PQ Labs, Inc. et al v. Qi et al
Filing
113
ORDER by Judge Claudia Wilken GRANTING IN PART DEFENDANTS 78 MOTION FOR SUMMARY JUDGMENT GRANTING DEFENDANTS 96 MOTION TO AMEND. (ndr, COURT STAFF) (Filed on 1/29/2014)
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IN THE UNITED STATES DISTRICT COURT
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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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PQ LABS, INC.,
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United States District Court
For the Northern District of California
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No. 12-0450 CW
Plaintiff,
v.
YANG QI, ZAAGTECH, INC., JINPENG
LI, and HAIPENG LI,
Defendants.
________________________________/
ORDER GRANTING IN
PART DEFENDANTS’
MOTION FOR SUMMARY
JUDGMENT (Docket
No. 78); GRANTING
DEFENDANTS’ MOTION
TO AMEND (Docket
No. 96)
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Plaintiff PQ Labs, Inc. brought this action against
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Defendants Yang Qi, Jinpeng Li, Haipeng Li, and ZaagTech, Inc. for
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misappropriation of trade secrets, copyright infringement,
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trademark infringement, breach of contract, and various other
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business-related torts.
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all claims.
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answer and one of their responses to Plaintiff’s requests for
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admissions.
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the parties’ submissions and oral argument, the Court grants in
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part the motion for summary judgment and denies it in part and
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grants the motion for leave to amend.
Defendants move for summary judgment on
In addition, they move for leave to amend their
Plaintiff opposes both motions.
After considering
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BACKGROUND
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The following facts are undisputed except where otherwise
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noted.
PQ Labs is a California corporation that manufactures and
develops hardware and software for computer touch-screen products.
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Docket No. 87, Declaration of Fei “Frank” Lu ¶ 1.
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2009, it entered into a contract with 22Miles, Inc. for
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“management and human resource services.”
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Agreement, at 1.
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it with an independent contractor “to answer pre-sale engineering
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inquiries and perform sales service & support for PQ’s products in
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the United States.”
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22Miles hired Yang Qi to play this role and assigned him to serve
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as PQ Labs’ “account manager” for a term of one year.
In February
Id., Ex. B, Vendor
Specifically, PQ Labs asked 22Miles to provide
Docket No. 88, Declaration of Joey Zhao ¶ 3.
Id. ¶ 3; Lu
United States District Court
For the Northern District of California
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Decl. ¶ 8, Ex. B, at 2-3.
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and 22Miles provided that Yang Qi’s term would be renewed
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automatically at the end of the year unless either party expressly
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sought to terminate the agreement.
14
The vendor agreement between PQ Labs
Id. at 2.
Yang Qi worked in PQ Labs’ San Jose office from February 2009
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until April 2010, when PQ Labs terminated the vendor agreement.
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Id. ¶ 11; Docket No. 80, Declaration of Yang Qi ¶ 8.
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period, he managed the company’s global sales operations,
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including its relationships with distributors and customers.
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Decl. ¶ 11; Qi Decl. ¶¶ 3, 6.
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of PQ Labs’ customer contact information, pricing lists, customer
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discount information, and marketing lists.”
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During that
Lu
His duties gave him access to “all
Lu Decl. ¶ 11.
In June 2009, four months after Yang Qi was assigned to PQ
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Labs, Jinpeng Li was hired as a hardware engineer by PinQi Digital
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Technology Company, Ltd., a wholly-owned subsidiary of PQ Labs
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based in Shanghai.
Lu Decl. ¶¶ 2, 14; Docket No. 81, Declaration
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of Jinpeng Li ¶ 2.
In that capacity, Jinpeng Li had access to
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various “hardware designs and schematics” for PQ Labs’ products.
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2
1
Lu Decl. ¶¶ 14-15.
2
after May 2010.
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Jinpeng Li was terminated by PinQi sometime
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In this suit, PQ Labs alleges that Yang Qi and Jinpeng Li
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misappropriated several of its trade secrets, including hardware
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schematics, confidential customer information, and software code.
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Docket No. 39, Second Amended Complaint (2AC) ¶¶ 12-42.
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further alleges that they worked with a third individual, Haipeng
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Li, to form a sham distributorship in order to divert sales away
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from PQ Labs.
Id.
It
Finally, it alleges that Yang Qi and Jinpeng
United States District Court
For the Northern District of California
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Li used the confidential information they stole from PQ Labs to
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help form a competing touch-screen technology company in China
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called ZaagTech, Inc.
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Defendants with misappropriation of trade secrets, copyright
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infringement, trademark infringement, false advertising, tortious
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interference with contract and prospective economic advantage,
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breach of contract, breach of fiduciary duty, fraudulent
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concealment, conversion, trespass to chattels, violations of the
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federal Computer Fraud and Abuse Act, violations of California
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Penal Code section 502, and unfair competition.
Id.
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The operative complaint charges
Id. ¶¶ 43-173.
DISCUSSION
I.
Motion for Summary Judgment
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A.
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Summary judgment is properly granted when no genuine and
Legal Standard
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disputed issues of material fact remain, and when, viewing the
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evidence most favorably to the non-moving party, the movant is
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1
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The parties failed to submit evidence identifying the exact date
of Jinpeng Li’s termination; however, company e-mails indicate that he
was still employed there at least until May 26, 2010. Lu Decl., Ex. G,
May 26, 2010 E-Mail from F. Lu to J. Li.
3
1
clearly entitled to prevail as a matter of law.
2
P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986);
3
Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir.
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1987).
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Fed. R. Civ.
The moving party bears the burden of showing that there is no
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material factual dispute.
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true the opposing party’s evidence, if supported by affidavits or
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other evidentiary material.
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815 F.2d at 1289.
Therefore, the court must regard as
Celotex, 477 U.S. at 324; Eisenberg,
The court must draw all reasonable inferences
United States District Court
For the Northern District of California
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in favor of the party against whom summary judgment is sought.
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Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
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587 (1986); Intel Corp. v. Hartford Accident & Indem. Co., 952
13
F.2d 1551, 1558 (9th Cir. 1991).
14
Material facts which would preclude entry of summary judgment
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are those which, under applicable substantive law, may affect the
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outcome of the case.
The substantive law will identify which
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facts are material.
Anderson v. Liberty Lobby, Inc., 477 U.S.
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242, 248 (1986).
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of proof on an issue at trial, the moving party may discharge its
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burden of production by either of two methods:
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Where the moving party does not bear the burden
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The moving party may produce evidence negating an
essential element of the nonmoving party’s case, or,
after suitable discovery, the moving party may show that
the nonmoving party does not have enough evidence of an
essential element of its claim or defense to carry its
ultimate burden of persuasion at trial.
25
Nissan Fire & Marine Ins. Co., Ltd., v. Fritz Cos., Inc., 210 F.3d
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1099, 1106 (9th Cir. 2000).
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If the moving party discharges its burden by showing an
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absence of evidence to support an essential element of a claim or
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1
defense, it is not required to produce evidence showing the
2
absence of a material fact on such issues, or to support its
3
motion with evidence negating the non-moving party’s claim.
4
see also Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 885 (1990);
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Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991).
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the moving party shows an absence of evidence to support the non-
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moving party’s case, the burden then shifts to the non-moving
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party to produce “specific evidence, through affidavits or
9
admissible discovery material, to show that the dispute exists.”
United States District Court
For the Northern District of California
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Id.;
If
Bhan, 929 F.2d at 1409.
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If the moving party discharges its burden by negating an
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essential element of the non-moving party’s claim or defense, it
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must produce affirmative evidence of such negation.
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F.3d at 1105.
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burden then shifts to the non-moving party to produce specific
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evidence to show that a dispute of material fact exists.
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Nissan, 210
If the moving party produces such evidence, the
Id.
If the moving party does not meet its initial burden of
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production by either method, the non-moving party is under no
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obligation to offer any evidence in support of its opposition.
