Federal Court Finds Allegations of "Bad Faith" in Sprinkler License Agreements to be "Vox Clamantis in Deserto"


On March 22, 2011, the United States District Court for the Northern District of California entered an order granting defendants The Toro Company's ("Toro") motion to dismiss plaintiff Digital Sun's ("Digital") monopolization, unfair competition and fraud claims pursuant to FRCP 12(b)(6). Digital Sun v. The Toro Company, Case No. 10-CV-4567-LHK (N.D. Cal. 3/22/11). United States District Judge Lucy H. Koh granted the motion without oral argument, and dismissed all of the allegations, but with leave to amend. In so doing, she held that the complaint was bereft of any plausible allegation that would support a claim under Section 2 of the Sherman Act. The execution of an exclusive and a non-exclusive patent license for various fields of use do not raise antitrust concerns where one alleged monopolist is simply substituted for another. As such, the complaint can be currently described as a "dry hole".

Digital developed a wireless sprinkler system that utilizes wireless sensors to activate a watering system based upon the dampness of the soil, thus improving efficiency and reducing water waste. Digital applied for and was granted patents in this technology. Defendant Toro was a leading provider of turf, landscape and irrigation equipment. It contacted Digital, and entered into negotiations to acquire it. During negotiations, Toro made a loan to Digital. A letter of intent provided that if Toro did not purchase Digital, the loans would be repaid at a set future date. Toro subsequently terminated negotiations.

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