Case 2:23-cv-00640-RGK-MAR Document 35 Filed 09/13/23 Page 1 of 7 Page ID #:232

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. Date September 13, 2023
2:23-cv-00640-RGK-MAR
Title Covves, LLC v. Target Corporation et al

Present: The Honorable R. GARY KLAUSNER, UNITED STATES DISTRICT JUDGE

Joseph Remigio Not Reported N/A
Deputy Clerk Court Reporter / Recorder Tape No.
Attorneys Present for Plaintiff: Attorneys Present for Defendants:

Not Present Not Present

(IN CHAMBERS) Order Re: Plaintiff’s Motion for Judgment on the
Proceedings:
Pleadings (DE 28)

I. INTRODUCTION

Covves, LLC (“Plaintiff”) is the owner of several design patents for unicorn-shaped
inflatables. These designs include U.S. Patent No. D787,617 (the “’617 Patent”) for an inflatable
unicorn-shaped pool float, and U.S. Patent No. D783,370 (the “’370 Patent”) for an inflatable
unicorn-shaped beverage holder (collectively, the “Patents-in-Suit”).

On January 27, 2023, Plaintiff filed a Complaint against Target Corporation (“Target”)
and Target Brands, Inc. (“Target Brands”) (collectively, “Defendants”) alleging infringement of
the Patents-in-Suit. (ECF No. 1.) In response, Defendants filed an Answer including, among
other affirmative defenses, challenges to the validity of the Patents-in-Suit. (ECF No. 16.)

Presently before the Court is Plaintiff’s Motion for Judgment on the Pleadings pursuant to
Federal Rule of Civil Procedure 12(c). Plaintiff seeks dismissal of Defendants’ fifth and seventh
affirmative defenses challenging the validity of the Patents-in-Suit, arguing that Defendants are
barred from relitigating patent validity under collateral estoppel. For the following reasons, the
Court GRANTS the Motion.

II. FACTUAL BACKGROUND

Plaintiff sells unicorn-shaped pool toys, the designs of which are protected under the
Patents-in-Suit. (Compl. ¶¶ 11–14.) In 2017, Defendants and other popular retailers began selling
allegedly infringing pool toys. (Id. ¶ 23.) As a result, on October 3, 2018, Plaintiff filed a
complaint for design patent infringement against multiple defendants, including Target Brands

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Case 2:23-cv-00640-RGK-MAR Document 35 Filed 09/13/23 Page 2 of 7 Page ID #:233

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. Date September 13, 2023
2:23-cv-00640-RGK-MAR
Title Covves, LLC v. Target Corporation et al

and BigMouth, Inc. (“BigMouth”), the manufacturer of Defendants’ pool toys. Covves, LLC v.
Dillard’s, Inc., No. 2:18-CV-08518-RGK-AFM (C.D. Cal. Dec. 20, 2019) (“Covves I”). Covves I
came to a head on December 20, 2019 when the Court granted summary judgment in favor of
Plaintiff as to the validity of the Patents-in-Suit.

Afterward, in January 2020, the parties reached a settlement agreement. Under the terms
of the settlement, BigMouth indemnified Target Brands and was thus responsible for making
settlement payments to Plaintiff on Target Brands’ behalf. (Pl.’s Mot. at 1.) Shortly thereafter,
BigMouth failed to make payments. (Id.) Plaintiff subsequently filed the present action against
Defendants, pursuant to the terms of the settlement.

III. JUDICIAL STANDARD

A motion for judgment on the pleadings under Federal Rule of Civil Procedure (“Rule”)
12(c) is “functionally identical” to a motion to dismiss for failure to state a claim under Rule
12(b)(6). Dworkin v. Hustler Mag., Inc., 867 F.2d 1188, 1192 (9th Cir. 1989). The same judicial
standard applies to motions brought under either rule. Cafasso v. Gen. Dynamics C4 Sys., Inc.,
637 F.3d 1047, 1054 n.4 (9th Cir. 2011). The only significant difference is that a Rule 12(c)
motion is brought after an answer has been filed, but early enough not to delay trial, whereas a
Rule 12(b)(6) motion must be filed before an answer. Fed. R. Civ. P. 12(b)–(c).