20
Id.
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ultimate burden of persuasion at trial.
This is true even though the non-moving party bears the
Id. at 1107.
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B.
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PQ Labs alleges that Yang Qi, Jinpeng Li, and ZaagTech
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misappropriated seventeen of its trade secrets, including certain
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hardware design schematics, software algorithms and code, customer
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lists and contact information, and other proprietary information.
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Docket No. 85, Declaration of Bonnie Wolf ¶ 2.
Misappropriation of Trade Secrets (Claims 1, 2)
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1
To prevail on a claim for misappropriation of trade secrets
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under the California Uniform Trade Secrets Act (CUTSA), Cal. Civ.
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Code §§ 3426 through 3426.11, a plaintiff must show that (1) it
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owned a trade secret; (2) the defendant acquired, disclosed, or
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used that trade secret through improper means, and (3) the
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defendant’s actions damaged the plaintiff.
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Amerimmune Pharmaceuticals, Inc., 160 Cal. App. 4th 288, 297
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(2008).
9
Cytodyn, Inc. v.
CUTSA defines a “trade secret” as,
United States District Court
For the Northern District of California
10
information, including a formula, pattern,
compilation, program, device, method,
technique, or process, that:
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(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.
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Cal. Civ. Code § 3426.1(d).
Here, Defendants contend that PQ Labs
has failed to present sufficient evidence to support an inference
that it took reasonable steps to maintain the secrecy of its
alleged trade secrets.
This argument is not persuasive.
PQ Labs’ evidence highlights the various measures it took to
protect the information which Defendants allegedly
misappropriated.
The company’s CEO and founder, Frank Lu, stated
in his declaration that he expressly told Yang Qi on March 2, 2009
not to disclose any of PQ Labs’ “product design concept[s],
implementation details, algorithms (both in conceptual level and
in detailed level [sic]), schematics, bill of materials, customer
lists and related information.”
Lu Decl. ¶ 12.
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Lu specifically
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explained that this information “constituted PQ trade secrets” and
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“if other people, companies or potential competitors had access to
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this information it would have severe negative consequences for
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PQ’s business.”
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included a provision prohibiting 22Miles and its employees from
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disclosing any of PQ Labs’ confidential information or using that
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information to gain a competitive advantage over PQ Labs.
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Ex. B, at 2-3.
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nondisclosure agreement with 22Miles in July 2009 which required
Id.
PQ Labs’ vendor agreement with 22Miles also
Id.,
Consistent with this provision, Yang Qi signed a
United States District Court
For the Northern District of California
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him to keep confidential PQ Labs’ “[c]ustomer lists,” “pricing
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techniques and strategies,” “parts, drawings, data, sketches,
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plans, programs, specifications, techniques, processes, and other
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information relating to equipment and its use,” and “[s]oftware
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designs, source code, object code, and any techniques, processes,
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methods or designs relating to multi-touch.”
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Confidentiality & Unfair Competition Agreement, at 12.
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22Miles asserted in his declaration that he also instructed Yang
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Qi “to keep any information that he received from or about PQ and
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22Miles in the strictest confidence and not disclose [it] to any
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third parties.”
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Id., Ex. D,
The CEO of
Zhao Decl. ¶ 7.
Like Yang Qi, Jinpeng Li was also explicitly warned not to
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disclose any confidential information about PQ Labs’ customers or
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touch-screen technology.
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told Jinpeng Li to keep confidential “all information regarding
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PQ’s Multi-Touch overall product design concept, implementation
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details, algorithms,” and other technical information when PinQi
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hired Jinpeng Li in June 2009.
Lu stated in his declaration that he
Id. ¶ 16.
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According to Lu’s declaration, all PQ Labs employees received
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similar warnings and those with access to sensitive information
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were required to sign confidentiality agreements.
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also noted that the company rigidly controls access to its
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research, development, and production facilities with fingerprint
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scanners and security personnel and relies on passwords and
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firewalls to protect its electronic information.
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protocols are sufficient to support an inference that PQ Labs took
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reasonable measures to protect its trade secrets.
Id. ¶ 5.
Id. ¶ 6.
2
Lu
These
MAI Systems
United States District Court
For the Northern District of California
10
Corp. v. Peak Computer, Inc., 991 F.2d 511, 521 (9th Cir. 1993)
11
(“MAI required its employees to sign confidentiality agreements
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respecting its trade secrets, including the Customer Database.
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Thus, under the [C]UTSA, the MAI Customer Database constitutes a
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trade secret.”); Religious Tech. Ctr. v. Netcom On-Line Commc’n
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Servs., Inc., 923 F. Supp. 1231, 1253-54 (N.D. Cal. 1995) (finding
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that the plaintiff organization “put forward sufficient evidence
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that it took steps that were reasonable under the circumstances to
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protect its purported trade secrets” by submitting a declaration
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from its president documenting the organization’s use of “security
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personnel,” “electronic sensors attached to documents,” and
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“confidentiality agreements for all of those given access to the
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materials”).
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2
PQ Labs submitted examples of three such confidentiality
agreements. Lu Decl., Ex. A. Defendants object to these documents on
the grounds that they were signed well after Jinpeng Li and Yang Qi were
hired. They also note that PQ Labs failed to produce these documents
during discovery. While these points may cast doubt on the validity of
this evidence and may even provide evidence of a discovery violation,
the documents are nevertheless sufficient -- when combined with the
other evidence presented -- to support an inference that PQ Labs took
reasonable precautions to protect its trade secrets.
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Defendants argue that the security measures that PQ Labs has
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identified do not constitute reasonable efforts to protect its
3
trade secrets because they do nothing to prevent reverse-
4
engineering of its products.
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PQ Labs’ four trade secrets relating to “printed circuit board”
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technology, claiming that these trade secrets are susceptible to
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reverse-engineering.
8
support this claim, however, is Lu’s deposition testimony, during
9
which he stated that “if you have billions of dollars, you can
Defendants point, in particular, to
The only evidence Defendants provide to
United States District Court
For the Northern District of California
10
reverse engineer possibly everything.”
11
Declaration of Perry Narancic, Ex. 9, Lu Depo. 118:11-119:3 (“As
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long as you have the money, you have the time, you have the
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people, you can do that, yeah.
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perfunctory statement -- that “anything” is susceptible to
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reverse-engineering given enough time and resources -- does not
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demonstrate that PQ Labs failed to make reasonable efforts to
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prevent reverse-engineering of its products.
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that PQ Labs’ other efforts to protect its printed circuit board
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technology were not “reasonable under the circumstances.”
20
Civ. Code § 3426.1(d)(2).
21
Docket No. 79-9,
Everything is possible.”).
This
Nor does it show
Cal.
The cases that Defendants cite for support do not suggest
22
otherwise.
23
Genesis Creative Group, Inc., the Ninth Circuit held that a
24
defendant was entitled to summary judgment on a claim for breach
25
of confidentiality because it had presented “substantial evidence
26
indicating that [the plaintiff] never took any steps to prevent
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other manufacturers from looking inside [the plaintiff’s products]
28
and reverse-engineering them.”
For instance, in Entertainment Research Group, Inc. v.
122 F.3d 1211, 1227 (9th Cir.
9
1
1997) (ERG).
2
“substantial evidence” that PQ Labs similarly failed to erect any
3
barriers to reverse-engineering; instead, as noted above, they
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have merely presented Lu’s testimony acknowledging that “possibly
5
everything” can be reverse-engineered.
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Defendants had presented evidence showing that PQ Labs failed to
7
prevent reverse-engineering, ERG would not govern the outcome of
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this case for another reason: the decision applied the legal
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standard for breach-of-confidentiality claims rather than the
Defendants here, in contrast, have not presented
Furthermore, even if
United States District Court
For the Northern District of California
10
standard for trade secret claims.
