PQ Labs, Inc. et al v. Qi et al

Filing 191

FINDINGS OF FACT AND CONCLUSIONS OF LAW. Signed by Judge Claudia Wilken on 9/30/2014. (ndr, COURT STAFF) (Filed on 9/30/2014)

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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., and SHANGHAI PINQI
DIGITAL TECHNOLOGY CO., LTD.,

v.

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United States District Court
For the Northern District of California

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FINDINGS OF FACT
AND CONCLUSIONS OF
LAW

Plaintiffs,

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No. 12-0450 CW

YANG QI; ZAAGTECH, INC.; JINPENG
LI; and HAIPENG LI,
Defendants.
________________________________/

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Plaintiffs PQ Labs, Inc. and Shanghai PinQi Digital

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Technology Co., Ltd. (PinQi) brought this action against

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Defendants Yang Qi, Jinpeng Li and Zaagtech, Inc. and former

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Defendant Haipeng Li for misappropriation of trade secrets,

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copyright infringement, trademark infringement, breach of

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contract, and various other business-related torts.

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on these claims was held between March 10, 2014 and March 13,

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2014.

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evidence, and arguments of counsel presented during and after

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trial, the Court enters the following findings of fact and

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conclusions of law.

After considering all of the testimony, documentary

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A bench trial

FINDINGS OF FACT
I.

The Parties

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A.

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PQ Labs is a California corporation which designs, develops,

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PQ Labs & PinQi

manufactures, and sells hardware and software in the form of

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multi-touch screen overlays, which turn regular monitors into

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touch-screen monitors.

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its current CEO, Fei "Frank" Lu.

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offices in San Jose and China.

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The company was formed in October 2008 by
Trial Tr. 165 (Lu).

It has

Mr. Lu is also the CEO of PinQi, a Chinese corporation based

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in Shanghai.

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165-66.

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B.

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Yang Qi is a Chinese citizen and current CEO of Zaagtech.

PinQi is a wholly owned subsidiary of PQ Labs.

Id.

Yang Qi

United States District Court
For the Northern District of California

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Trial Tr. 283 (Qi).

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independent contractor in PQ Labs' San Jose office.

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Although Mr. Lu interviewed Yanq Qi for the position and made the

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decision to hire him, he relied on a human resources consulting

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firm called 22Miles to hire Yang Qi officially.

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that he relied on 22Miles because he lacked sufficient American

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business experience to obtain the necessary employment visa for

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Yang Qi.

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In February 2009, he was hired to serve as an
Id. 283.

Mr. Lu testified

Id. 58 (Lu).

Yang Qi was a trusted agent for Plaintiffs.

Beginning in

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March 2009, he was tasked with managing PQ Labs' global sales

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operations and frequently traveled around the world to meet with

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prospective customers and distributors.

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official title at PQ Labs -- reflected in his email signature,

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internal business documents, and business cards -- was "Vice

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President of Sales and Marketing."

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to the company's confidential pricing information and customer

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lists.

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enter into sales contracts on behalf of PQ Labs and did enter into

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such contracts on the company's behalf without obtaining approval

Id. 378, 390.

Id.

Id. 366-67 (Qi).

His

This role gave him access

In addition, Yang Qi had the authority to

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from Mr. Lu.

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often operated independently when Mr. Lu was working in Shanghai.

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Id. 61-62.

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he received a commission from PQ Labs, worked exclusively for PQ

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Labs, referred to PQ Labs as "my company" in his online chats with

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friends, and did not do any work for 22Miles during his employment

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there.

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Id. 61 (Lu).

He also supervised company interns and

Although he was officially paid a salary by 22Miles,

Id. 285-86, 376-377 (Qi).

Yang Qi was terminated from his employment at PQ Labs in
April 2010.

Id. 293-94.

That same month, he decided to found a

United States District Court
For the Northern District of California

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competing multi-touch technology company called Zaagtech.

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284-85.

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C.

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Jinpeng Li is a Chinese citizen and current Chief Technology

Id.

Jinpeng Li

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Officer of Zaagtech.

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signed an employment contract to work for PinQi in Shanghai as a

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hardware engineer.

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for California law to apply to the employment contract, which

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states that it is to be applied "in accordance with other laws and

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regulations" besides those of the People's Republic of China.

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Trial Tr. 73-74; Ex. 16 at 1.

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Trial Tr. 411 (J. Li).

Ex. 16.1

In July 2009, he

Mr. Lu testified that he intended

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Attached to the employment contract was an employee
handbook, which the contract incorporates by reference. Ex. 16
at 1. The employee handbook contains certain confidentiality
provisions, including that "the staff of the Company shall have
the obligations and responsibilities for confidentiality works by
holding the Company's trade secrets such as technologies and
business in strict confidence." Id. 7-8. The employee handbook
further prohibits employees from disclosing to those outside the
company the following: customer information, sales information,
intellectual property in product drawings, and other corporate
data, and provides, "Employees shall not take away the Company's
confidential information or its proprietary products and data."
Id. 8.
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1

Jinpeng Li was a trusted agent of Plaintiffs.

He was

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promoted to the position of Technical Director, in which role he

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was responsible for designing hardware schematics and design

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prototypes, understanding how the company's software interacts

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with the hardware, and occasionally initiating and leading new

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research and development projects.

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working for PinQi he began performing work for Zaagtech,

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discontinuing work for PinQi two months later in June 2010.

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Id. 420, 424-25 (J. Li).

United States District Court
For the Northern District of California

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Id. 70-72.

While still

He signed an employment contract to work

for Zaagtech in September 2010.

Id. 422-23.

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D.

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Zaagtech is a Chinese corporation which develops,

Zaagtech

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manufactures, and sells multi-touch technology products.

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Tr. 92, 152-53 (Lu); 444-45 (J. Li).

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Labs and PinQi.

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it incorporated in June 2010.

Trial

It competes directly with PQ

Yang Qi founded the company in early 2010 and had
Id. 300.

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E.

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Haipeng Li is a Chinese citizen who has never worked for PQ

Haipeng Li

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Labs or PinQi.

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called Multitouch Group to serve as a distributor for PQ Labs'

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touchscreen products.

