Ultimately, it is lack of court approval, rather than the absence of [the trustee's] support, which caused [the transferee's] damages. Having not alleged that, but for the trustee's change of position, the bankruptcy court would have approved the settlement, his complaint does not state a cause of action under California law.

Id. at 113-114 (quotations and citations omitted).

UI asserts that the allegations supporting Fujitsu's fraud counterclaim are even more convoluted than the allegations in Washington Trust and that like the plaintiff in that case, Fujitsu has failed to allege facts showing a cause and effect relationship between the fraud and the damages sought. The Court disagrees. Implicit in Fujitsu's allegations is an allegation that, but for the alleged misrepresentations by Competitive, Fujitsu would have been in a position to -- and would have -- obtained a license from Competitive for the '399 and '400 Patents. Had it obtained those licenses, Fujitsu would have been spared the expense of defending against the patent infringement claims asserted in this action and in the ITC proceeding. The Court cannot say at this stage of the proceeding that Fujitsu will be unable to prove its theory of causation. Rather, this is a question that may only be resolved at a later stage of the case, when the factual record has been developed. Therefore, the Court declines to dismiss Counterclaim Eight under Rule 12(b)(6).

4. Counterclaim Nine (Negligent Misrepresentation)

The arguments raised with respect to negligent misrepresentation are essentially the same as those raised as to the fraud claim. As discussed above, the Court finds that Fujitsu's allegations are sufficient to state a claim. Therefore, the Court declines to dismiss this claim under Rule 12(b)(6).

5. Counterclaims Ten and Eleven (Unfair Competition)

Fujitsu alleges in its Tenth and Eleventh Counterclaims that UI and Competitive have engaged in unfair competition by initiating a "baseless" action in the ITC in order to commence a "sham investigation," by providing false information in that proceeding and by publicizing the proceeding. Amended Answer at ¶¶ 109-110, 113-114. Fujitsu further asserts that Competitive's alleged breach of confidence and negligent and fraudulent misrepresentations constituted unfair business practices. UI and Competitive assert that Fujitsu fails to state unfair competition claims on the following grounds: 1) There is no authority in California or Illinois which permits such an action based on filing of a baseless ITC proceeding and Connecticut law prohibits such an action; 2) although breach of confidence and trade secret misappropriation may provide a basis for unfair competition claims, Fujitsu's allegations are not sufficient to state such claims; 3) the alleged actions in the ITC are privileged under the Noerr-Pennington doctrine; and 4) the alleged actions in the ITC are privileged under state law. The Court rejects all of these arguments.

a. Can an ITC Action Provide a Basis for an Unfair Competition Claim Under Law of California, Illinois or Connecticut?

UI and Competitive argue that to the extent the unfair competition counterclaims are based on the ITC action, those claims should be dismissed because such claims are not recognized under the laws of California, Illinois, or Connecticut. However, neither UI nor Competitive have identified any cases, under the law of any of these three states, which have explicitly held that an unfair competition claim may not be based on an ITC proceeding. Nor does the language of Conn. Gen.Stat. § 42-110c, [FN 21] cited by UI and Competitive, convince the Court that an unfair competition claim based on an ITC proceeding is prohibited under Connecticut law, at least where, as here, the ITC proceeding is alleged to have been a sham, as discussed below. Rather, the case law makes clear that unfair competition claims may be based on a wide range of conduct. See Balboa Ins. Co. v. Trans Global Equities, 218 Cal.App.3d 1327, 1341-1342, 267 Cal.Rptr. 787 (1990). Finally, at least one court that has directly addressed the question has concluded that an unfair competition claim may be based on an ITC proceeding. P.D. Rasspe Sohn GMBh & Co. v. National-Standard Co., 1990 U.S. Dist. LEXIS 19646 (S.D.Mich.) (holding that Michigan law would recognize a claim for unfair competition based on initiation of a baseless ITC action for the purpose of restraining and excluding legitimate competition). Given that this Court has not yet made a choice of law, and in the absence of any clear authority holding that such claims are barred under the law of any of the states whose law maybe applied, the Court is not persuaded by this argument.

