IP Law Daily, TRADE SECRETS—N.D. Ill.: Ultrasound service company sees most of its counterclaims against manufacturing giant Philips vanish, (Sep 20, 2024)

By Wendy Biddle, J.D.

Declarations that say the opposite of claims in the complaint are troublesome and confusing for juries, not to mention duplicative.

An independent ultrasound repair company saw its antitrust counterclaims against Philips dismissed. Philips accused the service company of hacking its proprietary software and stealing its intellectual property and the service company had countered that the manufacturer had engaged in monopolistic behavior and tried to eliminate the competition in the service market. The federal district court in Chicago ruled that the service company failed to show how Philips’ behavior violated antitrust laws and that a majority of its counterclaims were duplicative of the claims in the complaint. The court also declined to allow copyright misuse as an independent cause of action, stating that it is already recognized as an affirmative defense and can be moved forward that way instead of as an independent claim. The court did allow five counterclaims to move forward, including tortious interference and Illinois Uniform Deceptive Trade Practices Act claims (Philips North America LLC v. Global Medical Imaging, LLC, No. 1:21-cv-03615 (N.D. Ill. Sept. 19, 2024)).

Background. Philips is the leading manufacturer of ultrasound machines. It developed proprietary software to run the machines and provide the licensed features the customer pays for. Customers pay for the features they want, and Philips enables those features through its software, so customers only get what they pay for. When the machines need repair, Philips offers repair services. The machines require an electronic “key” to service, and Philips keeps the keys for itself.

Global Medical Imaging (GMI) is an independent service organization that services ultrasound machines, as well as other medical equipment.

Philips accused GMI of hacking its ultrasound machines and enabling unlicensed software features on the machines. Philips also accused GMI of selling the modified machines. Philips also accused GMI of illegally developing a counterfeit key generator that allows third parties to unlock Philips’ software.

Philips filed a suit against GMI for claims of copyright infringement, trade secrets misappropriation, and unfair competition. GMI moved to dismiss, but was denied.

GMI then answered the complaint and asserted 14 counterclaims. GMI accused Philips of locking out service providers; refusing to deal and providing the key for service; manipulating the market for used parts by offering premium prices to reduce the supply of used parts; using litigation to retain its dominance; and interfering with GMI’s relationship with its customer, Beaumont Hospital. GMI also sought declarations that it did not violate the Digital Millennium Copyright Act; did not violate the Computer Fraud and Abuse Act; that Philips misused its copyrights; and that GMI did not violate the Defend Trade Secrets Act/Illinois Trade Secrets Act.

Philips moved to dismiss each counterclaim.

Antitrust counterclaims. GMI argued that Philips violated antitrust law by use of their proprietary software that cannot be accessed in order to service the machines; refusal to deal; the “essential facility” argument Philips’ software is an essential facility and refusing to provide service providers access is monopolistic; artificially repressing trade-in values; and using litigation as a weapon. Philips argued that the claims should be dismissed because GMI did not allege that Philips engaged in anticompetitive conduct.

The court noted that GMI did not defend any of its allegations individually, but merely implied that each of Philips’ activities on its own might pass muster under antitrust laws, and collectively they support a monopolization claim. But GMI failed to explain why the collective or aggregate conduct violates antitrust law. So GMI did not tell the court how the individual allegations may violate antitrust law or how the aggregate conduct violates antitrust law. The court therefore concluded that GMI failed to demonstrate why any of the actions, separately or collectively, violated antitrust laws. The court granted the motion to dismiss the antitrust counterclaims.

Duplicative counterclaims. Five counterclaims sought a declaratory judgment. Philips moved to dismiss those claims as duplicative of the claims in the complaint. The court harshly criticized GMI for its duplicative claims, stating that “claims and counterclaims that cover the same ground are a recipe for double trouble” and are confusing to juries because they ask juries the same question, said another way, twice. Not only would that be confusing, stated the court, it is more work for the court and potentially a jury, and the duplicative claims serve no purpose.

The court dismissed all five of the duplicative declaratory judgment claims: the violation of the Digital Millennium Copyright Act; the violation of the Computer Fraud and Abuse Act; the violations of the Defend Trade Secrets Act and the violation of the Illinois Trade Secrets Act. The court also dismissed the attorneys’ fees claim under the Defend Trade Secrets Act and Illinois Trade Secrets Act as duplicative and unnecessary to recover fees under the statutes, since those claims are already in the complaint.

Copyright counterclaim. Philips also argued that the copyright counterclaim should be dismissed as redundant. GMI sought a declaration that the Philips copyrights were unenforceable due to misuse. The court found that the counterclaim overlaps with GMI’s affirmative defense of copyright misuse. The court noted that the Seventh Circuit appears to have recognized the affirmative defense, although not explicitly. But an affirmative defense is not the same as a standalone claim, and courts are divided on whether copyright misuse is an independent cause of action.

The court declined to separately litigate the copyright misuse counterclaim, when GMI’s affirmative defense “would move the ball forward.” The court dismissed the copyright counterclaim.

Remaining counterclaims. Philips also asked the court to dismiss the remaining counterclaims, stating in a footnote that GMI failed to plead sufficient facts to state a plausible claim. Because Philips’ arguments were conclusory and perfunctory, the court denied dismissal of the remaining five counterclaims for a declaration that GMI acted within the scope of Philips’ license agreements; tortious interference with contract; tortious interference with prospective economic advantage; violation of the Illinois Uniform Deceptive Trade Practices Act; and unfair competition.

The Case is No. 1:21-cv-03615.

Judge: Seeger, S.

Attorneys: Carla M. Wirtschafter (Reed Smith LLP) for Philips North America LLC. David Richard Metzger (Dentons US LLP) for Global Medical Imaging, LLC.

Companies: Philips North America LLC; Global Medical Imaging, LLC

Cases: Copyright TechnologyInternet TradeSecrets IllinoisNews