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planned to use PQ Labs' customer lists to divert sales of PQ Labs'

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touchscreen devices to Multitouch Group and to share whatever

In January 2010, he and Yanq Qi formed a company

Trial Tr. 286, 376-77 (Qi).

The two

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Haipeng Li was the only Defendant who did not testify or
appear in Court for trial. Although Plaintiffs asserted during
their opening statement that Haipeng Li remains a Defendant in
this action, Trial Tr. 7, they referred to him as a "former
defendant" in their post-trial briefs. Docket No. 176, Pls.'
Opening Post-Trial Br. 4.
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profits they made.

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sale of a PQ Labs product to Multitouch Group.

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II.

Id. 377 -78.

They used this list to direct one
Id. 382-84.

Facts Relevant to Plaintiffs' Claims

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A.

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To avoid disclosing any of Plaintiffs' proprietary

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information, the Court refers to the nine technological trade

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secrets that Plaintiffs have asserted here as Trade Secrets 1

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through 6 and 8 through 10.

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trade secrets in detail, the Court notes that some of the asserted

Plaintiffs' Trade Secrets

Without describing these asserted

United States District Court
For the Northern District of California

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trade secrets pertain to hardware and circuitry design while

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others pertain to software.

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identified each of these trade secrets with particularity.

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The Court finds that Plaintiffs have

Plaintiffs have also shown that they derived independent

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economic value from these secrets.

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how each of the asserted technological trade secrets enabled

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Plaintiffs to produce their touchscreen products more efficiently

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than their competitors.

Mr. Lu specifically explained

Trial Tr. 105-32, 143-44.

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The economic value of this technology is further evidenced by

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Plaintiffs' efforts to ensure that the technology was not publicly

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disclosed.

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a variety of safeguards to protect the secrecy of their

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proprietary technology.

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employees to sign confidentiality agreements.

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Jinpeng Li signed such an agreement with PinQi in July 2009.

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Id. 72-73; Exs. 15-16.

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reminded his employees of the importance of protecting the

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companies' latest technological developments.

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91.

The trial record demonstrates that Plaintiffs employed

Plaintiffs required all of their
Id. 46 (Lu).

Mr. Lu testified that he also regularly

Trial Tr. 46, 190-

Yang Qi admitted that he remembers receiving an email
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specifically instructing him not to share PQ Labs' confidential

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information with people outside of the company.

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Id. 425.

In addition to the employee confidentiality agreements, PQ

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Labs employed other security measures to ensure that its

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technological secrets remained protected.

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of security cameras to prevent employees from removing any

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physical hardware from the company's offices and fingerprint-

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activated door locks to control access to its research facilities.

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Id. 44-45.

These included the use

PQ Labs also used secure servers to store its

United States District Court
For the Northern District of California

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information and expressly prohibited its employees from copying

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files on their work computers to USB drives.

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leave the company for the day, they are not allowed to bring these

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company documents with [them].").

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from sending technological information -- such as software codes

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and hardware schematics -- over email between the company's

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Shanghai and San Jose offices because the San Jose employees did

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not perform any technological work.

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Id. 45 ("When they

Employees were even prohibited

Id.

PQ Labs undertook similar efforts to protect its confidential

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customer information.

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information about pricing and customers in a Google spreadsheet

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which it made accessible only to its sales employees.

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Exs. 23-26.

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customer information in specific places on its server in order to

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prevent non-sales employees from accessing it.

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For instance, it maintained all of its

Id. 148-51;

The company also took steps to store confidential

Trial Tr. 52-54.

Although Plaintiffs did not produce a copy of any signed

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confidentiality agreement between Yang Qi and PQ Labs, they did

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produce a copy of the agreement that PQ Labs entered into with

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22Miles.

That agreement specifically provided that Yang Qi would
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protect PQ Labs' confidential information.

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between 22Miles and Yang Qi under which Yang Qi agreed to keep PQ

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Labs' information confidential.

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on this evidence, the Court finds that Plaintiffs undertook

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reasonable efforts to protect the trade secrets that they have

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asserted in this case.

Plaintiffs also produced a copy of a separate agreement

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Trial Tr. 62-63; Ex.

Trial Tr. 63-64; Ex. 19.

Based

The trial record also demonstrates that Defendants
misappropriated Plaintiffs' technological trade secrets for use in

United States District Court
For the Northern District of California

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making and selling Zaagtech's touchscreen products.

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emailed himself copies of PQ Labs' confidential customer lists and

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pricing spreadsheets three days before he was terminated.

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Tr. 395-99 (Qi).

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copies of PQ Labs' confidential hardware schematics from Jinpeng

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Li via email and online chats in January and February 2010, even

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though PQ Labs never directed him to engage in any technical work

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requiring access to these schematics.

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(Qi).

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Yang Qi's efforts to create a competing company using PQ Labs'

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proprietary technology.

Yang Qi

Trial

He also admitted that he sought and received

Id. 196 (Lu); 292, 298

During one of these chats, Jinpeng Li specifically praised

Id. 330 (Qi).3

Yang Qi was also

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The Court notes that the parties dispute whether or not the
words Jinpeng Li used to describe Yanq Qi should be translated as
"master of copying" or "master of reverse-engineering." The
translation in the record -- to which both parties stipulated -uses the term "master of copying," Ex. 9, and Defendants failed to
produce any evidence suggesting that this term should be
translated differently. Jinpeng Li did not testify about which
translation he prefers. In any event, regardless of whether the
term is more accurately translated as "master of copying" or
"master of reverse-engineering," the chat logs clearly indicate
that Jinpeng Li supported Yang Qi's efforts to use PQ Labs'
proprietary technology to form a competing company.
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soliciting other friends during this same time period to help him

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develop touchscreen hardware and software modeled after PQ Labs'

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products.

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Id. 297-99.

Plaintiffs' expert, Dr. Andrew Wolfe, testified at length
about the ways in which Zaagtech's touchscreen products

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incorporate Plaintiffs' technological trade secrets.

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Although Defendants' expert, Dr. Sandeep Chatterjee, testified

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that many of these trade secrets could be reverse-engineered with

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relative ease, he never made any attempt to do so himself.

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United States District Court
For the Northern District of California

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did he explain how reverse-engineering could yield the many

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specific similarities -- including portions of nearly identical

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source code -- that Dr. Wolfe identified between Zaagtech's

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products and PQ Labs' products.