[FN 21] That section is a provision of Connecticut's Unfair Trade Practices Act which provides as follows:

a) Nothing in this chapter shall apply to: (1) Transactions or actions otherwise permitted under law as administered by any regulatory board or officer acting under statutory authority of the state or of the United States; or (2) acts done by the publisher, owner, agent or employee of a newspaper, periodical or radio or television station in the publication or dissemination of an advertisement, where the publisher, owner, agent or employee did not have knowledge of the false, misleading, unfair or deceptive character of the advertisement, and did not have direct financial interest in the sale or distribution of the advertised product or service.

(b) The burden of proving exemption, as provided in this section, from the provisions of this chapter shall be upon the person claiming the exemption.

Conn. Gen.Stat. § 42-110c.

b. Unfair Competition Claims Based on Breach of Confidence and Misappropriation of Trade Secrets

UI and Competitive argue next that the unfair competition counterclaims are deficient because Fujitsu fails to state a claim for breach of confidence or misappropriation of trade secrets. As discussed above, the Court finds that Fujitsu has stated claims for breach of confidence and misappropriation of trade secrets. Therefore, the Court also finds that Fujitsu has stated claims for unfair competition on the basis of these claims. [FN 22]

[FN 22] UI concedes that common law breach of confidence and misappropriation of trade secrets claims do provide a basis for unfair competition claims. See UI Motion at 31.

c. Noerr-Pennington Doctrine

UI and Competitive assert that Fujitsu's unfair competition claims are barred to the extent that they are based on the ITC action, under the Noerr-Pennington doctrine. The Noerr-Pennington doctrine provides that "[p]rivate efforts to influence governmental bodies or courts, even for anticompetitive purposes, enjoy an exemption from the antitrust laws grounded in the First Amendment right to petition." Boulware v. Nevada, 960 F.2d 793, 797 (9th Cir.1992) (citing to Cal. Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 510-11, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972); United Mine Workers v. Pennington, 381 U.S. 657, 669-71, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965); Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 137-38, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961)). This doctrine "sweeps broadly and is implicated by both state and federal antitrust claims that allege anticompetitive activity in the form of lobbying or advocacy before any branch of either federal or state government." Kottle v. Northwest Kidney Centers, 146 F.3d 1056, 1059 (9th Cir.1998).

An exception to the Noerr-Pennington doctrine is recognized when the activity at issue is a "sham." Cal. Motor Transport Co. v. Trucking Unlimited, 404 U.S. at 511. The Ninth Circuit has described the sham exception:

We have defined as a sham litigation "undertaken solely to interfere with free competition and without the legitimate expectation that such efforts will in fact induce lawful government action." ... As this formulation indicates, courts frequently have approached sham claims by attempting to assess the objective legal merit of the predicate suit. A finding that the predicate action was baseless would thus be sufficient to establish that the primary motivation behind the litigation was to inflict anticompetitive injury through the judicial process because the expected value of the legal outcome of a meritless suit is zero.

Boulware, 960 F.2d at 797.

At the motion to dismiss stage, the court should apply a heightened pleading standard to determine if the Noerr-Pennington doctrine applies because "when a plaintiff seeks damages for conduct which is prima facie protected by the First Amendment, the danger that the mere pendency of the action will chill the exercise of First Amendment rights requires more specific allegations than would otherwise be required." Kottle, 146 F.3d at 1063 (quotation and citation omitted).

Fujitsu does not dispute that the ITC proceeding is the type of activity that would normally fall under the Noerr-Pennington doctrine. Rather, Fujitsu argues that its allegations fall under the sham exception to the Noerr-Pennington doctrine. Moreover, it asserts that its allegations contain sufficient specific facts to meet the heightened pleading requirement under that doctrine. The Court agrees.

Fujitsu's counterclaims address the ITC proceeding in some detail, alleging not only that the action was baseless, but also alleging specific facts in support of that allegation. First, Fujitsu alleges that Competitive "falsely asserted to the ITC during the pre-filing phase of the ITC investigation that the licensed 'domestic industry' requirement was met by research activity at UI * * * even though UI had not performed PDP research "for many years" * * * Answer to Amended Complaint at ¶ 59. Second, Fujitsu alleges that "CTI and UI deceived the ITC by submitting technical documentation concerning CTI's infringement allegations that purported to accurately reflect the accused PDPs, but which in fact CTI and UI knew was incorrect. Id. at ¶ 60. Fujitsu describes the contents of these documents and the reason they were incorrect in detail. See id. Finally, Fujitsu alleges that UI and CTI intentionally concealed from the ITC the fact that "foreign counterparts to the patent claims asserted had been revoked by the European Patent Office as invalid based on prior art that was not cited to the United States Patent Office." Id. at ¶ 61.