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be protectable either as a trade secret or by copyright law to be
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the subject of a breach of confidentiality claim.”).
13
See id. (“Information need not
The district court cases that Defendants cite are likewise
14
inapposite.
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551 (N.D. Cal. 1999), this Court granted summary judgment to the
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defendant on a trade secret claim because the plaintiff failed to
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mark its alleged trade secrets as confidential.
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requirement, however, is irrelevant here because, as outlined
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above, PQ Labs has presented evidence that it used other means to
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notify its employees and agents that its technological and
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customer information was confidential.
22
claims in Gemisys were brought under Colorado’s trade secret
23
statute, not CUTSA, and the marking requirement was derived from
24
Tenth Circuit case law.
25
Redevelopment Agency of Sandy City, 998 F.2d 1550, 1557 (10th Cir.
26
1993)).
27
28
In Gemisys Corp. v. Phoenix America, Inc., 186 F.R.D.
That marking
Moreover, the trade secret
See id. at 558 (citing Jensen v.
Thus, Gemisys does not apply here.
The Central District of California’s decision in HiRel
Connectors, Inc. v. United States, 2005 WL 4958547 (C.D. Cal.),
10
1
also differs from the present case in important respects.
2
the court granted partial summary judgment to the defendant
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because the plaintiff failed to act quickly to protect its trade
4
secrets, even after it learned that the trade secrets had been
5
published online.
6
the plaintiff waited more than two years to protect its
7
confidential information after it was disclosed publicly, the
8
information ceased to be a trade secret.
9
PQ Labs waited only twenty months to file this suit once it
Id. at *5.
There,
The court concluded that, because
Id.
Here, in contrast,
United States District Court
For the Northern District of California
10
learned of Defendants’ possible misappropriation.
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comparable to the eighteen-month delay in filing suit that the
12
court found permissible in HiRel.
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it would not be appropriate at this time to set any earlier date
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certain [i.e., earlier than eighteen months from the publication
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date] after which Plaintiff lost its rights to those trade
16
secrets.”).
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never disclosed in a public forum.
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once a plaintiff’s trade secret has been publicly disclosed,
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“merely filing suit against the alleged wrongdoer does not
20
constitute ‘reasonable efforts’ to protect the trade secrets
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against others who might be interested in obtaining those
22
secrets.”
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not apply in the present case, where PQ Labs’ trade secrets were
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never publicly disclosed.
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This period is
See id. at *7 (“The Court finds
More importantly, PQ Labs’ alleged trade secrets were
As the HiRel court explained,
Id. at *6 (emphasis in original).
This rationale does
Finally, Defendants cannot rely on FormFactor, Inc. v. Micro-
26
Probe, Inc., 2012 WL 2061520 (N.D. Cal.), for support because the
27
court in that case expressly found that there was “no evidence
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that [the plaintiff] made reasonable efforts to protect the
11
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secrecy of any particular trade secret.”
2
added).3
3
evidence documenting its reasonable efforts to protect its trade
4
secrets.
5
judgment on PQ Labs’ CUTSA claims.
Id. at *7 (emphasis
As noted above, PQ Labs has presented various pieces of
Accordingly, Defendants are not entitled to summary
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C.
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PQ Labs alleges that Yang Qi, Jinpeng Li, and ZaagTech
Copyright Infringement (Claim 3)
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infringed its copyright in the “PQ Labs MultiTouch System
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Software,” Copyright Registration No. TXu 1-620-335, by using the
United States District Court
For the Northern District of California
10
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software to develop and sell their own touch-screen products.
To survive summary judgment on this claim, PQ Labs must
12
present sufficient evidence to support an inference that (1) it
13
owned a valid copyright; and (2) Defendants violated its exclusive
14
rights under the Copyright Act.
15
1072, 1076 (9th Cir. 2004).
16
survives the first step, i.e., it establishes that it owns a valid
17
copyright, then the plaintiff must establish infringement by
18
showing both access to its copyrighted material on the part of the
19
alleged infringer and substantial similarity between the
20
copyrighted work and the alleged infringing work.”
21
Indus. v. Jason Maxwell, Inc., 972 F.2d 1031, 1033 (9th Cir.
22
1992).
Ellison v. Robertson, 357 F.3d
“If the plaintiff copyright holder
N. Coast
23
PQ Labs has satisfied all of these requirements here.
24
it has presented evidence that it owns a valid copyright for its
25
MultiTouch System Software and that Yang Qi, Jinpeng Li, and
First,
26
27
28
3
The FormFactor court’s decision was also subsequently vacated
pursuant to a stipulation between the parties, see 2012 WL 6554220, at
*1 (N.D. Cal.).
12
1
ZaagTech had access to that software.
2
in his declaration that Yang Qi and Jinpeng Li had access to PQ
3
Labs’ technological information when they worked for the company.
4
See, e.g., Lu Decl. ¶ 14 (“Jinpeng Li was hired by PinQi to
5
develop hardware exclusively for PQ’s products, and those are the
6
type of services that Mr. Li rendered for PinQi and PQ while he
7
was working at PinQi, which gave him access to (and extensive work
8
experience with) PinQi’s and PQ’s technological information.”).
9
Furthermore, Jinpeng Li admitted that he began working for
As noted above, Lu stated
United States District Court
For the Northern District of California
10
ZaagTech after he was terminated by PinQi.
11
Jinpeng Li Resp. Req. Admission No. 14, at 5-6.
12
this evidence is sufficient to support an inference that all
13
Defendants had access to the copyrighted software.
14
See Wolf Decl., Ex. O,
Taken together,
PQ Labs has also presented evidence that its touch-screen
15
products are substantially similar to those developed by ZaagTech.
16
Its expert, Dr. Andrew Wolfe, stated in his report that the high
17
degree of similarity between the two companies’ products suggests
18
that ZaagTech’s products were created using PQ Labs’ technology,
19
including its algorithms and software.
20
of Andrew Wolfe ¶¶ 1-2, 4-5, 8.
21
inference that Defendants used a copy of PQ Labs’ software without
22
its consent.
23
supports the conclusion that Peak’s loading of copyrighted
24
software into RAM creates a ‘copy’ of that software in violation
25
of the Copyright Act.”); see also Airframe Systems, Inc. v.
26
Raytheon Co., 520 F. Supp. 2d 258, 267 (D. Mass. 2007) (“With
27
regard to software, an act of copying sufficient to violate the
28
Copyright Act occurs each time the software is run.”).
Docket No. 91, Declaration
This finding supports an
MAI Systems, 991 F.2d at 518-19 (“The law also
13
Thus,
1
Wolfe’s report and Lu’s declaration are sufficient to satisfy PQ
2
Labs’ summary judgment burden with respect to its copyright claim.
3
Defendants note that Wolfe failed to state conclusively in
4
his declaration that Defendants actually copied PQ Labs’ software.
5
However, at this stage in the litigation, PQ Labs does not need to
6
establish definitively that actual copying occurred.
7
noted above, it is enough for PQ Labs to present evidence
8
supporting an inference of infringement based on (1) Defendants’
9
access to the copyrighted information and (2) substantial
Rather, as
United States District Court
For the Northern District of California
10
similarities between its own products and ZaagTech’s allegedly
11
infringing products.
12
Defendants are not entitled to summary judgment on this claim.
Because PQ Labs has met this burden,
13
D.
14
PQ Labs alleges that Yang Qi, Jinpeng Li, and ZaagTech
Trademark Infringement: Lanham Act (Claim 5)
15
violated the Lanham Act by using the mark, “PQ LABS,” Trademark
16
Registration No. 4075660, to advertise falsely that ZaagTech was a
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distributor and manufacturer of PQ Labs’ touch-screen products.