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Id. 257- 71.

Nor

In light of Defendants' failure to prove that Defendants

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actually obtained Plaintiffs' trade secrets through reverse-

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engineering, the Court finds that Zaagtech gained access to these

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trade secrets through Yang Qi and Jinpeng Li's misappropriation of

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PQ Labs' proprietary technology.

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that both Yang Qi and Jinpeng Li willfully and maliciously

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misappropriated Plaintiffs' trade secrets.

In addition, the Court finds

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B.

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PQ Labs owns a copyright in the "PQ Labs MultiTouch System

Plaintiffs' Copyright

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Software," Copyright Registration No. TXu 1-620-335.

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testified at trial about the specific content or purposes of the

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copyrighted software.

No witness

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C.

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PQ Labs owns the "PQ Labs" trademark, Trademark Registration

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Plaintiffs' Trademark

No. 4075660.

Trial Tr. 97-98; Ex. 54.
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As of January 2012,

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Zaagtech used the PQ Labs trademark in internet advertisements to

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suggest that Zaagtech was a manufacturer and distributor of PQ

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Labs' touchscreen products.

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example, one advertisement read: "Zaagtech Inc. is a professional

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next window, ir touch, PQ labs [sic] manufacturer and exporter in

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China.

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Ex. 56.

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to deceive its audience and to influence purchasing decisions.

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placing the advertisements on the internet, Zaagtech put them into

Id. 94-97, 353-55; Exs. 56-58.

For

We are specializing in next window, ir touch, PQ labs."
This statement was false on its face and has the tendency

United States District Court
For the Northern District of California

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interstate commerce.

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after receiving a takedown notice from PQ Labs.

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353-55.

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D.

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By

Plaintiffs maintain a network of computers, which they use

Zaagtech removed those advertisements only
Trial Tr. 94-97,

"Phishing"4 Emails

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for ordinary business purposes.

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January 26, 2011, and December 12, 2011, Plaintiffs' employees

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received at least seven phishing emails containing viruses or

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other harmful computer programs.

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emails contained indications that the sender (or senders) was

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Chinese, and that the sender was familiar with Plaintiffs'

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products.

Id. 155-61.

Trial Tr. 154-55.

Between

Id. 155-62; Ex. 32.

Those

As a result of these phishing emails,

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"Phishing involves an attempt to acquire information such
as usernames, passwords, or financial data by a perpetrator
masquerading as a legitimate enterprise. Typically, the
perpetrator will provide an e-mail or link that directs the victim
to enter or update personal information at a phony website that
mimics an established, legitimate website which the victim either
has used before or perceives to be a safe place to enter
information." Patco Constr. Co. v. People's United Bank, 684 F.3d
197, 204 n.5 (1st Cir. 2012).
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Plaintiffs were forced to expend some $280,000 on network

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upgrades, consulting fees, and other operating costs.

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However, the evidence at trial was not sufficient to demonstrate

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that Defendants were responsible for the phishing emails.

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III. Facts Relevant to Damages

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Id. 162.

From August 2010 (the time that Zaagtech entered the market)

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until July 2013, the price of Plaintiffs' products fell

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approximately eighty-three percent.

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of that price erosion, although Plaintiffs' overall sales

Trial Tr. 500.5

As a result

United States District Court
For the Northern District of California

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increased, compared with projections, profits fell.

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478, 481, 483, 489.6

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continued to increase after Zaagtech's entry into the market,

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sales of Plaintiffs' 52-inch and 60-inch monitors decreased.

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Id. 478.

Id. 465-66,

And although Plaintiffs' overall sales

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The precise amount of lost profits, whether due to price

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erosion or lost sales, cannot be determined from the evidence

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produced at trial.

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$5.37 million in lost profits, based on projections that presumed

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sales trends and prices would have remained constant had Zaagtech

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not entered the market.

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claim that the lower-than-projected sales of their 52-inch and 60-

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inch monitors cost them another $1.89 million in lost profits.

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Id. 477-78.

Plaintiffs claim that price erosion cost them

Id. 465-466.

In addition, Plaintiffs

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By comparison, during the same period the price for
televisions fell approximately 43 percent. Trial Tr. 500.

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The "projections" referred to in this section are sales
projections made by Plaintiffs' expert, Dr. Mark Berkman, based on
past sales trends. Trial Tr. at 481.
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Neither of these claims is credible.

Plaintiffs' presumed

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damages from lost sales are not based on Zaagtech's sales figures;

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instead, they are derived by comparing projections based on

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Plaintiffs' past sales trends with Plaintiffs' actual sales during

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the study period.

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trends are based on as little as three months' data.

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This undermines the credibility of Plaintiffs' claim regarding

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sales.

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competitor, Plaintiffs' projections ignore numerous other

Id. 481, 518.

The three-year projected sales
Id. 520-22.

In addition, although Zaagtech was Plaintiffs' most direct

United States District Court
For the Northern District of California

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competitors in the market.

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the credibility of Plaintiffs' assumption that the price of their

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products would have remained constant during the study period.

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Consequently, the Court has no reliable data concerning the lost

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profits Plaintiffs suffered as a result of Zaagtech's entry into

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the market.

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Id. 484-503, 515-16.

This undermines

By misappropriating Plaintiffs' trade secrets, Defendants

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were spared the costs of research and development.

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misappropriated trade secrets took approximately 3,580 hours to

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develop, at a cost of approximately $214,800.

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114, 118, 122, 125, 130, 132, 144-45.

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The

Id. 105-06, 110,

Finally, Plaintiffs suffered $650 in lost profits as a result

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of the sale that Yang Qi diverted from PQ Labs to the Multitouch

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Group.

Id. 613.

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CONCLUSIONS OF LAW
I.

Liability

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A.

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Plaintiffs allege that Yang Qi, Jinpeng Li, and Zaagtech

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Misappropriation of Trade Secrets (Claims 1, 2)

misappropriated nine of their trade secrets pertaining to
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proprietary technology.

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stole confidential customer information, including "pricing

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history, pricing, customer information and sales data."

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Opening Post-Trial Br. 6.

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They also allege that these Defendants

Pls.'

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

United States District Court
For the Northern District of California

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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).