On the basis of these allegations, the Court concludes that Fujitsu has adequately alleged that the ITC action was baseless, thereby satisfying the "sham exception" under Noerr-Pennington.

d. State Law Privilege

UI asserts that Fujitsu's unfair competition claims are barred by absolute privilege under Cal. Civ.Code §§ 47(b) and (d). Section 47(b) provides that "[a] privileged publication or broadcast is one made ... [i]n any ... judicial proceeding ... [or] in any other official proceeding authorized by law." Section 47(d) makes privileged "a fair and true report in, or a communication to, a public journal, of (A) a judicial, (B) legislative, or (C) other public official proceeding, or (D) of anything said in the course thereof." UI asserts further that the same privileges apply under the laws of most other states, including Connecticut and Illinois.

Fujitsu asserts that it is inappropriate to apply California privilege law to a claim in which the relevant conduct did not occur in California. However, Fujitsu does not address the Illinois and Connecticut cases cited by UI suggesting that the same privilege applies under the law of those states. See Petyan v. Ellis, 220 Conn. 243, 245-246 (1986) (holding that former employer could not be sued for libel and intentional infliction of emotional distress based on statements made in form request by state agency); Libco Corp. v. Ware Adams, 100 Ill.App.3d 314, 316, 55 Ill.Dec. 805, 426 N.E.2d 1130 (1981) (barring libel claim based on statements made in course of legal proceeding). Because Fujitsu has not demonstrated a conflict of laws, the merits of UI's argument can be assessed with reference to California law.

Fujitsu argues that even if California privilege law is applicable, the requirements for Cal. Civ.Code § 47(b) are not met here. In particular, Fujitsu asserts that the gravamen of its unfair competition claim is not that Fujitsu's injury resulted from the misrepresentations themselves. Rather, the injury resulted from the prosecution of a baseless action that lacked probable cause. The misrepresentations, Fujitsu argues, are merely evidence that the action was baseless and lacking in probable cause. Neither UI nor Fujitsu is able to cite to any case that is directly on point on this issue. Although a close call, the Court concludes that Fujitsu has the stronger position and that the privilege does not apply.

Although typically the privilege embodied in section 47(b) is applied to claims for libel and defamation, courts have also applied the privilege to other types of claims where the injury at issue was caused by statements made in the course of a judicial or administrative proceeding, such as intentional infliction of emotional distress and intentional interference with economic advantage. See White v. Western Title Ins. Co., 40 Cal.3d 870, 887, 221 Cal.Rptr. 509, 710 P.2d 309 (1985). The court in White noted, however, that in applying the privilege under section 47(b), courts must "draw a careful distinction between a cause of action based squarely on a privileged communication, such as an action for defamation, and one based upon an underlying course of conduct evidenced by the communication." Id. In White, the court held that a plaintiff was not precluded under section 47(b) from offering into evidence settlement offers made in the course of litigation that showed that the defendant insurer had breached its covenant of good faith and fair dealing with respect to its insurance contract with plaintiff. Id.

Fujitsu's unfair competition counterclaims, to the extent they are based on the ITC proceeding, allege Fujitsu was injured as a result of having to defend against a baseless action rather than as a result of the alleged misrepresentations before the ITC. Here, as in White, the alleged misrepresentations are offered as evidence of the underlying course of conduct rather than as the actual source of the harm. As a result, the Court concludes that the privilege under section 47(b) does not apply. For the same reason, the privilege under section 47(d) does not apply.