18
“To prevail on a claim of trademark infringement under the
19
Lanham Act, 15 U.S.C. § 1114, a party ‘must prove: (1) that it has
20
a protectible ownership interest in the mark; and (2) that the
21
defendant’s use of the mark is likely to cause consumer
22
confusion.’”
23
Inc., 638 F.3d 1137, 1144 (9th Cir. 2011) (citing Dep’t of Parks &
24
Recreation v. Bazaar Del Mundo Inc., 448 F.3d 1118, 1124 (9th Cir.
25
2006)).
Network Automation, Inc. v. Advanced Sys. Concepts,
26
Here, PQ Labs has submitted screenshots of multiple websites
27
which advertise ZaagTech products and refer to ZaagTech as “China
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PQ Labs Manufacturer” and “PQ Labs manufacturer and exporter in
14
1
China.”
2
formal business relationship between ZaagTech and PQ Labs and, as
3
such, could lead consumers to believe that ZaagTech’s products
4
were designed or developed by PQ Labs.
5
have any formal business relationship with ZaagTech, these web
6
advertisements are sufficient to support an inference that
7
ZaagTech infringed PQ Labs’ trademark.
8
Lu Decl., Ex. I, at 1-3.
These advertisements suggest a
Because PQ Labs does not
4
The advertisements are not, however, sufficient to support an
inference that Yang Qi or Jinpeng Li infringed its trademark.
10
United States District Court
For the Northern District of California
9
Labs has not presented any evidence to suggest that Yang Qi or
11
Jinpeng Li were responsible for the ZaagTech web advertisements or
12
that they otherwise infringed PQ Labs’ trademark.
13
Jinpeng Li are therefore entitled to summary judgment on this
14
claim.
15
PQ
Yang Qi and
The advertisements also fail to support an inference that PQ
16
Labs suffered damages as a result of this alleged infringement.
17
The Ninth Circuit has made clear that, in order to recover
18
monetary damages for trademark infringement, a plaintiff “must
19
prove both the fact and the amount of damage.”
20
Inc. v. Bic Pen Corp., 982 F.2d 1400, 1407 (9th Cir. 1993).
21
Labs has not done so here.
22
due to trademark infringement are a subset of [its] damages on its
23
trade secrets claim,” Docket No. 84, Pl.’s Opp. at 17, it has not
Lindy Pen Co.,
PQ
Although it asserts that its “damages
24
25
26
27
28
4
The only case Defendants cite for support, Burger King Corp. v.
Cabrera, comes from the report and recommendation of a magistrate judge
in the Southern District of Florida and merely restates the standard for
trademark infringement. 2010 WL 5834869, at *4 (S.D. Fla.) (“It is also
essentially undisputed that Cabrera’s use of the Burger King name and
marks, if unauthorized, will confuse the public as to the source,
origin, sponsorship, or affiliation of Defendant’s goods.”).
15
1
cited any damages report or other evidence to support that
2
assertion.
3
on PQ Labs’ trademark infringement claim to the extent PQ Labs
4
seeks monetary damages.
5
ZaagTech to the extent it seeks declaratory or injunctive relief
6
but it may not recover monetary damages under the Lanham Act.
Accordingly, ZaagTech is entitled to summary judgment
PQ Labs may proceed on this claim against
7
E.
8
PQ Labs asserts trademark infringement claims against Yang
9
Trademark Infringement: California Law (Claims 4, 8)
Qi, Jinpeng Li, and ZaagTech under California law.
These claims
United States District Court
For the Northern District of California
10
are “subject to the same test” as their trademark infringement
11
claims under the Lanham Act.
12
F.3d 628, 632 (9th Cir. 2008) (citations omitted); see also
13
Mallard Creek Indus., Inc. v. Morgan, 56 Cal. App. 4th 426, 435
14
(1997) (“[T]he ultimate test under both federal and California law
15
is whether the similarity between the two marks is likely to
16
deceive or confuse the public.”).
17
submitted sufficient evidence to support an inference that
18
ZaagTech engaged in trademark infringement under the Lanham Act,
19
it has also submitted sufficient evidence to support an inference
20
that ZaagTech engaged in trademark infringement under California
21
law.
22
Jada Toys, Inc. v. Mattel, Inc., 518
Thus, because PQ Labs has
As explained above, however, PQ Labs has not presented any
23
evidence that Yang Qi or Jinpeng Li infringed its trademark or
24
that it suffered damages as a result of ZaagTech’s alleged
25
infringement.
26
Jinpeng Li are entitled to summary judgment on this claim and PQ
27
Labs may seek only declaratory and injunctive relief from ZaagTech
28
on this claim.
Thus, as with the Lanham Act claims, Yang Qi and
16
1
F.
2
PQ Labs alleges that Yang Qi, Jinpeng Li, and ZaagTech
3
violated the Lanham Act’s false advertising provisions by posting
4
the web advertisements described above.
5
6
7
8
9
United States District Court
For the Northern District of California
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
False Advertising: Lanham Act (Claim 6)
To prevail on a claim for false advertising under the Lanham
Act, a plaintiff must show:
(1) a false statement of fact by the defendant
in a commercial advertisement about its own or
another’s product; (2) the statement actually
deceived or has the tendency to deceive a
substantial segment of its audience; (3) the
deception is material, in that it is likely to
influence the purchasing decision; (4) the
defendant caused its false statement to enter
interstate commerce; and (5) the plaintiff has
been or is likely to be injured as a result of
the false statement, either by direct
diversion of sales from itself to defendant or
by a lessening of the goodwill associated with
its products.
Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th
Cir. 1997) (citing 15 U.S.C. § 1125(a)).
In this case, the web advertisements support an inference
that ZaagTech engaged in false advertising under the Lanham Act.
Although Defendants argue that these advertisements do not contain
false statements about PQ Labs’ products, the advertisements do
contain an allegedly false statement about ZaagTech’s own touchscreen products.
This is sufficient to support an inference that
ZaagTech violated the Lanham Act.
See id. (recognizing that
liability may be imposed for any “false statement of fact by the
defendant in a commercial advertisement about its own or another’s
product” (emphasis added)).
Nevertheless, PQ Labs has not submitted any evidence that
Yang Qi or Jinpeng Li are responsible for these advertisements nor
17
1
that it suffered any damages as a result of Defendants’ allegedly
2
misleading advertisements.
3
infringement claims, Yang Qi and Jinpeng Li are entitled to
4
summary judgment on this claim and PQ Labs may not recover any
5
monetary relief from ZaagTech.
6
Nelson, Inc., 889 F.2d 197, 210 (9th Cir. 1989) (emphasis in
7
original) (“In a suit for damages under section 43(a) [of the
8
Lanham Act], however, actual evidence of some injury resulting
9
from the deception is an essential element of the plaintiff’s
Thus, just as with its trademark
See Harper House, Inc. v. Thomas
United States District Court
For the Northern District of California
10
case.”).
11
insofar as it seeks declaratory or injunctive relief.
It may proceed on this claim against ZaagTech only
12
G.
13
PQ Labs’ state law false advertising claims are based on the
14
15
False Advertising: California Law (Claim 7)
same advertisements as its Lanham Act claims.
Section 17500 of the California Business and Professions Code
16
makes it unlawful for a business to disseminate any statement
17
“which is untrue or misleading, and which is known, or which by
18
the exercise of reasonable care should be known, to be untrue or
19
misleading.”
20
necessary only to show that members of the public are likely to be
21
deceived” by a given advertisement.
22
4th 939, 951 (2002).
23
To prevail on a claim under this provision, “it is
Kasky v. Nike, Inc., 27 Cal.
Here, PQ Labs’ screenshots of the web advertisements are
24
sufficient to support an inference that ZaagTech violated section
25
17500.
26
misrepresent the nature of PQ Labs’ relationship with ZaagTech and
27
PQ Labs’ contributions to ZaagTech’s products.
28
ZaagTech is not entitled to summary judgment on this claim.