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Cytodyn, Inc. v.

CUTSA defines a "trade secret" as

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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).

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As set forth in the findings of fact, Plaintiffs derived

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independent economic value from their asserted trade secrets.

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Specifically, the technological trade secrets allowed them to

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manufacture touchscreen products more efficiently than their

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competitors.

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enabled them to engage in targeted pricing and marketing.

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both the technological information and customer information had

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sufficient economic value to satisfy the first prong of CUTSA's

Likewise, their confidential customer information

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Thus,

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trade secret definition.

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Co., 2010 WL 147937, at *3 (N.D. Cal.) (noting that an "'alleged

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trade secret derives actual or potential economic value if a

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competitor cannot produce a comparable product without a similar

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expenditure of time and money'" (citations omitted)); Morlife,

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Inc. v. Perry, 56 Cal. App. 4th 1514, 1522 (1997) ("[A] customer

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list can be found to have economic value because its disclosure

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would allow a competitor to direct its sales efforts to those

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customers who have already shown a willingness to use a unique

See MMCA Grp., LTD v. Hewlett-Packard

United States District Court
For the Northern District of California

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type of service or product as opposed to a list of people who only

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might be interested.").

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Plaintiffs also showed that they made reasonable efforts to

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protect their asserted trade secrets.

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on a variety of protective measures including employee non-

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disclosure and confidentiality agreements, secure servers,

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controlled access to their research facilities, and strict company

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rules governing the sharing and copying of electronic information.

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Courts have recognized that procedures like these generally

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constitute "reasonable" efforts to protect trade secrets under

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CUTSA.

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511, 521 (9th Cir. 1993) ("MAI required its employees to sign

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confidentiality agreements respecting its trade secrets, including

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the Customer Database.

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Database constitutes a trade secret."); Religious Tech. Ctr. v.

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Netcom On-Line Communication Servs., Inc., 923 F. Supp. 1231,

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1253-54 (N.D. Cal. 1995) (finding that the plaintiff organization

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"put forward sufficient evidence that it took steps that were

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reasonable under the circumstances to protect its purported trade

As noted above, they relied

See MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d

Thus, under the [C]UTSA, the MAI Customer

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secrets" by submitting a declaration from its president

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documenting the organization's use of "security personnel,"

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"electronic sensors attached to documents," and "confidentiality

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agreements for all of those given access to the materials").

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Defendants argue that Plaintiffs' efforts to protect their

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trade secrets were not sufficient because Plaintiffs waited

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roughly twenty months after Yang Qi's and Jinpeng Li's employment

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ended to file the instant lawsuit.

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Plaintiffs did not mark their products as confidential and failed

Defendants also note that

United States District Court
For the Northern District of California

10

to use certain security measures, such as "potting," to prevent

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reverse-engineering of their technological trade secrets.

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Court previously rejected all of these arguments in its summary

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judgment order.

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Plaintiffs need not employ every conceivable method of protecting

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their trade secrets in order to show that they made "reasonable"

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efforts to do so.

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their most recent arguments from those which were previously

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raised and rejected.

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evidence that they cited in their summary judgment briefs.

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Because Defendants' arguments remain unavailing, the Court

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concludes that Plaintiffs' asserted trade secrets satisfy the

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definition set forth in CUTSA.7

The

Docket No. 113, Jan. 29, 2014 Order 9-12.

Defendants have not attempted to distinguish

Instead, they rely on the same case law and

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Defendants raise one new argument in their post-trial
brief: that "Plaintiffs have not discharged their burden to show
that PinQi owns any of the alleged trade secrets in this case."
Docket No. 180, Defs.' Post-Trial Br. 10. This argument is
undermined by Mr. Lu's testimony that he viewed the asserted trade
secrets in this case as belonging to both PQ Labs and PinQi.
Trial Tr. 42. Moreover, Defendants do not dispute that PQ Labs
owned all of the trade secrets asserted here, nor do they dispute
that PinQi is a wholly owned subsidiary of PQ Labs; as such,
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The trial record demonstrates that Yang Qi and Jinpeng Li

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misappropriated these trade secrets by disclosing them -- without

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Plaintiffs' consent -- to Zaagtech, which then used them to

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produce, market, and sell its own competing touchscreen products.

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As explained above, Defendants' use of these trade secrets

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ultimately caused economic harm to Plaintiffs.

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Defendants' conduct constitutes misappropriation of trade secrets

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under CUTSA.

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B.

United States District Court
For the Northern District of California

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Accordingly,

Copyright Infringement (Claim 3)

Plaintiffs did not raise any arguments in support of their

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copyright infringement claim in their post-trial briefs and

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conceded that they had presented "limited evidence" to support

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this claim at trial.

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Court concludes that Defendants did not infringe Plaintiffs'

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copyright.

Pls.' Opening Post-Trial Br. 23.

Thus, the

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Defendants implicitly acknowledge that their liability would
remain the same regardless of whether or not PinQi co-owned any of
the asserted trade secrets. Indeed, when the Court raised this
point at trial and asked Defendants whether PinQi's ownership of
the trade secrets was relevant, Defendants' counsel stated, "I'll
yield the point." Id. 171-72.
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1

C.

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Plaintiffs bring claims against for trademark infringement

Trademark Infringement and False Advertising

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and false advertising, alleging that Zaagtech8 violated both the

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Lanham Act and California state law by using the mark "PQ Labs" in

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internet advertising, thereby falsely suggesting that it was a

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distributor and manufacturer of PQ Labs' touch-screen products.

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1.

Trademark Infringement: Lanham Act (Claim 5)

"To prevail on a claim of trademark infringement under the
Lanham Act, 15 U.S.C. § 1114, a party 'must prove: (1) that it has

United States District Court
For the Northern District of California

10

a protectible ownership interest in the mark; and (2) that the

11

defendant's use of the mark is likely to cause consumer

12

confusion.'"

13

Inc., 638 F.3d 1137, 1144 (9th Cir. 2011) (citing Dep't of Parks &

14

Recreation v. Bazaar Del Mundo Inc., 448 F.3d 1118, 1124 (9th Cir.

15

2006)).

