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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1 2 3 IN THE UNITED STATES DISTRICT COURT 4 FOR THE NORTHERN DISTRICT OF CALIFORNIA 5 6 PQ LABS, INC., 7 8 9 United States District Court For the Northern District of California 10 11 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) 12 13 Plaintiff PQ Labs, Inc. brought this action against 14 Defendants Yang Qi, Jinpeng Li, Haipeng Li, and ZaagTech, Inc. for 15 misappropriation of trade secrets, copyright infringement, 16 trademark infringement, breach of contract, and various other 17 business-related torts. 18 all claims. 19 answer and one of their responses to Plaintiff’s requests for 20 admissions. 21 the parties’ submissions and oral argument, the Court grants in 22 part the motion for summary judgment and denies it in part and 23 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 24 BACKGROUND 25 The following facts are undisputed except where otherwise 26 27 28 noted. PQ Labs is a California corporation that manufactures and develops hardware and software for computer touch-screen products. 1 Docket No. 87, Declaration of Fei “Frank” Lu ¶ 1. 2 2009, it entered into a contract with 22Miles, Inc. for 3 “management and human resource services.” 4 Agreement, at 1. 5 it with an independent contractor “to answer pre-sale engineering 6 inquiries and perform sales service & support for PQ’s products in 7 the United States.” 8 22Miles hired Yang Qi to play this role and assigned him to serve 9 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 10 Decl. ¶ 8, Ex. B, at 2-3. 11 and 22Miles provided that Yang Qi’s term would be renewed 12 automatically at the end of the year unless either party expressly 13 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 15 until April 2010, when PQ Labs terminated the vendor agreement. 16 Id. ¶ 11; Docket No. 80, Declaration of Yang Qi ¶ 8. 17 period, he managed the company’s global sales operations, 18 including its relationships with distributors and customers. 19 Decl. ¶ 11; Qi Decl. ¶¶ 3, 6. 20 of PQ Labs’ customer contact information, pricing lists, customer 21 discount information, and marketing lists.” 22 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 23 Labs, Jinpeng Li was hired as a hardware engineer by PinQi Digital 24 Technology Company, Ltd., a wholly-owned subsidiary of PQ Labs 25 based in Shanghai. Lu Decl. ¶¶ 2, 14; Docket No. 81, Declaration 26 of Jinpeng Li ¶ 2. In that capacity, Jinpeng Li had access to 27 various “hardware designs and schematics” for PQ Labs’ products. 28 2 1 Lu Decl. ¶¶ 14-15. 2 after May 2010. 3 Jinpeng Li was terminated by PinQi sometime 1 In this suit, PQ Labs alleges that Yang Qi and Jinpeng Li 4 misappropriated several of its trade secrets, including hardware 5 schematics, confidential customer information, and software code. 6 Docket No. 39, Second Amended Complaint (2AC) ¶¶ 12-42. 7 further alleges that they worked with a third individual, Haipeng 8 Li, to form a sham distributorship in order to divert sales away 9 from PQ Labs. Id. It Finally, it alleges that Yang Qi and Jinpeng United States District Court For the Northern District of California 10 Li used the confidential information they stole from PQ Labs to 11 help form a competing touch-screen technology company in China 12 called ZaagTech, Inc. 13 Defendants with misappropriation of trade secrets, copyright 14 infringement, trademark infringement, false advertising, tortious 15 interference with contract and prospective economic advantage, 16 breach of contract, breach of fiduciary duty, fraudulent 17 concealment, conversion, trespass to chattels, violations of the 18 federal Computer Fraud and Abuse Act, violations of California 19 Penal Code section 502, and unfair competition. Id. 20 21 The operative complaint charges Id. ¶¶ 43-173. DISCUSSION I. Motion for Summary Judgment 22 A. 23 Summary judgment is properly granted when no genuine and Legal Standard 24 disputed issues of material fact remain, and when, viewing the 25 evidence most favorably to the non-moving party, the movant is 26 1 27 28 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. 4 1987). 5 Fed. R. Civ. The moving party bears the burden of showing that there is no 6 material factual dispute. 7 true the opposing party’s evidence, if supported by affidavits or 8 other evidentiary material. 9 815 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 10 in favor of the party against whom summary judgment is sought. 