Finally, the Court rejects UI's argument, based on Albertson v. Raboff, 46 Cal.2d 375, 382, 295 P.2d 405 (1956), that because Fujitsu's claims are not malicious prosecution claims, the privilege under sections 47(b) and (d) must apply. In Albertson, the plaintiff brought a malicious prosecution claim and a disparagement of title claim based on a prior action by the defendant in which the defendant had sought money damages and to impose a lien on the plaintiff's property. 46 Cal.2d at 377, 295 P.2d 405. In connection with that action, the defendant had recorded a notice of lis pendens. Id. As to the disparagement of title claim, the court held that it was subject to the privilege in section 47(b), noting that the same privileges that apply to defamation claims also apply to disparagement of title claims. Id. at 379, 295 P.2d 405. The court went on to hold that the privilege did not apply to the malicious prosecution claim. Id. at 382, 295 P.2d 405. The court explained its result as follows:

It may be noted at the outset that the fact that a communication may be absolutely privileged for the purposes of a defamation action does not prevent its being an element of an action for malicious prosecution in a proper case. The policy of encouraging free access to the courts that underlies the absolute privilege applicable in defamation actions is outweighed by the policy of affording redress for individual wrongs when the requirements of favorable termination, lack of probable cause, and malice are satisfied.

Id. UI infers from this language that the policy considerations underlying sections 47(b) and (d) are only outweighed when the claim asserted requires favorable termination. Fujitsu, on the other hand, points to the similarity between malicious prosecution claims and its counterclaims based on an allegedly baseless ITC proceeding.

Albertson simply does not stand for the broad proposition attributed to it by UI. Rather, Albertson provides little guidance under the circumstances here because the court in that case did not address whether the rationale that applies to malicious prosecution claims also applies to other claims based on lack of probable cause.

The Court declines to dismiss counterclaims Ten and Eleven.

6. Counterclaims Twelve and Thirteen (Abuse of Process)

Fujitsu alleges in Counterclaims Twelve and Thirteen that UI and Competitive "abused the process of the ITC" for improper purposes. Answer to Amended Complaint at ¶¶ 117, 122. In particular, Fujitsu alleges, UI and Competitive used the ITC proceeding to "obtain a quick settlement" and to take advantage of the ITC's "extraordinary powers" to obtain discovery to which it otherwise would not have been entitled. Id. at ¶¶ 117, 118, 122, 123, 295 P.2d 405.

UI and Competitive argue that Fujitsu's abuse of process claims fail because the state law tort of abuse of process applies only to judicial proceedings. They argue further that there is no claim for abuse of process involving an ITC proceeding under federal law and that such a claim is, in fact, preempted by federal law. Finally, they argue that even if abuse of process claims were available with respect to ITC proceedings, Fujitsu has not alleged any misuse of the proceeding and therefore has not stated a claim.

Fujitsu does not dispute that the tort of abuse of process applies only to judicial proceedings. Nor does Fujitsu present any authority suggesting that there is a federal common law claim for abuse of process in the ITC. Rather, Fujitsu argues that the actions of Competitive and UI before the ITC constituted abuse of the judicial process in the Illinois action. Fujitsu argues further that it has adequately alleged misuse of the judicial process. Fujitsu's arguments are unconvincing.

In order to prevail on a state law tort claim of abuse of process, a plaintiff must establish that a defendant misused "the machinery of the legal system" for an ulterior motive. ComputerExpress, Inc. v. Jackson, 93 Cal.App.4th 993, 1014, 113 Cal.Rptr.2d 625 (2001) (holding that plaintiff failed to establish probability of success under California's anti-SLAPP statute on abuse of process claim because plaintiff alleged misuse of administrative process of Federal Communications Commission rather than abuse of judicial process"). The process that is alleged to have been abused must be a judicial process, and courts have rejected claims based on administrative proceedings -- even quasi-administrative proceedings. Id.

Similarly, the Federal Circuit has held that an abuse of process claim cannot be "invoked as a remedy for inequitable or other unsavory conduct of parties to proceedings in the Patent and Trademark Office." Abott Labs. v. Brennan, 952 F.2d 1346, 1355 (Fed.Cir.1992). The court stated:

We conclude that the federal administrative process of examining and issuing patents, including proceedings before the PTO's boards, is not subject to collateral review in terms of the common law tort of abuse of process. The PTO procedures themselves provided a remedy for Abbott's malfeasance.... An additional state action would be an inappropriate collateral intrusion on the regulatory procedures of the PTO, "under the guise of a complaint sounding in tort", in the words of Gilbert v. Ben-Asher, 900 F.2d at 1411, and is contrary to Congress' preemptive regulation in the area of patent law.