Network Automation, Inc. v. Advanced Sys. Concepts,

16

As set forth in the findings of fact, the trial record

17

demonstrates that Plaintiffs had an ownership interest in the PQ

18

Labs trademark, which Zaagtech infringed by using that mark

19

without authorization in a manner that falsely suggested a formal

20

business relationship between Plaintiffs and Zaagtech, and,

21

therefore, was likely to cause confusion.

22
23
24

2.

False Advertising: Lanham Act (Claim 6)

To prevail on a claim for false advertising under the Lanham
Act, a plaintiff must show:

25
26
8

27
28

The Court granted Defendants Yang Qi and Jinpeng Li summary
judgment on Plaintiffs' trademark and false advertising claims
against them.
16

1
2
3
4
5
6
7
8
9

(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 the 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

United States District Court
For the Northern District of California

10

Cir. 1997) (citing 15 U.S.C. § 1125(a)).

11

met by showing "that the statement was literally false, either on

12

its face or by necessary implication."

13

v. Pennzoil Co., 987 F.2d 939, 946 (3d Cir. 1993)).

The first element may be

Id. (citing Castrol Inc.

14

As set forth in the findings of fact, the trial record

15

demonstrates that Zaagtech's advertisement, which stated that it

16

was "PQ labs [sic] manufacturer and exporter in China" was

17

literally false on its face.

18

deceive its audience and to influence purchasing decisions.

19

placing the advertisement on the internet, Zaagtech put it into

20

interstate commerce.

The statement has the tendency to
By

21

The trial record does not, however, show that Plaintiffs

22

suffered damages as a result of Zaagtech's false advertising;

23

consequently, Plaintiffs may not recover damages for it.

24

House, Inc. v. Thomas Nelson, Inc., 889 F.2d 197, 210 (9th Cir.

25

1989) ("a competitor need not prove injury when suing to enjoin

26

conduct that violates section 43(a), . . .

27

under section 43(a), however, actual evidence of some injury

28
17

Harper

In a suit for damages

1

resulting from the deception is an essential element of the

2

plaintiff's case" (emphasis in original)).

3
4

3.

False Advertising: California Law (Claim 7)

Section 17500 of the California Business and Professions Code

5

makes it unlawful for a business to disseminate any statement

6

"which is untrue or misleading, and which is known, or which by

7

the exercise of reasonable care should be known, to be untrue or

8

misleading."

9

necessary only to show that members of the public are likely to be

To prevail on a claim under this provision, "it is

United States District Court
For the Northern District of California

10

deceived" by a given advertisement.

11

4th 939, 951 (2002).

12

trial record demonstrates that Zaagtech engaged in advertising

13

that was likely to deceive members of the public.

14

Plaintiffs are entitled to injunctive relief.

15

at 951.

16

D.

17
18
19
20
21
22
23
24
25
26
27

Kasky v. Nike, Inc., 27 Cal.

As demonstrated in Part I.C.3, above, the

Consequently,

Kasky, 27 Cal. 4th

Tortious Interference with Prospective Economic
Advantage (Claims 12, 13)

Plaintiffs allege that Defendants unlawfully interfered with
their prospective economic advantage by stealing their customers.
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
relationship; (4) actual disruption of the relationship; and
(5) economic harm to the plaintiff proximately caused by the acts

28
18

1

of the defendant.'"

2

Cal. 4th 1134, 1153 (2003) (citations omitted).

3

Korea Supply Co. v. Lockheed Martin Corp., 29

As set forth in the findings of fact, the trial record

4

demonstrates that Yang Qi deliberately diverted at least one PQ

5

Labs sale to Multitouch Group, the company that he had formed with

6

Haipeng Li.

7
8
9

E.

Doing so evidenced all of the elements of this claim.

Phishing Email Claims
1.

California Penal Code Section 502 (Claim 10)

Section 502 was enacted "to expand the degree of protection

United States District Court
For the Northern District of California

10

afforded to individuals, businesses, and governmental agencies

11

from tampering, interference, damage, and unauthorized access to

12

lawfully created computer data and computer systems."

13

Code § 502(a).

14

offense for any person to access a "computer, computer system, or

15

computer network" without permission or to "introduce[] any

16

computer contaminant into any computer, computer system, or

17

computer network."

18

502(e) provides that the "owner or lessee of the computer,

19

computer system, computer network, computer program, or data who

20

suffers damage or loss by reason of a violation of any of the

21

provisions of subdivision (c) may bring a civil action against the

22

violator for compensatory damages and injunctive relief or other

23

equitable relief."

24

Cal. Penal

Among other acts, section 502(c) makes it a public

Id. § 502(c)(7)-(8).

In addition, section

Here, Plaintiffs failed to present evidence sufficient to

25

show that Defendants were responsible for the phishing attacks.

26

Thus, Plaintiffs are not entitled to relief on this claim.

27
28
19

1

2.

2

Trespass to Chattels (Claim 18)

The "tort of trespass to chattels allows recovery for

3

interferences with possession of personal property 'not

4

sufficiently important to be classed as conversion, and so to

5

compel the defendant to pay the full value of the thing with which

6

he has interfered.'"

7

1350 (2003) (quoting Prosser & Keeton, Torts (5th ed. 1984) § 14,

8

pp. 85-86).

9

"unwanted electronic contact between computers," the plaintiff

Intel Corp. v. Hamidi, 30 Cal. 4th 1342,

To prevail on a trespass-to-chattels claim based on

United States District Court
For the Northern District of California

10

must establish that the unwanted contact "involved some actual or

11

threatened interference with the computers' functioning."

12

1353.

13

Id. at

Again, because they failed to provide evidence sufficient to

14

show that Defendants were responsible for the phishing attacks,

15

Plaintiffs are not entitled to relief on this claim.

16
17

3.

Computer Fraud and Abuse Act (Claim 19)

"The CFAA prohibits a number of different computer crimes,

18

the majority of which involve accessing computers without

19

authorization or in excess of authorization, and then taking

20

specified forbidden actions, ranging from obtaining information to

21

damaging a computer or computer data."

22

Brekka, 581 F.3d 1127, 1131 (9th Cir. 2009).

23

the statute makes it unlawful for any person to "knowingly cause[]

24

the transmission of a program, information, code, or command, and

25

as a result of such conduct, intentionally cause[] damage without

26

authorization, to a protected computer."