11 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 12 587 (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 15 are those which, under applicable substantive law, may affect the 16 outcome of the case. The substantive law will identify which 17 facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 18 242, 248 (1986). 19 of proof on an issue at trial, the moving party may discharge its 20 burden of production by either of two methods: 21 Where the moving party does not bear the burden 24 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 26 1099, 1106 (9th Cir. 2000). 22 23 27 If the moving party discharges its burden by showing an 28 absence of evidence to support an essential element of a claim or 4 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); 5 Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991). 6 the moving party shows an absence of evidence to support the non- 7 moving party’s case, the burden then shifts to the non-moving 8 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 10 Id.; If Bhan, 929 F.2d at 1409. 11 If the moving party discharges its burden by negating an 12 essential element of the non-moving party’s claim or defense, it 13 must produce affirmative evidence of such negation. 14 F.3d at 1105. 15 burden then shifts to the non-moving party to produce specific 16 evidence to show that a dispute of material fact exists. 17 Nissan, 210 If the moving party produces such evidence, the Id. If the moving party does not meet its initial burden of 18 production by either method, the non-moving party is under no 19 obligation to offer any evidence in support of its opposition. 20 Id. 21 ultimate burden of persuasion at trial. This is true even though the non-moving party bears the Id. at 1107. 22 B. 23 PQ Labs alleges that Yang Qi, Jinpeng Li, and ZaagTech 24 misappropriated seventeen of its trade secrets, including certain 25 hardware design schematics, software algorithms and code, customer 26 lists and contact information, and other proprietary information. 27 Docket No. 85, Declaration of Bonnie Wolf ¶ 2. Misappropriation of Trade Secrets (Claims 1, 2) 28 5 1 To prevail on a claim for misappropriation of trade secrets 2 under the California Uniform Trade Secrets Act (CUTSA), Cal. Civ. 3 Code §§ 3426 through 3426.11, a plaintiff must show that (1) it 4 owned a trade secret; (2) the defendant acquired, disclosed, or 5 used that trade secret through improper means, and (3) the 6 defendant’s actions damaged the plaintiff. 7 Amerimmune Pharmaceuticals, Inc., 160 Cal. App. 4th 288, 297 8 (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: 11 (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. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 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. 6 Lu specifically 1 explained that this information “constituted PQ trade secrets” and 2 “if other people, companies or potential competitors had access to 3 this information it would have severe negative consequences for 4 PQ’s business.” 5 included a provision prohibiting 22Miles and its employees from 6 disclosing any of PQ Labs’ confidential information or using that 7 information to gain a competitive advantage over PQ Labs. 8 Ex. B, at 2-3. 9 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 10 him to keep confidential PQ Labs’ “[c]ustomer lists,” “pricing 11 techniques and strategies,” “parts, drawings, data, sketches, 12 plans, programs, specifications, techniques, processes, and other 13 information relating to equipment and its use,” and “[s]oftware 14 designs, source code, object code, and any techniques, processes, 15 methods or designs relating to multi-touch.” 16 Confidentiality & Unfair Competition Agreement, at 12. 17 22Miles asserted in his declaration that he also instructed Yang 18 Qi “to keep any information that he received from or about PQ and 19 22Miles in the strictest confidence and not disclose [it] to any 20 third parties.” 21 Id., Ex. D, The CEO of Zhao Decl. ¶ 7. Like Yang Qi, Jinpeng Li was also explicitly warned not to 22 disclose any confidential information about PQ Labs’ customers or 23 touch-screen technology. 24 told Jinpeng Li to keep confidential “all information regarding 25 PQ’s Multi-Touch overall product design concept, implementation 26 details, algorithms,” and other technical information when PinQi 27 hired Jinpeng Li in June 2009. Lu stated in his declaration that he Id. ¶ 16. 28 7 1 According to Lu’s declaration, all PQ Labs employees received 2 similar warnings and those with access to sensitive information 3 were required to sign confidentiality agreements. 