In ruling on a Rule 12(c) motion, the Court must assume that the allegations in the
challenged pleading are true and construe the pleading in the light most favorable to the non-
moving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337–38 (9th Cir. 1996). However, the
Court need not accept conclusory legal allegations as true. Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009).

A motion for judgment on the pleadings is “properly granted when, taking all the
allegations in the pleadings as true, the moving party is entitled to judgment as a matter of law.”
Nelson v. City of Irvine, 143 F.3d 1196, 1200 (9th Cir. 1998). Judgment is “appropriate only
where the [challenged pleading] lacks a cognizable legal theory or sufficient facts to support a
cognizable legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th
Cir. 2008).

IV. DISCUSSION

Plaintiff moves for judgment on the pleadings on the issue of patent validity. Plaintiff
argues that Defendants’ affirmative defenses challenging the validity of the Patents-in-Suit

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. Date September 13, 2023
2:23-cv-00640-RGK-MAR
Title Covves, LLC v. Target Corporation et al

should be dismissed because the Court’s order granting summary judgment in Covves I bars
Defendants from relitigating the issue. Defendants argue that judgment on the pleadings is
procedurally improper and that collateral estoppel does not apply. The Court addresses each
argument in turn.

A. Whether Judgment on the Pleadings is Procedurally Proper

Plaintiff argues that a motion for judgment on the pleadings of patent validity is
procedurally proper either as a dismissal of Defendants’ affirmative defenses or as a judgment on
part of Plaintiff’s infringement claims. Defendants argue that neither basis is proper. The Court
agrees with Plaintiff.

Courts routinely grant motions for judgment on the pleadings to dismiss an affirmative
defense. See, e.g., Fed. Election Comm’n v. Adams, 558 F. Supp. 2d 982, 990 (C.D. Cal. 2008);
Kaseberg v. Conaco, LLC, 360 F. Supp. 3d 1026, 1039 (S.D. Cal. 2018). Similarly, courts also
routinely grant judgment on part of a claim. See, e.g., Dr. Seuss Enters., L.P. v. ComicMix LLC,
983 F.3d 443 (9th Cir. 2020); Satvati v. Allstate Northbrook Indem. Co., 634 F. Supp. 3d 792
(C.D. Cal. 2022); Benn v. Allstate Ins. Co., 569 F. Supp. 3d 1029 (C.D. Cal. 2021). Here,
Plaintiff seeks judgment on the pleadings either to dismiss Defendants’ affirmative defenses or to
establish the validity element of its infringement claims. Whichever way this request is
characterized, Plaintiff’s Motion is procedurally proper. Accordingly, The Court proceeds to
discuss the merits of the Motion.

B. Whether Collateral Estoppel Bars Relitigating

Plaintiff argues that Defendants are barred from relitigating the issue of the validity of the
Patents-in-Suit because they are collaterally estopped by the Court’s grant of partial summary
judgment on the issue in Covves I. Defendants argue that they are not collaterally estopped
because they were not a party or in privy with a party in Covves I. The Court agrees with
Plaintiff.

Collateral estoppel, also known as issue preclusion, prevents a party from having to re-
litigate issues that have been fully and fairly tried in a previous action and adversely resolved
against a party-opponent. Ohio Willow Wood Co. v. Alps S., LLC, 735 F.3d 1333, 1342 (Fed. Cir.
2013). In a patent case, the law of the regional circuit determines “the general procedural
question of whether issue preclusion applies” while the Federal Circuit’s precedent governs
“questions involving substantive issues of patent law.” Soverain Software LLC v. Victoria’s
Secret Direct Brand Mgmt., LLC, 778 F.3d 1311, 1314 (Fed. Cir. 2015).

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. Date September 13, 2023
2:23-cv-00640-RGK-MAR
Title Covves, LLC v. Target Corporation et al

The Ninth Circuit has held that collateral estoppel applies where “(1) the issue
necessarily decided at the previous proceeding is identical to the one which is sought to be
relitigated; (2) the first proceeding ended with a final judgment on the merits; and (3) the party
against whom collateral estoppel is asserted was a party or in privity with a party at the first
proceeding.” Hydranautics v. FilmTec Corp., 204 F.3d 880, 885 (9th Cir. 2000). The Court
addresses each element in turn.