Id. Thus, there appears to be no authority to support the existence of an abuse of process claim based on an ITC proceeding, either under state or federal law.

Fujitsu tries to get around the requirement that a judicial process must have been misused by arguing -- outside of the pleadings -- that the process that was allegedly misused was, in fact, not the ITC proceeding but the Illinois action.

First, Fujitsu argues that UI and Competitive misused the judicial process in the Illinois action by seeking discovery in the ITC action, with the goal of obtaining an advantage in the Illinois action. There is no authority that holds that an ulterior motive that relates to a judicial process is sufficient where the process that is alleged to have been abused is not judicial.

Nor is the Court persuaded by Fujitsu's additional argument that a judicial proceeding was abused because the United States District Court for the Central District of Illinois signed an order, dated May 8, 2001, authorizing depositions to be taken in Japan. See Exh. O to Declaration of James Oliva in Support of Counterclaimants' Opposition. Fujitsu represented at oral argument that this order, although ostensibly part of the Illinois action, was issued in connection with the ITC proceeding and therefore, that its abuse of process claims involved a judicial proceeding. This argument fails for at least two reasons. First, even if the order was issued in connection with the ITC proceeding rather than as part of discovery in the Illinois action, it is collateral to the ITC proceeding, which remains an administrative proceeding. Second, there is nothing in the record before the Court indicating that the May 8, 2001 order was, in fact, issued as part of the ITC proceeding. In short, regardless of whether the order was or was not issued in connection with the ITC proceeding, it does not save Fujitsu's counterclaims for abuse of process, which are, as alleged, based on abuse of an administrative rather than a judicial proceeding

Counterclaims Twelve and Thirteen are dismissed with prejudice.

E. California Anti-SLAPP Law

UI and Competitive argue that even if the Court rejects its other arguments relating to Counterclaims Ten through Thirteen, those claims are subject to California's anti-SLAPP law, Cal.Civ.Proc.Code § 425.16. That law provides as follows:

A cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States or California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.

Cal. Civ. Proc. § 425.16(b)(1). The law covers:

(1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law; (2) any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law; (3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest; (4) or any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.

Cal. Civ. Proc. § 425.16(e). Fujitsu, however, argues that California's anti-SLAPP law does not apply to its counterclaims at all. The Court agrees.

To determine whether or not California privilege law applies to Fujitsu's counterclaims, the Court must engage in a choice of law analysis. In diversity cases, the choice of law rules of the state in which the court sits are applied. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Similarly, in federal question cases where the court is exercising supplemental jurisdiction over state law claims, the federal court applies the choice of law rules of the forum state to those state law claims. Paracor Finance, Inc. v. General Electric Capital Corp., 96 F.3d 1151, 1164 (9th Cir.1996). In transferred cases, however, the choice of law rules that are applied depend upon the nature of the transfer. In particular, where a case is transferred under 28 U.S.C. § 1406, the choice of law rules of the transferee court -- here, California -- are applied. Nelson v. International Paint Co., 716 F.2d 640, 643 (9th Cir.1983). On the other hand, where a case is transferred pursuant to 28 U.S.C. § 1404(a), the choice of law rules that would have been applied by the transferor court -- here, Illinois -- are applied. Ferens v. John Deere Co., 494 U.S. 516, 525, 110 S.Ct. 1274, 108 L.Ed.2d 443 (1990). The latter rule applies not only to the transferred claims but also to any counterclaims, even if the counterclaims are asserted after the case has been transferred. See Depuy Inc. v. Biomedical Eng'g Trust, 216 F.Supp.2d 358, 382 (D.N.J.2001) (holding that where case was transferred under § 1404(a), counterclaims were governed by law of transferor court).

Here, the court in the Illinois action stated that it was transferring the action under § 1404(a), or, in the alternative, under § 1406. See Order dated April 2, 2002. Thus, Fujitsu argues that the case was transferred under § 1404(a), while UI and Competitive argue that the case was transferred under § 1406. The Court need not resolve this issue at this stage of the proceeding, however, because the Court concludes that regardless of whether California or Illinois choice of law rules are applied, California privilege law does not apply.