4 also noted that the company rigidly controls access to its 5 research, development, and production facilities with fingerprint 6 scanners and security personnel and relies on passwords and 7 firewalls to protect its electronic information. 8 protocols are sufficient to support an inference that PQ Labs took 9 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 12 respecting its trade secrets, including the Customer Database. 13 Thus, under the [C]UTSA, the MAI Customer Database constitutes a 14 trade secret.”); Religious Tech. Ctr. v. Netcom On-Line Commc’n 15 Servs., Inc., 923 F. Supp. 1231, 1253-54 (N.D. Cal. 1995) (finding 16 that the plaintiff organization “put forward sufficient evidence 17 that it took steps that were reasonable under the circumstances to 18 protect its purported trade secrets” by submitting a declaration 19 from its president documenting the organization’s use of “security 20 personnel,” “electronic sensors attached to documents,” and 21 “confidentiality agreements for all of those given access to the 22 materials”). 23 24 25 26 27 28 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. 8 1 Defendants argue that the security measures that PQ Labs has 2 identified do not constitute reasonable efforts to protect its 3 trade secrets because they do nothing to prevent reverse- 4 engineering of its products. 5 PQ Labs’ four trade secrets relating to “printed circuit board” 6 technology, claiming that these trade secrets are susceptible to 7 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 12 long as you have the money, you have the time, you have the 13 people, you can do that, yeah. 14 perfunctory statement -- that “anything” is susceptible to 15 reverse-engineering given enough time and resources -- does not 16 demonstrate that PQ Labs failed to make reasonable efforts to 17 prevent reverse-engineering of its products. 18 that PQ Labs’ other efforts to protect its printed circuit board 19 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 27 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 4 have merely presented Lu’s testimony acknowledging that “possibly 5 everything” can be reverse-engineered. 6 Defendants had presented evidence showing that PQ Labs failed to 7 prevent reverse-engineering, ERG would not govern the outcome of 8 this case for another reason: the decision applied the legal 9 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. 11 be protectable either as a trade secret or by copyright law to be 12 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. 15 551 (N.D. Cal. 1999), this Court granted summary judgment to the 16 defendant on a trade secret claim because the plaintiff failed to 17 mark its alleged trade secrets as confidential. 18 requirement, however, is irrelevant here because, as outlined 19 above, PQ Labs has presented evidence that it used other means to 20 notify its employees and agents that its technological and 21 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 3 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. 11 comparable to the eighteen-month delay in filing suit that the 12 court found permissible in HiRel. 13 it would not be appropriate at this time to set any earlier date 14 certain [i.e., earlier than eighteen months from the publication 15 date] after which Plaintiff lost its rights to those trade 16 secrets.”). 17 never disclosed in a public forum. 18 once a plaintiff’s trade secret has been publicly disclosed, 19 “merely filing suit against the alleged wrongdoer does not 20 constitute ‘reasonable efforts’ to protect the trade secrets 21 against others who might be interested in obtaining those 22 secrets.” 23 not apply in the present case, where PQ Labs’ trade secrets were 24 never publicly disclosed. 25 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 28 that [the plaintiff] made reasonable efforts to protect the 11 1 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 6 C. 7 PQ Labs alleges that Yang Qi, Jinpeng Li, and ZaagTech Copyright Infringement (Claim 3) 8 infringed its copyright in the “PQ Labs MultiTouch System 9 Software,” Copyright Registration No. TXu 1-620-335, by using the United States District Court For the Northern District of California 10 11 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 17 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 28 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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