27

§ 1030(a)(5)(A).

28

bring a civil action under the CFAA is the "loss to 1 or more

LVRC Holdings LLC v.
Among other acts,

18 U.S.C.

One circumstance that allows a plaintiff to

20

1

persons during any 1-year period . . . aggregating at least $5,000

2

in value."

3

18 U.S.C. §§ 1030(c)(A)(1)(I), 1030(g).

Once again, because they failed to present evidence

4

sufficient to show that Defendants were responsible for the

5

phishing attacks, Plaintiffs are not entitled to relief on this

6

claim.

7

F.

8

PinQi alleges that Jinpeng Li breached the confidentiality

Breach of Contract (Claim 14)

provisions of his employment contract by disclosing hardware

10
United States District Court
For the Northern District of California

9

schematics and other proprietary technological information.

11

"The elements of a cause of action for breach of contract

12

are: 1) the existence of the contract; 2) performance by the

13

plaintiff or excuse for nonperformance; 3) breach by the

14

defendant; and 4) damages."

15

Bank, N.A., 863 F. Supp. 2d 928, 954 (N.D. Cal. 2012).

16

McNeary-Calloway v. JP Morgan Chase

Jinpeng Li breached the confidentiality provisions of his

17

employment agreement with PinQi by transmitting Plaintiffs'

18

hardware schematics to Yang Qi and by using those hardware

19

schematics to generate hardware schematics for Zaagtech's

20

products, causing damage to Plaintiffs.

21

G.

22

PQ Labs alleges that Jinpeng Li and Yang Qi breached their

23

fiduciary duty to PQ Labs by misappropriating its trade secrets

24

and using them to support Zaagtech.

25

Breach of Fiduciary Duty (Claim 15)

To prevail on a claim for breach of fiduciary duty under

26

California law, a plaintiff must show (1) the existence of a

27

fiduciary duty; (2) a breach of that fiduciary duty; and

28
21

1

(3) resulting damage.

2

524 (2008).

3

Pellegrini v. Weiss, 165 Cal. App. 4th 515,

Here, both Jinpeng Li and Yang Qi were trusted agents who had

4

fiduciary duties to Plaintiffs.

5

PinQi, had a fiduciary duty to both his employer and to PQ Labs as

6

PinQi's owner.

7

2010 WL 126774, at *5 (N.D. Cal.); see also Richardson v. Reliance

8

Nat'l Indem. Co., 2000 WL 284211 (N.D. Cal.) (refusing to dismiss

9

breach of fiduciary duty claim because defendants owed fiduciary

Jinpeng Li, as an employee of

See Thomas Weisel Partners LLC v. BNP Parabas,

United States District Court
For the Northern District of California

10

duty to subsidiary of plaintiff's corporation).

11

he was nominally employed by 22Miles, also had a fiduciary duty as

12

an agent of Plaintiffs.

13

400, 410-11 (2007); see also 3 Witkin, Summary of California Law

14

Agency § 100 (10th ed. 2005) ("An agent or employee is under a

15

duty not to compete with his or her principal on matters connected

16

with the agency, unless the principal and the agent otherwise

17

agree.").

18

by misappropriating Plaintiffs' trade secrets and disclosing them

19

to Zaagtech, which then used them to produce, market, and sell its

20

own competing touchscreen products, causing economic harm to

21

Plaintiffs.

Yang Qi, although

Huong Que, Inc. v. Luu, 150 Cal. App. 4th

As set forth above, these Defendants breached that duty

22

H.

23

PQ Labs alleges that Yang Qi is liable for fraudulent

24

concealment because he secretly formed Multitouch Group while he

25

served as PQ Labs' account manager.

26

Fraudulent Concealment (Claim 16)

To prevail on a claim for fraudulent concealment under

27

California law, "(1) the defendant must have concealed or

28

suppressed a material fact, (2) the defendant must have been under
22

1

a duty to disclose the fact to the plaintiff, (3) the defendant

2

must have intentionally concealed or suppressed the fact with the

3

intent to defraud the plaintiff, (4) the plaintiff must have been

4

unaware of the fact and would not have acted as he did if he had

5

known of the concealed or suppressed fact, and (5) as a result of

6

the concealment or suppression of the fact, the plaintiff must

7

have sustained damage."

8

App. 4th 1117, 1126-27 (2010).

9

Levine v. Blue Shield of Cal., 189 Cal.

Yang Qi does not dispute that his involvement with Multitouch

United States District Court
For the Northern District of California

10

Group was a material fact, that he concealed that fact, that had

11

he not concealed that fact PQ Labs likely would have acted

12

differently, or that PQ Labs sustained damages as a result of his

13

concealment.

14

fraudulent concealment because owed no fiduciary duty to PQ Labs.

15

However, the Court already has determined that Yang Qi did have a

16

fiduciary duty to PQ Labs as that company's agent.

17

is liable for fraudulent concealment.

Yang Qi argues only that he cannot be liable for

Thus, Yang Qi

18

I.

19

Plaintiffs allege that Yang Qi took possession of a touch-

Conversion (Claim 17)

20

screen monitor in February 2010 and then sold it through

21

Multitouch Group without PQ Labs' authorization, thereby depriving

22

PQ Labs of the full profit it would have earned on that sale.

23

To prevail on a claim for conversion, a plaintiff must show:

24

(1) ownership or right to possess the subject property; (2) the

25

defendant's conversion by a wrongful act or disposition of the

26

property; and (3) damages.

27

Cal. App. 4th 208, 221 (2003).

Spates v. Dameron Hosp. Ass'n, 114

28
23

1

As the findings of fact show, Yang Qi took possession of at

2

least one touch-screen monitor, which he sold through Multitouch

3

Group, thereby depriving Plaintiffs of $650 in lost profits.

4

Therefore, Yang Qi is liable for conversion.

5

J.

6

Plaintiffs' unfair competition claims are based on the same

Unfair Competition (Claims 4, 8, 9, 11, 20, 21)

7

allegations underlying its claims for trademark infringement

8

(Claim 4); false advertising (Claims 8, 9); phishing emails

9

(Claim 11); tortious interference with prospective economic

United States District Court
For the Northern District of California

10

advantage (Claim 20); and breach of fiduciary duty (Claim 21).

11

1.