1. Identical Issue

The first element of collateral estoppel requires that the issue decided in previous
proceedings be identical to the issue presently before the court. The issue presently before the
Court is the validity of the Patents-in-Suit. This issue was previously raised before the Court in
Covves I and resolved when the Court granted Plaintiff’s partial motion for summary judgment
on the grounds that the Patents-in-Suit were valid. Defendants do not dispute this. Therefore, the
issue of patent validity raised in Covves I is identical to the issue that is sought to be relitigated
and the first element of collateral estoppel is satisfied.

2. Final Judgment on the Merits

The second element of collateral estoppel requires that the previously litigated issue
ended on a final judgment on the merits. A final judgment on the merits “precludes the parties or
their privies from relitigating issues that were or could have been raised in that action.” Roche
Palo Alto LLC v. Apotex, Inc., 526 F. Supp. 2d 985, 997 (N.D. Cal. 2007) (quoting Federated
Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981)). A final judgment “can be any prior
adjudication of an issue in another action that is determined to be ‘sufficiently firm’ to be
accorded conclusive effect.” Alzheimer’s Inst. of Am. v. Eli Lilly & Co., 128 F. Supp. 3d 1249,
1254 (N.D. Cal. 2015) (quoting Luben Indus., Inc. v. United States, 707 F.2d 1037, 1040 (9th
Cir.1983)). Courts have found that a disposition by summary judgment is a final decision on the
merits. See Jackson v. Hayakawa, 605 F.2d 1121, 1125 (9th Cir. 1979) (noting that summary
judgment is a final judgment on the merits for preclusion purposes); see also Sec. People, Inc. v.
Medeco Sec. Locks, Inc., 59 F. Supp. 2d 1040, 1045 (N.D. Cal. 1999), aff’d, 243 F.3d 555 (Fed.
Cir. 2000). Here, the Court in Covves I granted partial summary judgment in favor of Plaintiff on
the issue of the validity of the Patents-in-Suit. Defendants do not dispute this element. Thus, the
Court’s prior summary judgment is a final judgment on the merits and the second element of
collateral estoppel is satisfied.

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. Date September 13, 2023
2:23-cv-00640-RGK-MAR
Title Covves, LLC v. Target Corporation et al

3. Privity

The final element of collateral estoppel requires that the party against whom collateral
estoppel is asserted was a party to the first proceeding or in privity with a party to the first
proceeding. There are two defendants in the present action: Target and Target Brands. Target
Brands was a named defendant in Covves I, but Target was not. Plaintiff argues that collateral
estoppel is still applicable to Target because they are in privity with Target Brands as its parent
company. The Court agrees.

Parent companies added to a case regarding its subsidiaries are “precluded from re-
litigating issues when the two companies are in privity with one another. The parent company
and its subsidiary [are] ‘in privity’ when the subsidiary is wholly owned and there is not a legally
distinct basis for recovery against each entity.” Cryptography Rsch. Inc. v. Visa Int’l Serv.
Assoc., 2008 WL 11452580, at *2 (N.D. Cal. May 8, 2008) (citing Mars Inc. v. Nippon Conlux
Kabushiki-Kaisha, 58 F.3d 616, 619 (Fed. Cir. 1995)). Further, “privity may exist if there is
‘substantial identity’ between parties, that is, when there is sufficient commonality of interest.”
Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Plan. Agency, 322 F.3d 1064, 1081 (9th Cir.
2003). The Ninth Circuit has found privity in circumstances where a parent company exercises
day-to-day control over its subsidiary counterpart. In re Gottheiner, 703 F.2d 1136, 1139 (9th
Cir. 1983).

