AllCells, LLC v. Jack Zhai et al

Filing 102

ORDER by Judge Edward M. Chen Denying 47 Defendants' Motion to Dismiss. (emcsec, COURT STAFF) (Filed on 3/27/2017)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 ALLCELLS, LLC, Plaintiff, 8 ORDER DENYING DEFENDANTS’ MOTION TO DISMISS 9 v. 10 JACK ZHAI, et al., Docket No. 47 Defendants. 12 For the Northern District of California United States District Court 11 Case No. 16-cv-07323-EMC 13 Plaintiff AllCells, LLC has filed suit against Defendants Cepheus Biosciences, Inc. and 14 two if its employees, Jack Zhai and James Lee, asserting claims for, inter alia, trade secret 15 misappropriation under both state and federal law. Mr. Zhai and Mr. Lee are former employees of 16 AllCells and currently work for Cepheus. 17 Currently pending before the Court is Defendants’ motion to dismiss. In the motion, 18 Defendants argue that AllCells cannot state a claim for relief under the Defend Trade Secrets Act 19 (“DTSA”), see 18 U.S.C. § 1836, and the Court should decline to exercise supplemental 20 jurisdiction over the remaining claims which are all based on state law. Having considered the 21 parties’ submissions as well as the oral argument of counsel, the Court hereby DENIES the 22 motion to dismiss. 23 The DTSA provides that it “shall apply with respect to any misappropriation of a trade 24 secret (as defined in section 1839 of title 18, United States Code, as amended by this section) for 25 which any act occurs on or after the date of the enactment of this Act,” which is May 11, 2016. 26 114 P.L. 153, § 2(e) (emphasis added). Misappropriation of a trade secret can be acquisition of a 27 trade secret, disclosure of a trade secret, or use of a trade secret. See 18 U.S.C. § 1839(5). Here, 28 even if Mr. Zhai and Mr. Lee copied and thus acquired the alleged trade secrets before May 11, 1 2016, AllCells has sufficiently alleged that there was at least use of the trade secrets after that date. 2 Hence, the Act applies.1 Defendants’ contention that AllCells has simply made conclusory 3 allegations of use lacks merit. The allegations suffice under Twombly and Iqbal. See Bell Atl. 4 Corp. v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009). Finally, to the extent Defendants argue that an act of continuing misappropriation dates 5 6 back to the first misappropriation (i.e., a “single claim” of misappropriation) and thus the entirety 7 of the misappropriation falls outside the DTSA, that argument is not persuasive. First, as AllCells 8 points out, the DTSA did not adopt the language of the UTSA which appears to embrace 9 Defendants’ theory. Compare UTSA § 11 (including 1985 amendments) (providing that “[t]his date” and that, “[w]ith respect to a continuing misappropriation that began prior to the effective 12 For the Northern District of California [Act] takes effect on _____, and does not apply to misappropriation occurring prior to the effective 11 United States District Court 10 date, the [Act] also does not apply to the continuing misappropriation that occurs after the 13 effective date”), available at 14 (last visited February 23, 2017). Second, Defendants’ reliance on 18 U.S.C. § 1836(d) is misplaced. Section 1836(d) 15 16 provides: 17 A civil action . . . may not be commenced later than 3 years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered. For purposes of this subsection, a continuing misappropriation constitutes a single claim of misappropriation. 18 19 20 21 18 U.S.C. § 1836(d). But as one court has explained: 22 [W]hile Subsection 1836(d) states that a continuing misappropriation constitutes a single claim, it does so only “for purposes of this subsection.” That subsection addresses only when a claim accrues for statute of limitations purposes, and it does not purport to address the issue in this case: whether an owner may recover under DTSA when the misappropriation occurs both before and after the effective date, assuming the entire misappropriation is within the 3-year limitations period. 23 24 25 26 27 1 28 AllCells does not dispute that the DTSA does not apply to the copying and acquisition by Mr. Zhai and Mr. Lee. 2 1 Adams Arms, LLC v. Unified Weapon Sys., No. 8:16-cv-1503-T-33AEP, 2016 U.S. Dist. LEXIS 2 132201, at *17 (M.D. Fla. Sept. 27, 2016) (emphasis added). 3 For the foregoing reasons, Defendants’ motion to dismiss is denied. To the extent 4 Defendants have asked the Court to rule that AllCells’s DTSA claim can be based only on 5 disclosure or use, and not acquisition, the Court declines. AllCells essentially conceded at the 6 hearing that Mr. Zhai and Mr. Lee copied, and thus acquired, the alleged trade secrets before May 7 11, 2016. That conduct lies outside the DTSA. However, it is not clear when exactly Cepheus 8 acquired the alleged trade secrets. It seems likely that acquisition occurred prior to May 11, 2016, 9 but, at this stage in the proceedings, the record has not been sufficiently developed on this point. The Court also notes that it is not making any ruling on what acts of misappropriation AllCells 11 may rely for its state law misappropriation claim. 12 For the Northern District of California United States District Court 10 This order disposes of Docket No. 47. 13 14 IT IS SO ORDERED. 15 16 17 18 Dated: March 27, 2017 ______________________________________ EDWARD M. CHEN United States District Judge 19 20 21 22 23 24 25 26 27 28 3

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