12
13

Unfair Competition: Trademark Infringement
(Claim 4)

Claims of unfair competition alleging trademark infringement

14

under California law are "subject to the same test" as trademark

15

infringement claims under the Lanham Act.

16

Mattel, Inc., 518 F.3d 628, 631 n.1, 632 (9th Cir. 2008)

17

(citations omitted); see also Mallard Creek Indus., Inc. v.

18

Morgan, 56 Cal. App. 4th 426, 435 (1997) (in trademark

19

infringement and unfair competition claims, "the ultimate test

20

under both federal and California law is whether the similarity

21

between the two marks is likely to deceive or confuse the

22

public.").

23

Zaagtech infringed PQ Labs' mark under the Lanham Act, it also

24

infringed and engaged in unfair competition under California law.

25
26

Jada Toys, Inc. v.

Thus, because the trial record demonstrates that

2.

Unfair Competition: False Advertising (Claims 8, 9)

As set forth above, Defendants' description in an internet

27

advertisement of itself as "PQ labs [sic] manufacturer and

28

exporter in China" constituted false advertising under California
24

1

law.

2

California law.

Thus, it also constituted unfair competition under

3
4

3.

Unfair Competition: Phishing Emails (Claim 11)

As set forth above, Plaintiffs failed to present evidence

5

sufficient to show that Defendants were responsible for the

6

phishing attacks.

7

claim.

8

4.

9

United States District Court
For the Northern District of California

10

Plaintiffs are not entitled to relief on this

Unfair Competition: Tortious Interference with
Prospective Economic Advantage (Claim 20)

As set forth above, Plaintiffs demonstrated that Defendants

11

interfered with Plaintiffs' business relationships by interposing

12

Multitouch Group between Plaintiffs and at least one customer,

13

thereby depriving Plaintiffs of at least $650 in lost profits.

14

This constitutes unfair competition under California law.

15

Angelica Textile Servs., Inc. v. Park, 220 Cal. App. 4th 495, 510

16

(2013) ("conduct needed to maintain a statutory or common law

17

unfair competition cause of action may consist of tortious

18

interference with business relations").

19

5.

See

Unfair Competition: Breach of Fiduciary Duty
(Claim 21)

20
As set forth above, Plaintiffs demonstrated that Defendants
21
Jipeng Li and Yang Qi breached their fiduciary duty to Plaintiffs
22
by misappropriating and disclosing Plaintiffs' trade secrets.
23
This constitutes unfair competition under California law.

See

24
Bancroft-Whitney Co. v. Glen, 64 Cal. 2d 327, 355 (1966) (where
25
there is a "causal relationship" between a defendant's breach of
26
fiduciary duty and a new competitive enterprise, the breach of
27
fiduciary duty also constitutes unfair competition).
28
25

1
2

II.

Remedy
A.

3
4

1.

(a) A complainant may recover damages for the
actual loss caused by misappropriation. A
complainant also may recover for the unjust
enrichment caused by misappropriation that is not
taken into account in computing damages for actual
loss.
. . .
(c) If willful and malicious misappropriation
exists, the court may award exemplary damages in an
amount not exceeding twice any award made under
subdivision (a) or (b).

6
7
8
9

United States District Court
For the Northern District of California

10
11

13

Misappropriation of Trade Secrets

The CUTSA provides, in relevant part:

5

12

Damages

Cal. Civ. Code § 3426.3.
As set forth in the findings of fact, the only actual loss

14

Plaintiffs were able to demonstrate at trial was $650 in lost

15

profits that resulted from Yang Qi's diversion of an individual

16

sale from Plaintiffs to Multitouch Group.

17

record demonstrates that Defendants were unjustly enriched by

18

$214,800 by their misappropriation of trade secrets, which spared

19

them the expense of conducting their own research and development.

20

Thus, Plaintiffs are entitled to an award of actual damages in the

21

amount of $215,450.

22

In addition, the trial

In addition, the Court finds that Yanq Qi and Jinpeng Li

23

engaged in willful and malicious misappropriation,9 and awards

24

Plaintiffs exemplary damages in the amount of $430,900.

25
26
27
28

9

Zaagtech is not, itself, liable for exemplary damages
because, "[u]nder California punitive damages law, a company
simply cannot commit willful and malicious conduct -- only an
individual can." Taiwan Semiconductor Mfg. Co. v. Tela
Innovations, Inc., 2014 U.S. Dist. LEXIS 101657, at *20-21 (N.D.
Cal.).
26

1
2

2.

Other Claims

Plaintiffs provided no evidence that it incurred economic

3

damages as a result of Zaagtech's infringement of the PQ Labs

4

trademark.

5

recover monetary damages for trademark infringement, a plaintiff

6

"must prove both the fact and the amount of damage."

7

Co., Inc. v. Bic Pen Corp., 982 F.2d 1400, 1407 (9th Cir. 1993).

8

Similarly, a plaintiff in a California state law trademark action

9

must prove damages in order to recover damages.

The Ninth Circuit has made clear that, in order to

United States District Court
For the Northern District of California

10

Code § 14250(a).

11

Lindy Pen

Cal. Bus. & Prof.

for Zaagtech's infringement of their trademark.

Consequently, Plaintiffs cannot recover damages

12

B.

13

The Lanham Act provides this Court with power to grant

Injunction

14

injunctive relief "to prevent the violation of any right of the

15

registrant of a registered mark in the Patent and Trademark

16

Office."

17

unfair competition law "relief is generally limited to injunctive

18

relief and restitution."

19

98 Cal. App. 4th 1158, 1179 (2012).

20

15 U.S.C. § 1116(a).

In addition, under California's

Walker v. Countrywide Home Loans, Inc.,

The Court finds that Plaintiffs are entitled to an injunction

21

barring Defendants from any further misappropriation of

22

Plaintiffs' trade secrets, infringement of Plaintiffs' trademarks,

23

or engaging in any false or deceptive advertising with regard to

24

Plaintiffs and their products.

25

C.

26

Plaintiffs seek an award of attorneys' fees resulting from

Attorneys' Fees and Costs

27

their claims for misappropriation of trade secrets, trademark

28

infringement, and false advertising.
27

Defendants seek an award of

1

attorneys' fees resulting from their defense of the copyright

2

claim.