As explained above, these advertisements allegedly
18
Accordingly,
See
1
Denbicare U.S.A. Inc. v. Toys R Us, Inc., 84 F.3d 1143, 1153 (9th
2
Cir. 1996) (concluding that the dismissal of the plaintiff’s
3
section 17500 claims was proper because the dismissal of its
4
Lanham Act claims was proper), abrogated on other grounds by
5
Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013).
6
Nevertheless, Yang Qi and Jinpeng Li are entitled to summary
7
judgment on this claim for the same reasons they are entitled to
8
summary judgment on PQ Labs’ claims under the Lanham Act.
9
Furthermore, just as with its Lanham Act claims, PQ Labs may not
United States District Court
For the Northern District of California
10
recover damages from ZaagTech on this claim and may seek to
11
recover only declaratory and injunctive relief.
12
precludes private litigants from obtaining monetary relief for
13
false advertising claims brought under section 17500.
14
Bank of Am., 15 Cal. 3d 866, 875 (1976) (recognizing that section
15
17500 does “not authorize recovery of damages by private
16
individuals”); Brown v. Allstate Ins. Co., 17 F. Supp. 2d 1134,
17
1140 (S.D. Cal. 1998) (stating that, under section 17500, “private
18
remedies are limited to equitable relief, and civil penalties are
19
recoverable only by specified public officers”).
California law
Chern v.
20
H.
21
PQ Labs alleges that, between January 2011 and December 2011,
Computer Fraud and Abuse Act (Claim 19)
22
Yang Qi, Jinpeng Li, and ZaagTech sent several “phishing” e-mails
23
to PQ Labs in violation of the federal Computer Fraud and Abuse
24
Act (CFAA), 18 U.S.C. §§ 1030 et seq.
25
contained viruses which infected PQ Labs’ computer system.
26
Decl. ¶¶ 28-29.
27
28
These e-mails allegedly
Lu
“The CFAA prohibits a number of different computer crimes,
the majority of which involve accessing computers without
19
1
authorization or in excess of authorization, and then taking
2
specified forbidden actions, ranging from obtaining information to
3
damaging a computer or computer data.”
4
Brekka, 581 F.3d 1127, 1131 (9th Cir. 2009).
5
the statute makes it unlawful for any person to “knowingly cause[]
6
the transmission of a program, information, code, or command, and
7
as a result of such conduct, intentionally cause[] damage without
8
authorization, to a protected computer.”
9
§ 1030(a)(5)(A).5
United States District Court
For the Northern District of California
10
LVRC Holdings LLC v.
Among other acts,
18 U.S.C.
The CFAA provides that a “civil action for a violation of
11
this section may be brought only if the conduct involves 1 of the
12
factors set forth in subclauses (I), (II), (III), (IV), or (V) of
13
subsection (c)(4)(A)(i).”
14
civil action under the CFAA, a plaintiff must show that the
15
defendant’s conduct involves one of the following factors:
16
loss to 1 or more persons during any 1year period (and, for purposes of an
investigation, prosecution, or other
proceeding brought by the United States
only, loss resulting from a related
course of conduct affecting 1 or more
other protected computers) aggregating
at least $5,000 in value;
(II) the modification or impairment, or
potential modification or impairment, of
the medical examination, diagnosis,
treatment, or care of 1 or more
individuals;
(III) physical injury to any person;
(IV) a threat to public health or safety; [or]
(V)
damage affecting a computer used by or
for an entity of the United States
Government in furtherance of the
administration of justice, national
defense, or national security; . . .
18
19
20
21
22
23
24
25
26
28
Thus, to prevail in a
(I)
17
27
Id. § 1030(g).
5
In its brief, PQ Labs failed to identify the specific provisions
of the CFAA that Defendants allegedly violated. At the hearing,
however, it indicated that it was alleging a violation of § 1030(a)(5).
20
1
2
3
4
5
6
7
8
9
United States District Court
For the Northern District of California
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
18 U.S.C. § 1030(c)(4)(A)(i).
Only the first of these
factors -- namely, economic loss -- is relevant here.
Lu stated in his declaration that PQ Labs received at least
“five e-mails containing malicious code” in 2011 and that the
company “expended significant resources identifying and
remediating the damage caused by this malware.”
Decl. ¶ 29.
Specifically, Lu asserted that the company spent “$36,000 in costs
to mitigate the damages to the hardware and network, and $42,000
in consulting fees and service costs.”
Id.
Lu also explained why
he believes these e-mails were sent by Yang Qi, Jinpeng Li, and
ZaagTech, noting that they were sent to non-public e-mail
addresses and made reference to several former PQ Labs employees
using the specific Chinese characters for these employees’ names.
Id. ¶ 30.
The messages also contained detailed information about
PQ Labs’ customers.
Id.
According to Lu, Yang Qi, Jinpeng Li,
and ZaagTech are among the few people or entities which not only
had access to all of this information but also possessed the
technical skills and language ability to craft these e-mails.
Id.
Defendants contend that Lu’s declaration conflicts with his
prior deposition testimony and, therefore, should be disregarded
under the sham affidavit rule.
That rule provides that “a party
cannot create an issue of fact by an affidavit contradicting his
prior deposition testimony.”
Kennedy v. Allied Mut. Ins. Co., 952
F.2d 262, 266 (9th Cir. 1991).
The Ninth Circuit has “recognized
that the sham affidavit rule ‘should be applied with caution’”
because it “threatens to ensnare parties who may have simply been
confused during their deposition testimony and may encourage
21
1
gamesmanship by opposing attorneys.”
2
Tech., 577 F.3d 989, 998 (9th Cir. 2009) (citations omitted).
3
order to trigger the sham affidavit rule, the district court must
4
make a factual determination that the contradiction is a sham, and
5
the ‘inconsistency between a party’s deposition testimony and
6
subsequent affidavit must be clear and unambiguous to justify
7
striking the affidavit.’”
8
(9th Cir. 2012) (citing Van Asdale, 577 F.3d at 998-99).
9
Van Asdale v. Int’l Game
Yeager v. Bowlin, 693 F.3d 1076, 1080
Here, the inconsistencies between Lu’s deposition testimony
10
United States District Court
For the Northern District of California
“In
and his declaration do not rise to this level.
11
any of the alleged phishing e-mails “caused damage to PQ Labs’
12
network, [sic] or computer systems,” Lu responded,
13
When asked whether
That I don’t know exactly, because, you know,
when we received the e-mail, and we checked
with over 60 anti-virus software, and only
less than five percent of the anti-virus
software can detect that. . . . So, the virus
could be hidden in our computer for years, you
know? That’s a tremendous risk for us.
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Narancic Decl., Ex. 13, Lu Depo. 104:3-:11.
Lu also testified
that PQ Labs’ hard drive crashed but admitted that he did not know
whether the virus sent by the phishing e-mails was the cause of
the crash.
Id., Ex. 13, at 110:1-:11.
This testimony -- in which
Lu admits to some uncertainty about the cause of the network
damage -- do not “clear[ly] and unambiguous[ly]” contradict the
statements in his declaration in which he explains why he believes
Defendants sent the phishing e-mails.
Accordingly, Lu’s
declaration should not be disregarded under the sham affidavit
rule.
28
22
1
Because Lu’s declaration is admissible and contains
2
sufficient evidence to support an inference that Yang Qi, Jinpeng
3
Li, and ZaagTech violated the CFAA, these Defendants are not
4
entitled to summary judgment on this claim.
5
I.
6
PQ Labs alleges that Yang Qi, Jinpeng Li, and ZaagTech
California Penal Code section 502 (Claim 10)
violated section 502 of the California Penal Code in two ways:
8
first, by using the company’s computer network without its
9
authorization to share confidential hardware schematics with each
10
United States District Court
For the Northern District of California
7
other in January 2010 and, second, by sending the phishing e-mails
11
discussed above in 2011.