Illinois follows the most significant relationship test for tort claims. Esser v. McIntyre, 169 Ill.2d 292, 297, 214 Ill.Dec. 693, 661 N.E.2d 1138 (1996). The court in Esser described this test as follows:

Under this test, the law of the place of injury controls unless [another state] has a more significant relationship with the occurrence and with the parties.... When applying the most significant relationship test, a court should consider (1) where the injury occurred; (2) where the injury-causing conduct occurred; (3) the domicile of the parties; and (4) where the relationship of the parties is centered. The court must look at the contacts of the jurisdictions under these four factors and then evaluate those contacts in light of the policies underlying the laws of those jurisdictions.

Id. Thus, it is presumed that the law of the state where the injury occurred controls unless it is shown that another state has a more significant relationship to the occurrence or the parties. Id.

Applying this rule, many courts have held that abuse of process and malicious prosecution claims are governed by the law of the state where the proceeding complained of occurred. See, e.g., In re American Cont'l Corp./Lincoln Savings & Loan Sec. Litig., 845 F.Supp. 1377, 1383 (D.Ariz.1993) (applying Illinois choice of law rules and holding that abuse of process and malicious prosecution claims were governed by Arizona law because proceeding complained of occurred in Arizona); see also Restatement (Second) of Conflict of Law § 155 (providing that "[t]herights and liabilities of the parties for malicious prosecution or abuse of process are determined by the local law of the state where the proceeding complained of occurred, unless, with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6...."). Here, the law of the District of Columbia -- where the ITC proceeding occurred -- should be applied to Counterclaims Ten through Thirteen unless another state has a more significant relationship to the parties or occurrences.

UI argues, though, that California has a more significant relationship when the approach of depecage is used, as is required under Illinois choice of law rules. Under that approach, "the court must identify each issue raised in the case and then determine the controlling law on an issue-by-issue basis." Global Relief Found. v. New York Times Co., 2002 U.S. Dist. LEXIS 1708 (N . D. Ill.2002). UI argues that while the counterclaims themselves may be governed by the law of the District of Columbia, any privileges should be based on California law because California has a more significant interest with respect to privilege. UI relies on Global Relief Foundation.

In Global Relief, an Illinois charity filed defamation claims against numerous newspapers, including the San Francisco Chronicle. Id. at * 11. The Chronicle asserted that the conduct at issue was privileged under California's anti-SLAPP statute. Id. at *30. Applying Illinois choice of law rules, the court held that the defamation claims were governed by Illinois law, because the plaintiff was injured in Illinois. Id. at * 32. The court went on to address choice of law with respect to the anti-SLAPP privilege, noting that "the issue of whether a statement is defamatory or invades the right to privacy is distinct from whether that statement is privileged." Id. The court held that the anti-SLAPP statute applied on the basis that "California has a great interest in determining how much protection to give California speakers such as the Chronicle." Id. The court relied in part on the Restatement (Second) of Conflicts, § 145 comment d, which states that "the local law of the state where the parties are domiciled, rather than the local law of the state of conflict and injury, may be applied to determine whether one party is immune from tort liability to the other." Id.

UI argues that in this case, as in Global Relief, California has a significant interest in having its privilege applied because the "the SLAPP -- the strategic lawsuit against public policy -- is taking place within the borders of California." Reply at 31. This argument is unconvincing. Here, in contrast to the facts in Global Relief, the speakers who seek protection under California's anti-SLAPP statute are entities that have little relationship to California and certainly cannot be characterized as "California speakers." Further, to the extent Global Relief relies on the comment to the Restatement quoted above, the holding in Global Relief points to application of either Illinois law (where UI is domiciled), Delaware law (where Competitive is incorporated), or Connecticut law (where Competitive has its principal place of business). There is no authority suggesting that under Illinois choice of law rules, California would have a more significant interest, or indeed, any interest, in having its law applied to non-California speakers whose actions were taken in a proceeding in the District of Columbia.