3
4

1.

Misappropriation of Trade Secrets (Claims 1, 2)

The CUTSA provides that where "willful and malicious

5

misappropriation exists, the court may award reasonable attorney's

6

fees and costs to the prevailing party."

7

As set forth above, the Court finds and concludes that Yang Qi and

8

Jinpeng Li willfully and maliciously misappropriated Plaintiffs'

9

trade secrets.

Cal. Civ. Code § 3426.4.

Consequently, Plaintiffs are entitled to an award

United States District Court
For the Northern District of California

10

of attorneys' fees and costs resulting from their misappropriation

11

of trade secrets claims.

12
13

2.

Copyright Infringement (Claim 3)

Defendants argue that they, as the prevailing party on the

14

copyright claim, are entitled to an award of attorneys' fees.

15

Under 17 U.S.C. § 505, the court may in its discretion award the

16

prevailing party reasonable attorneys' fees and costs.

17

Seltzer v. Green Day, Inc., 725 F.3d 1170, 1180 (9th Cir. 2013)

18

("It is important to recall that the Supreme Court rejected the

19

so-called British Rule where the loser pays; rather, attorneys

20

fees are left up to the discretion of the district court" (citing

21

Fogerty v. Fantasy, 510 U.S. 517, 533 (1994)).

22

Defendants give the Court no reason to exercise that discretion,

23

aside from the mere fact that they successfully defended against a

24

single claim.

25

copyright claim.

26

952 F.2d 643, 651 (9th Cir. 1991) (in litigation with a "mixed

27

outcome," "the district court was well within its discretion in

28

concluding that plaintiffs were not prevailing parties within the

See also

However,

The Court will not award attorneys' fees on the
See Arp Films, Inc. v. Marvel Entm't Grp., Inc.,

28

1

meaning of section 505 . . . and accordingly were not entitled to

2

costs or attorneys' fees").

3
4

3.

Trademark Infringement and False Advertising

Congress amended the Lanham Act in 1975 expressly to permit

5

the recovery of reasonable attorneys' fees in "exceptional cases."

6

See 15 U.S.C. § 1117(a).

7

defined in the statute, generally a trademark case is exceptional

8

for purposes of an award of attorneys' fees when the infringement

9

is malicious, fraudulent, deliberate or willful."

"While the term 'exceptional' is not

Lindy Pen,

United States District Court
For the Northern District of California

10

982 F.2d at 1409.

11

awarded attorneys' fees to trademark owners who prosecuted actions

12

against willful and deliberate infringers and counterfeiters."

13

Playboy Enters., Inc. v. Baccarat Clothing Co., 692 F.2d 1272,

14

1276 (9th Cir. 1982).

Since the 1975 amendment, "numerous courts have

15

The Court concludes that this is an exceptional case.

16

Defendants deliberately misrepresented themselves as Plaintiffs'

17

"manufacturer and exporter in China," and used Plaintiffs'

18

trademark to do so.

19

attorneys' fees resulting from their trademark infringement and

20

false advertising claims.10

Plaintiffs are entitled to an award of

21
22
23

CONCLUSION
Plaintiffs' claims against Haipeng Li are dismissed for
failure to prosecute.

24
25
26
27
28

10

Plaintiffs may not recover attorneys' fees for their unfair
competition claims, even those that mirror their trademark and
false advertising claims. Walker, 98 Cal. App. 4th at 1179
(California unfair competition law "does not provide for attorney
fees").
29

1

The clerk shall enter judgment for Plaintiffs on their claims

2

for misappropriation of trade secrets, trademark infringement,

3

false advertising, tortious interference with prospective economic

4

advantage, breach of contract, breach of fiduciary duty,

5

conversion, and unfair competition related to the same.

6

The clerk shall enter judgment for Defendants on Plaintiffs'

7

claim of copyright infringement, California Penal Code section

8

502, trespass to chattels, the Computer Fraud and Abuse Act, and

9

unfair competition related to the same.

United States District Court
For the Northern District of California

10

For their claim of misappropriation of trade secrets,

11

Plaintiffs are awarded $215,450 in actual damages jointly and

12

severally against Yang Qi, Jinpeng Li, and Zaagtech; and $430,900

13

in exemplary damages jointly and severally against Yang Qi and

14

Jinpeng Li.

15

Defendants are hereby enjoined from any further

16

misappropriation of Plaintiffs' trade secrets, infringement of

17

Plaintiffs' trademarks, or false advertising concerning

18

Plaintiffs.

19

An injunction shall issue separately.

As the successful party in this action, Plaintiffs are

20

entitled, as set forth above, to recover reasonable attorneys'

21

fees and costs they have incurred in prosecuting this action, the

22

amount of which shall be determined by post-judgment motion.

23

Plaintiffs may, within fourteen days of entry of judgment, make a

24

motion for attorneys' fees and costs, which must be accompanied by

25

declarations and exhibits demonstrating the number of hours

26

expended, hourly rates, and itemized costs which Plaintiffs' seek

27
28
30

1

to recover.11

2

Plaintiffs make their motion, file an opposition only as to the

3

amount and apportionment of fees and costs, not as to eligibility.

4

Pursuant to Civil Local Rule 54-5, the parties are ordered to meet

5

and confer regarding Plaintiffs' motion for attorneys' fees and

6

costs within fourteen days of entry of judgment.

7

Defendants may, within fourteen days after

At trial, each side objected to some of the evidence

8

submitted by the opposing side.

9

evidentiary objections and has not relied on any inadmissible

The Court has reviewed these

United States District Court
For the Northern District of California

10

evidence.

11

To the extent that the Court has relied on evidence to which one

12

side has objected, such evidence has been found admissible and the

13

objections are overruled.

14

The Court will not discuss each objection individually.

IT IS SO ORDERED.

15
16

Dated:

17

September 30, 2014

CLAUDIA WILKEN
United States District Judge

18
19
20
21
22
23
24
25
26
27
28

11

Because Plaintiffs are entitled to recover attorneys' fees
and costs only for certain causes of action, their declarations
must either demonstrate that the time expended and/or the itemized
cost was related to one of those causes of action, or must set
forth a rationale for apportionment of time expended and/or
expenses where the amount sought involved multiple causes of
action.
31