12
Section 502 was enacted “to expand the degree of protection
13
afforded to individuals, businesses, and governmental agencies
14
from tampering, interference, damage, and unauthorized access to
15
lawfully created computer data and computer systems.”
16
Code § 502(a).
17
offense for any person to access a “computer, computer system, or
18
computer network” without permission or to “introduce[] any
19
computer contaminant into any computer, computer system, or
20
computer network.”
21
502(e) provides that the “owner or lessee of the computer,
22
computer system, computer network, computer program, or data who
23
suffers damage or loss by reason of a violation of any of the
24
provisions of subdivision (c) may bring a civil action against the
Cal. Penal
Among other acts, section 502(c) makes it a public
Id. § 502(c)(7)-(8).
6
In addition, section
25
26
27
28
6
As with its CFAA claims, PQ Labs failed to identify in its brief
the specific provisions of section 502 on which its claims are based.
When asked to identify specific provisions at the hearing, PQ Labs
indicated that its claims were most likely based on sections 502(c)(7)
and 502(c)(8).
23
1
violator for compensatory damages and injunctive relief or other
2
equitable relief.”
3
Id. § 502(e)(1).
To support its section 502 claims, PQ Labs relies on a log of
4
instant messages which allegedly show that Jinpeng Li sent
5
confidential hardware schematics to Yang Qi in January 2010 using
6
the company’s computer network.
7
relies on the statements from Lu’s declaration as evidence of
8
Defendants’ alleged phishing activities.
9
While this evidence supports an inference that Defendants violated
Wolf Decl., Ex. B.
It also
See Lu Decl. ¶¶ 29-30.
United States District Court
For the Northern District of California
10
section 502 by sending the alleged phishing e-mails, it does not
11
support an inference that they also violated the statute by
12
sharing the hardware schematics over PQ Labs’ network.
13
because, with respect to PQ Labs’ claim based on the hardware
14
schematics, Defendants are protected by California Penal Code
15
section 502(h).
16
This is
Section 502(h) creates a safe harbor from liability for
17
employees who access a computer or computer network within the
18
scope of their employment.
19
20
21
22
23
Specifically, the provision states,
Subdivision (c) does not apply to punish any
acts which are committed by a person within
the scope of his or her lawful employment.
For purposes of this section, a person acts
within the scope of his or her employment when
he or she performs acts which are reasonably
necessary to the performance of his or her
work assignment.
24
Cal. Penal Code § 502(h)(1).
25
must present some evidence to suggest that Jinpeng Li was acting
26
outside the scope of his employment when he sent the hardware
27
schematics to Yang Qi.
28
in the January 2010 instant message log suggests that Jinpeng Li
To avoid this provision, PQ Labs
It has not done so here.
24
Indeed, nothing
1
was not authorized, in his capacity as a hardware engineer, to
2
access to the schematics in question.
3
Furthermore, nothing in the logs suggests that he was not supposed
4
to share these hardware schematics with Yang Qi, who was still
5
working for PQ Labs at the time.
6
See Wolf Decl., Ex. B.
If anything, PQ Labs’ evidence provides reason to believe
7
that Jinpeng Li was, in fact, acting within the scope of his
8
employment when he shared the hardware schematics with Yang Qi in
9
January 2010.
Lu stated in his declaration that Yang Qi and
United States District Court
For the Northern District of California
10
Jinpeng Li were sent to South Korea together that same month to
11
demonstrate PQ Labs’ products for a potential business partner.
12
Lu Decl. ¶ 18.
13
the schematics with Yang Qi in order “to help develop a new
14
product for a new competitor,” it failed to cite any evidence to
15
support that assertion.
16
has not presented sufficient evidence to support an inference that
17
Jinpeng Li was acting outside the scope of his employment -- and
18
therefore was not protected by section 502(h) -- when he sent the
19
hardware schematics to Yang Qi.
20
Although PQ Labs asserts that Jinpeng Li shared
See Pls.’ Opp. at 21.
In sum, PQ Labs
7
Thus, while PQ Labs may proceed on its section 502 claims
21
based on the alleged 2011 phishing attack, it may not proceed on
22
its section 502 claims based on the alleged unauthorized use of
23
the company’s computer network to share hardware schematics.
24
25
26
7
27
28
Although ZaagTech is not protected by section 502(h), PQ Labs has
not presented any evidence to suggest that ZaagTech ever sought to
access PQ Labs’ computer network, outside of its alleged phishing attack
in 2011.
25
1
J.
2
PQ Labs’ asserts a trespass-to-chattels claim against Yang
Trespass to Chattels (Claim 18)
3
Qi, Jinpeng Li, and ZaagTech based on their alleged 2011 phishing
4
attack.
5
The “tort of trespass to chattels allows recovery for
6
interferences with possession of personal property ‘not
7
sufficiently important to be classed as conversion, and so to
8
compel the defendant to pay the full value of the thing with which
9
he has interfered.’”
Intel Corp. v. Hamidi, 30 Cal. 4th 1342,
United States District Court
For the Northern District of California
10
1350 (2003) (citations omitted).
11
chattels claim based on “unwanted electronic contact between
12
computers,” the plaintiff must establish that the unwanted contact
13
“involved some actual or threatened interference with the
14
computers’ functioning.”
To prevail on a trespass-to-
Id. at 1353.
15
PQ Labs has submitted sufficient evidence of such
16
interference here to survive summary judgment on this claim.
17
noted above, Lu’s declaration specifically highlighted the
18
“damages to the hardware and network” that allegedly resulted from
19
Defendants’ phishing attack.
20
and ZaagTech are therefore not entitled to summary judgment on
21
this claim.
Lu Decl. ¶ 29.
As
Yang Qi, Jinpeng Li,
22
K.
23
PQ Labs alleges that Jinpeng Li breached the confidentiality
Breach of Contract (Claim 14)
24
provisions of his employment contract by disclosing hardware
25
schematics and other proprietary technological information.
26
Jinpeng Li is entitled to summary judgment on this claim because,
27
as noted above, he signed his employment contract with PinQi and
28
never signed a contract with PQ Labs.
26
Jinpeng Li Decl. ¶ 2.
1
For reasons explained more fully in the discussion of
2
Defendants’ motion for leave to amend, PQ Labs is granted leave to
3
amend its complaint by adding PinQi as a Plaintiff.
4
revive this contract claim against Jinpeng Li in the amended
5
complaint.
PinQi may
6
L.
7
PQ Labs alleges that Jinpeng Li and Yang Qi breached their
8
fiduciary duty to PQ Labs by misappropriating its trade secrets
9
and using them to support ZaagTech.
United States District Court
For the Northern District of California
10
Breach of Fiduciary Duty (Claim 15)
To prevail on a claim for breach of fiduciary duty under
11
California law, a plaintiff must show (1) the existence of a
12
fiduciary duty; (2) a breach of that fiduciary duty; and
13
(3) resulting damage.
14
524 (2008).
15
Pellegrini v. Weiss, 165 Cal. App. 4th 515,
Defendants contend that PQ Labs has failed to present
16
sufficient evidence that Jinpeng Li and Yang Qi owed it a
17
fiduciary duty.
18
contract with PinQi, not PQ Labs, while Yang Qi was merely
19
assigned to work for PQ Labs by his true employer, 22Miles.
20
of these arguments fail.
They note that Jinpeng Li signed an employment
Both
21
First, with respect to Jinpeng Li, PQ Labs’ evidence is
22
sufficient to support an inference that he was a fiduciary of the
23
company.
24
a subsidiary also owes a fiduciary duty to the subsidiary’s parent
25
corporation.”
26
1267744, at *5 (N.D. Cal.); see also Richardson v. Reliance Nat.