Similarly, if California choice of law rules are applied, the anti-SLAPP statute does not apply to Fujitsu's counterclaims. California follows the governmental interest approach to choice of law. Hurtado v. Superior Court, 11 Cal.3d 574, 579, 114 Cal.Rptr. 106, 522 P.2d 666 (1974). Under that approach, the court must analyze "the respective interests of the states involved ... the objective of which is 'to determine the law that most appropriately applies to the issue involved.'" Id. (quoting Reich v. Purcell, 67 Cal.2d 551, 554, 63 Cal.Rptr. 31, 432 P.2d 727 (1967)). [FN 23] In Hurtado, the court addressed whether or not a Mexican law limiting damages could be applied to tort claims filed by Mexican citizens against California residents based on an injury that occurred in California. Id. at 578, 114 Cal.Rptr. 106, 522 P.2d 666. The court concluded that the Mexican law did not apply because Mexico had no interest in having its law applied under the facts of the case. Id . at 580-581, 114 Cal.Rptr. 106, 522 P.2d 666. The court explained its conclusion as follows:

The interest of a state in a tort rule limiting damages for wrongful death is to protect defendants from excessive financial burdens or exaggerated claims.... [T]his interest to avoid the imposition of excessive financial burdens on (defendants) ... is also primarily local; that is, a state by enacting a limitation on damages is seeking to protect its residents from the imposition of these excessive financial burdens.... Since it is the plaintiffs and not the defendants who are the Mexican residents in this case, Mexico has no interest in applying its limitation of damages -- has no defendant residents to protect and has no interest in denying full recovery to its residents injured by non-Mexican defendants.

Id. at 581, 114 Cal.Rptr. 106, 522 P.2d 666 (quotations and citations omitted).

[FN 23] Under any choice of law rules, it must first be determined that there is a "true conflict." See Hurtado, 11 Cal.3d at 579, 114 Cal.Rptr. 106, 522 P.2d 666. Here, the parties do not dispute that there is such a conflict because California's anti-SLAPP statute provides broader protection than do the laws of any of the states whose law might be applied.

Following Hurtado, the court in Block v. First Blood Assoc., 691 F.Supp. 685 (S.D.N.Y.1988), reached a similar result. There, the court addressed whether the privilege under Cal. Civ.Code § 47 applied to defamation claims in an action that was filed in California and transferred to New York under § 1404(a), where the allegedly defamatory statements were made in a proceeding in New York. Id. at 687. The court applied California choice of law rules. Id. at 697. The court concluded that California privilege law did not apply, explaining its result as follows:

Under the circumstances here, New York, but not California, has an interest in applying its laws to the privilege issue. The fulcrum of a privilege defense is the scope of protection to be afforded under a state's substantive law to otherwise defamatory publications; the purpose of a common law or statutory privilege is the regulation of defamatory conduct that occurs within a state's borders. In this action, New York has a compelling interest in policing tortious conduct committed in New York, by a New York attorney, with reference to future or pending litigation in New York.

Id.

Here, as in Block and Hurtado, California appears to have no governmental interest in having its law applied. In particular, neither UI nor Competitive are California residents. Nor did the tortious conduct or injury occur in California. In fact, the only connection with California appears to be Fujitsu's activities in Northern California. Thus, as the court held in Hurtado, because it is the plaintiffs rather than the defendants who reside in California, California has no governmental interest in having its privilege applied to Counterclaims Ten through Thirteen.

Because the Court finds the anti-SLAPP statute does not apply, Fujitsu's conditional cross-motion is moot.

F. Fifth Counterclaim, Tenth Affirmative Defense and Aptix

UI asserts that Fujitsu's Fifth Counterclaim (now pending against UI only) and Tenth Affirmative Defense are barred under the Federal Circuit's decision in Aptix Corp. v. Quickturn Design Systems, Inc. ., 269 F.3d 1369 (Fed.Cir.2001). In its Fifth Counterclaim. Fujitsu seeks a declaration of unenforceability with respect to both the '349 and '400 Patents. Amended Answer at ¶ 77. In particular, Fujitsu alleges that "[t]he actions, schemes, conduct, and specific intent alleged above constitute patent misuse for which equitable principles require that the patents at issue be declared unenforceable by Counterdefendants against any party." Id. In its Tenth Affirmative Defense, for Inequitable Conduct, Fujitsu alleges that "[t]he patents at issue are unenforceable due to Plaintiffs' inequitable conduct." Amended Answer at ¶ 29. Fujitsu asserts that the decision in Aptix does not bar its Tenth Affirmative Defense or its Fifth Counterclaim.