Here, Target Brands is a subsidiary of Target. (Pl.’s Reply at 4, ECF No. 33.) While a
parent-subsidiary relationship alone is not sufficient to establish privity, Target exercises some
level of control over Target Brands and there is sufficient commonality of interest between the
companies to establish privity. First, both Defendants share the same address at 1000 Nicollet
Mall, Minneapolis, MN 55403. (Pl.’s Mot. ¶¶ 2–3.) Second, although Plaintiff sued Target
Brands in Covves I, Target answered, stating that it “ha[d] been misnamed in this suit,” and
accordingly signed documents as Target Corporation rather than as Target Brands. Defs.’
Answer to Second Am. Compl. ¶ 5, Covves I, ECF No. 101. This demonstrates that Target
exercises sufficient control over Target Brands and that both companies share common interests.
Therefore, there are sufficient facts to conclude that Target is in privity with Target Brands and
the third element of collateral estoppel is satisfied.

4. Applicability to Patent Validity

As a last resort, Defendants argue that collateral estoppel on the issue of patent validity is
improper because validity may turn on factual issues that should not be resolved at the pleading
stage. Defendants argue that as a matter of fairness, they should be allowed the opportunity to

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. Date September 13, 2023
2:23-cv-00640-RGK-MAR
Title Covves, LLC v. Target Corporation et al

develop facts on the issue because they did not have an opportunity to do so in Covves I. This
argument is flawed for two reasons. First, patent validity is a question of law, not a question of
fact. Though there may be factual issues underpinning a determination of validity, validity is
routinely decided on at the pleading stage when resolution of those factual issues is unnecessary.
See, e.g., Apollo Fin., LLC v. Cisco Sys., Inc., 190 F. Supp. 3d 939, 947 (C.D. Cal. 2016)
(granting motion to dismiss on the basis that the asserted patent was invalid); Whitepages, Inc. v.
Isaacs, 196 F. Supp. 3d 1128, 1129 (N.D. Cal. 2016) (granting motion for judgment on the
pleadings, dismissing infringement claims on the basis that the asserted patent was invalid).
Second, as established above, Target and Target Brands share a commonality of interest and are
in privity with each other. Defendants had ample opportunity to develop facts related to patent
validity in Covves I given that they were able to argue the issue on summary judgment, after the
close of discovery. The fact that this issue has arisen in a separate case does not entitle
Defendants to a second bite at the apple.

In conclusion, all three elements of collateral estoppel have been satisfied, therefore
Defendants are collaterally estopped from asserting the invalidity of Plaintiff’s Patents-in-Suit.

C. Whether Leave to Amend Should be Given

Defendants request leave to amend their Answer should the Court grant Plaintiff’s
Motion. The Court find that leave to amend is unwarranted.

Rule 15(a)(2) allows a party to amend its pleading with the court’s leave. Fed. R. Civ. P.
15(a)(2). This policy should be applied with “extreme liberality.” Morongo Band of Mission
Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990). “A district court abuses its discretion by
denying leave to amend unless amendment would be futile or the plaintiff has failed to cure the
complaint's deficiencies despite repeated opportunities.” AE ex rel. Hernandez v. Cty. of Tulare,
666 F.3d 631, 637 (9th Cir. 2012). The Supreme Court has held that “undue delay, bad faith or
dilatory motive on part of movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to opposing party by virtue of allowance of amendment, and
futility of amendment” are sufficient reasons for a district court to deny leave. Foman v. Davis,
371 U.S. 178, 182 (1962).

Here, there is nothing that Defendants could add to their Answer that would merit leave
to amend. Because judgment on the pleadings is procedurally proper, and Defendants concede
that the first two elements of collateral estoppel are met, the only way Defendants could preserve
their invalidity defenses would be by demonstrating that the third element of collateral estoppel
is not met because Target and Target Brands are not in privity with each other. However, given

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. Date September 13, 2023
2:23-cv-00640-RGK-MAR
Title Covves, LLC v. Target Corporation et al

the discussion above, likely no facts can rebut the conclusion that the two are in privity. Thus,
amendment would be futile.

Accordingly, the Court GRANTS Plaintiff’s Motion for Judgment on the Pleadings and
DENIES Defendants’ request for leave to amend.

V. CONCLUSION

For the foregoing reasons, the Court GRANTS Plaintiff’s Motion for Judgment on
Pleadings. Accordingly, the Court DISMISSES Defendants’ fifth and seventh affirmative
defenses challenging the validity of the Patents-in-Suit without leave to amend.

IT IS SO ORDERED.

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