27
Indem. Co., 2000 WL 284211 (N.D. Cal.) (refusing to dismiss
28
breach-of-fiduciary-duty claim because defendants owed fiduciary
California courts have recognized that the “fiduciary of
Thomas Weisel Partners LLC v. BNP Parabas, 2010 WL
27
1
duty to subsidiary of plaintiff’s corporation).
2
concede that PinQi was a wholly owned subsidiary of PQ Labs and
3
that Jinpeng Li knew of this parent-subsidiary relationship.
4
Indeed, the undisputed evidence suggests that Jinpeng Li used a
5
“PQLabs.com” e-mail address throughout his employment with PinQi.
6
Lu Decl., Ex. G.
7
that Jinpeng Li was not a fiduciary of PQ Labs must be rejected.
8
Defendants’ argument that Yang Qi was not a fiduciary of PQ
Defendants
In light of this evidence, Defendants’ argument
Labs is similarly unavailing because the evidentiary record
10
United States District Court
For the Northern District of California
9
supports an inference that Yang Qi acted as PQ Labs’ agent.
11
California courts have explained,
12
As
Agency is “the fiduciary relationship that
arises when one person (a ‘principal’)
manifests assent to another person (an
‘agent’) that the agent shall act on the
principal’s behalf and subject to the
principal’s control, and the agent manifests
assent or otherwise consents so to act.”
Where such a relationship arises, the agent
assumes “a fiduciary duty to act loyally for
the principal’s benefit in all matters
connected with the agency relationship.”
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Huong Que, Inc. v. Luu, 150 Cal. App. 4th 400, 410-11 (2007)
(citing Restatement (Third) of Agency §§ 1.01, 8.01).
Here, PQ
Labs’ evidence suggests that Yang Qi regularly held himself out as
an agent of PQ Labs when dealing with distributors and prospective
customers.
Lu Decl. ¶ 11.
Lu stated in his declaration that Yang
Qi used a “PQLabs.com” e-mail address when communicating with
customers and offering them sales contracts.
Id.
He also
described how Yang Qi traveled to South Korea on behalf of the
company to meet with a potential PQ Labs business partner.
¶ 18.
Id.
This evidence supports an inference that Yang Qi was an
28
1
agent of PQ Labs and, therefore, owed the company a fiduciary
2
duty.
3
chief characteristic of the agency is that of representation, the
4
authority to act for and in the place of the principal for the
5
purpose of bringing him or her into legal relations with third
6
parties.” (citations omitted)).
7
Violette v. Shoup, 16 Cal. App. 4th 611, 620 (1993) (“The
Accordingly, because PQ Labs has submitted evidence that
8
Jinpeng Li and Yang Qi owed it a fiduciary duty, Jinpeng Li and
9
Yang Qi are not entitled to summary judgment on this claim.
United States District Court
For the Northern District of California
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
M.
Tortious Interference with Prospective Economic
Advantage and Contracts (Claims 12, 13, 20)
PQ Labs alleges that Yang Qi and Haipeng Li unlawfully
interfered with its prospective economic advantage and contracts
by stealing its customers.
Specifically, it contends that Yang Qi
and Haipeng Li formed a sham PQ Labs distributor which they then
used to divert customers and product sales away from PQ Labs’
authorized distributors.
Because the sham distributor -- a
company called MultiTouch Group, LLC -- allegedly kept all of the
retail profits from these sales for itself, rather than sharing
them with PQ Labs as other distributors were required to do, PQ
Labs asserts that this scheme deprived it of its full profits on
product sales.
To prevail on a claim for tortious interference with
prospective economic advantage, a plaintiff must show “‘(1) an
economic relationship between the plaintiff and some third party,
with the probability of future economic benefit to the plaintiff;
(2) the defendant’s knowledge of the relationship; (3) intentional
acts on the part of the defendant designed to disrupt the
29
1
relationship; (4) actual disruption of the relationship; and
2
(5) economic harm to the plaintiff proximately caused by the acts
3
of the defendant.’”
4
Cal. 4th 1134, 1153 (2003) (citations omitted).
5
proving tortious interference with contract is essentially the
6
same as the standard for proving tortious interference with
7
prospective economic advantage except that it requires proof of a
8
contractual relationship between the plaintiff and the third
9
party.
Korea Supply Co. v. Lockheed Martin Corp., 29
The standard for
Pac. Gas & Elec. Co. v. Bear Stearns & Co., 50 Cal. 3d
United States District Court
For the Northern District of California
10
1118, 1126 (1990) (“The tort of interference with prospective
11
economic advantage protects the same interest in stable economic
12
relationships as does the tort of interference with contract,
13
though interference with prospective advantage does not require
14
proof of a legally binding contract.”).
15
PQ Labs has submitted sufficient evidence here to support an
16
inference that Yang Qi and Haipeng Li knowingly disrupted its
17
relations with its distributors and prospective customers.
18
points to a series of instant messages that Yang Qi and Haipeng Li
19
exchanged in January and February 2010, during which Yang Qi
20
solicited Haipeng Li’s assistance in forming MultiTouch Group.
21
See Wolf Decl. ¶ 3, Ex. A, at 1-10.
22
sent Haipeng Li a confidential pricing list which was typically
23
used only by PQ Labs’ authorized distributors.
24
8.
25
authorized distributors and divert customers to MultiTouch Group.
26
Id.
27
his supervisors at PQ Labs and Yang Qi, in turn, advised Haipeng
28
Li to use a fake name when dealing with customers.
It
During these chats, Yang Qi
Id., Ex. A, at 7-
He explained that they could use this list to undercut the
Haipeng Li advised Yang Qi to keep their plans hidden from
30
Id., Ex. A, at
1
2, 6.
2
proof that MultiTouch Group actually diverted profits from PQ
3
Labs,
4
Haipeng Li knowingly sought to disrupt PQ Labs’ relations with its
5
distributors and prospective customers.
6
therefore sufficient to support PQ Labs’ claim for tortious
7
interference with prospective economic advantage.
8
9
While these communications do not constitute compelling
8
they nevertheless support an inference that Yang Qi and
This evidence is
This evidence is not sufficient, however, to support PQ Labs’
claim for tortious interference with contracts.
PQ Labs has not
United States District Court
For the Northern District of California
10
provided a single contract -- either with a distributor or with a
11
customer -- which was allegedly disrupted by Yang Qi and Haipeng
12
Li.
13
interference with contracts cannot survive summary judgment.
14
Pac. Gas & Elec. Co., 50 Cal. 3d at 1126 (recognizing that
15
tortious interference with contract requires “proof of a legally
16
binding contract”).
Without this evidence, PQ Labs’ claim for tortious
See
17
18
19
20
21
22
23
24
25
26
27
28
8
As noted at the hearing, PQ Labs’ theory of liability rests on
its allegation that “authorized” distributors were required to return a
portion of their retail profits to PQ Labs after every sale of a PQ Labs
product. If these distributors were not required to return a portion of
their retail profits to PQ Labs after these sales -- and, instead,
simply paid a wholesale price to PQ Labs and kept all of the retail
profits for themselves -- then PQ Labs would not be harmed by
Defendants’ efforts to divert sales from authorized distributors to
MultiTouch Group.
Despite the centrality of this factual allegation to its underlying
tortious interference claims, however, PQ Labs has not submitted any
distribution agreements to show that its distributors actually share
their retail profits. PQ Labs’ failure to submit this evidence -- all
of which should be in its own possession -- casts doubt on whether Yang
Qi and Haipeng Li’s alleged scheme actually deprived PQ Labs’ of its
full profits. Nevertheless, because the Court must draw all reasonable
inferences in a light favorable to the non-moving party, it concludes
that the evidence outlined above is sufficient to satisfy PQ Labs’
summary judgment burden.
31
1
Defendants contend that PQ Labs cannot survive summary
2
judgment on its claim for tortious interference with prospective
3
economic advantage without presenting evidence that Haipeng Li or
4
Yang Qi owed PQ Labs a fiduciary duty or duty of confidentiality.