The Court concludes that under Aptix, Fujitsu's Tenth Affirmative Defense must be stricken. Further, Fujitsu's Fifth Counterclaim must be dismissed to the extent that it seeks a declaration that the '349 and '400 Patents are unenforceable as to entities other than UI, in other actions. On the other hand, to the extent Fujitsu's Fifth Counterclaim seeks to render the '349 and '400 Patents unenforceable as to UI in this action, the counterclaim is not barred under Aptix and survives UI's motion to dismiss.

In Aptix, a patent infringement action was brought by the owner of the patent, Aptix Corporation, and a licensee, Meta Systems. 269 F.3d at 1372. During discovery, Aptix produced a notebook that the court concluded was fabricated. Id. at 1373. As a result, the court declared the patent unenforceable under the doctrine of unclean hands and dismissed the claims of both Aptix and Meta Systems. Id. at 1371. On appeal, the Federal Circuit affirmed the dismissal of Aptix on the basis of unclean hands. Id. It also affirmed the dismissal of Meta Systems because, as a nonexclusive licensee, Meta Systems did not have standing to prosecute the patent infringement claims on its own. Id. However, the Federal Circuit vacated the district court's judgment to the extent that it declared the patent unenforceable. Id.

In reaching the conclusion that the patent should not have been declared unenforceable, the Federal Circuit drew a distinction between "inequitable conduct" before the PTO -- which taints the property right at issue -- and litigation misconduct, which results in "unclean hands." Id. at 1375. The court held that in the former situation, a patent could be declared "unenforceable" whereas in the latter situation, courts have only held that the "malfeasant who committed the misconduct" should be denied relief. Id. The court stated:

Thus, the remedies for litigation misconduct differ from the remedies for misconduct in acquisition of a property right. While inequitable conduct before the PTO renders the patent unenforceable by any party, the unclean hands doctrine bars only the offending party.... Moreover, a finding of unclean hands generally does not prejudice the offending party in subsequent cases, but only provides a bar to relief in the case at hand.

Id.

In its Tenth Affirmative Defense, Fujitsu has alleged inequitable conduct based the allegations in its counterclaims. However, the allegations in Fujitsu's counterclaims do not include any allegations of misconduct before the PTO. Moreover, at oral argument Fujitsu conceded that at this stage in the litigation, it cannot, consistent with Fed.R.Civ.P. 11, allege that there has been misconduct before the PTO. Therefore, under Aptix, Fujitsu's Tenth Affirmative Defense is legally "insufficient" and should be stricken. See Fed.R.Civ.P. 12(f).

In its Fifth Counterclaim, Fujitsu alleges patent misuse and seeks a declaration of unenforceability of the '349 and '400 patents by UI against any party. The Federal Circuit has held that a finding of patent misuse -- which is a type of unclean hands -- "renders the patent unenforceable until the misuse is purged." See C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1372 (1998). Aptix makes clear, however, that the equitable remedy of unenforceability for unclean hands extends only to the party found to have committed the wrongful acts and to the action in which the unclean hands defense was raised. Thus, to the extent that Fujitsu seeks a broader remedy under its patent misuse counterclaim, that claim must be dismissed. On the other hand, to the extent that Fujitsu seeks a declaration of unenforceability as to UI's claims against Fujitsu in this action based on patent misuse, Fujitsu's Fifth Counterclaim is not barred by Aptix and survives UI's motion to dismiss. [FN 24]

[FN 24] The Court declines to address UI's assertion that Fujitsu's factual allegations do not support its counterclaim for patent misuse as this argument was made for the first time in UI's Reply brief.

IV. CONCLUSION

For the reasons stated above, UI's Motion and Competitive's Motion are GRANTED in Part and DENIED in part. Fujitsu's Conditional Cross-Motion is DENIED as moot.

IT IS SO ORDERED.