5
This argument misstates the law.
6
demonstrate that the defendant’s conduct was “wrongful by some
7
legal measure other than the fact of interference itself,” Korea
8
Supply, 29 Cal. 4th at 1153, it can satisfy this requirement
9
without showing a specific breach of a fiduciary duty or duty of
While a plaintiff must
United States District Court
For the Northern District of California
10
confidentiality.
11
met this requirement by presenting evidence that Yang Qi breached
12
the confidentiality provisions of his contract with 22Miles by
13
sharing PQ Labs’ pricing information with Haipeng Li.
14
In the present case, for instance, PQ Labs has
Further, the record contains sufficient evidence to suggest
15
that Yang Qi did breach his fiduciary duty to PQ Labs, as
16
explained above.
17
knowingly aided Yang Qi in breaching that duty.
18
sufficient to satisfy the “wrongful” element of PQ Labs’ claim for
19
tortious interference with prospective economic advantage and
20
precludes granting summary judgment to Yang Qi and Haipeng Li on
21
this claim.
It also contains evidence that Haipeng Li
This evidence is
22
N.
23
PQ Labs alleges that Yang Qi is liable for fraudulent
Fraudulent Concealment (Claim 16)
24
concealment because he failed to disclose his efforts to form
25
MultiTouch Group while he was serving as PQ Labs’ account manager.
26
Defendants contend that this claim fails because PQ Labs has not
27
presented any evidence that Yang Qi owed it a fiduciary duty.
28
explained above, however, PQ Labs’ evidence is sufficient to
32
As
1
support an inference that Yang Qi was a fiduciary of PQ Labs.
2
Thus, Yang Qi is not entitled to summary judgment on this claim.
3
O.
4
PQ Labs alleges that Yang Qi and Haipeng Li took possession
Conversion (Claim 17)
5
of a touch-screen monitor in February 2010 and then sold it
6
through MultiTouch Group without PQ Labs’ authorization.
7
result, PQ Labs alleges, it was deprived of the full profits that
8
it would have earned had the monitor been sold through an
9
authorized distributor.
United States District Court
For the Northern District of California
10
As a
To prevail on a claim for conversion, a plaintiff must show:
11
(1) ownership or right to possess the subject property; (2) the
12
defendant’s conversion by a wrongful act or disposition of the
13
property; and (3) damages.
14
Cal. App. 4th 208, 221 (2003).
15
Spates v. Dameron Hospital Ass’n, 114
PQ Labs cites the same evidence to support its conversion
16
claim that it cited to support its tortious interference claims:
17
specifically, the log of instant messages exchanged by Yang Qi and
18
Haipeng Li in January and February 2010.
19
A, at 1-10.
20
demonstrate that PQ Labs was harmed by Yang Qi and Haipeng Li’s
21
efforts to use MultiTouch Group to distribute PQ Labs products, it
22
is nevertheless sufficient to satisfy PQ Labs’ burden on summary
23
judgment.
24
inference that Yang Qi and Haipeng Li disposed of PQ Labs’ touch-
25
screen monitor without its consent and thereby deprived it of the
26
profits it would have otherwise earned from the sale of that
27
monitor.
28
summary judgment on this claim.
See Wolf Decl. ¶ 3, Ex.
Once again, while this evidence does not persuasively
The instant message log is sufficient to support an
Accordingly, Yang Qi and Haipeng Li are not entitled to
33
P.
2
PQ Labs’ unfair competition claims are based on the same
3
allegations underlying its claims for trademark infringement,
4
trespass to chattels, breach of fiduciary duty, fraudulent
5
concealment, tortious interference with prospective economic
6
advantage, misappropriation of trade secrets, and other claims
7
discussed above.
8
too, do these derivative claims for unfair competition.
9
Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th
10
United States District Court
For the Northern District of California
1
163, 180 (1999) (“By proscribing ‘any unlawful’ business practice,
11
section 17200 borrows violations of other laws and treats them as
12
unlawful practices that the unfair competition law makes
13
independently actionable.” (quoting Cal. Bus. & Prof. Code
14
§ 17200)).
15
II.
16
Unfair Competition (Claims 8, 9, 11, 20, 21)
Because all of those other claims survive, so,
See Cel–
Motion for Leave to Amend
Defendants seek leave to amend their answer and one of their
17
responses to PQ Labs’ requests for admission.
18
seek leave to withdraw their admission that Jinpeng Li signed an
19
employment contract with PQ Labs.
20
this admission, both in their answer and during discovery, based
21
on Jinpeng Li’s mistaken translation of his employment contract
22
with PinQi, the Shanghai-based subsidiary of PQ Labs.
23
Specifically, they
Defendants contend they made
PQ Labs does not dispute that Jinpeng Li signed an employment
24
contract with PinQi.
25
evidence to suggest that Jinpeng Li actually signed an employment
26
contract directly with PQ Labs.
27
of the Jinpeng Li’s June 2009 employment contract that PQ Labs
28
submitted with its brief refers specifically to PinQi -- not PQ
Furthermore, it has not presented any
In fact, the translated version
34
1
Labs -- as Jinpeng Li’s employer.
2
light of this undisputed evidence, PQ Labs may not rely on
3
Defendants’ mistaken admissions as a basis for establishing that
4
Jinpeng Li contracted directly with PQ Labs.
5
See Wolf Decl., Ex. H.
In
Defendants are granted leave to amend their answer and their
6
response to PQ Labs’ Request for Admission No. 2 by withdrawing
7
their admission that Jinpeng Li signed an employment contract with
8
PQ Labs.
9
is granted leave to amend its complaint by adding PinQi as a
However, based on this correction to the record, PQ Labs
United States District Court
For the Northern District of California
10
Plaintiff.
11
Jinpeng Li in the amended complaint.
PinQi may revive the breach of contract claim against
12
CONCLUSION
13
For the reasons set forth above, Defendants’ motion for
14
summary judgment (Docket No. 78) is GRANTED in part and DENIED in
15
part.
16
judgment on Plaintiff’s claim for prospective interference with
17
contract and Yang Qi and Jinpeng Li are granted summary judgment
18
on Plaintiff’s state and federal claims for trademark infringement
19
and false advertising.
20
injunctive relief against ZaagTech on its trademark infringement
21
and false advertising claims, it may not seek monetary damages on
22
these claims.
Specifically, Yang Qi and Haipeng Li are granted summary
While Plaintiff may pursue declaratory and
23
Defendants’ objections to Plaintiff’s evidence (Docket Nos.
24
101, 102) are OVERRULED because they lack merit, are not timely,
25
and were not contained in Defendants’ brief as required by the
26
local rules.
27
28
Finally, Defendants’ motion for leave to amend (Docket No.
96) is GRANTED.
Defendants may withdraw their admission that
35
1
Jinpeng Li signed a contract with PQ Labs.
2
the timing of Defendants’ request for leave to amend, PQ Labs is
3
granted leave to amend its complaint to add PinQi as a Plaintiff.
4
PQ Labs and PinQi shall file their third amended complaint within
5
four days of this order.
6
the minimum amount necessary to add PinQi as a Plaintiff and to
7
identify which Plaintiff is asserting which claims.
8
add any new claims and must file a redline version of the third
9
amended complaint highlighting all changes to the 2AC.
However, in light of
They shall amend their complaint only
They may not
Defendants
United States District Court
For the Northern District of California
10
shall file their answer to the third amended complaint within
11
seven days of this order.
12
A final pretrial conference will be held at 2:00 p.m. on
13
February 26, 2014.
14
participate in a settlement conference with a magistrate judge
15
before the final pretrial conference.
16
As stated at the hearing, the parties shall
IT IS SO ORDERED.
17
18
19
Dated:
1/29/2014
CLAUDIA WILKEN
United States District Judge
20
21
22
23
24
25
26
27
28
36
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