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

Filing 36

ORDER by Judge Claudia Wilken GRANTING IN PART DEFENDANTS' 23 MOTIONS TO DISMISS, GRANTING DEFENDANTS' 23 MOTION TO STRIKE AND GRANTING DEFENDANT NGUYEN'S 30 MOTION TO DISMISS FOR IMPROPER VENUE. (ndr, COURT STAFF) (Filed on 6/7/2012)

1

IN THE UNITED STATES DISTRICT COURT

2

FOR THE NORTHERN DISTRICT OF CALIFORNIA

3
4

PQ LABS, INC.,

5
6
7

No. C 12-0450 CW

Plaintiff,
v.

8

YANG QI; ZAAGTECH, INC.; ANDY
NGUYEN; JINPENG LI; and HAIPENG
LI,

9

Defendants.

10
United States District Court
For the Northern District of California

ORDER GRANTING IN
PART DEFENDANTS'
MOTIONS TO
DISMISS, GRANTING
DEFENDANTS' MOTION
TO STRIKE AND
GRANTING DEFENDANT
NGUYEN'S MOTION TO
DISMISS FOR
IMPROPER VENUE

________________________________/

11
This case arises from Defendants' alleged misappropriation

12
13

of trade secrets from Plaintiff.

Defendants Yang Qi, Jinpeng Li

14

and ZaagTech, Inc. move to dismiss under Federal Rule of Civil

15

Procedure 12(b)(6) and to strike under Federal Rule of Civil

16

Procedure 12(f).1

Defendant Andy Nguyen moves separately to

17
dismiss for improper venue under Federal Rule of Civil Procedure
18
19

12(b)(3).

Plaintiff opposes both motions.

The motions were taken

20

under submission and decided on the papers.

Having considered all

21

of the papers filed by the parties, the Court grants in part the

22

motion to dismiss for failure to state a claim, grants the motion

23

to strike and grants the motion to dismiss for improper venue.

24
25
26
27
1

28

Defendant Haipeng Li has not been served.

BACKGROUND

1

The following facts are taken from Plaintiff's First Amended

2
3

Complaint (1AC).

4

with its principal place of business in San Jose, California,

5

which is engaged in the business of designing, developing,

6

Plaintiff PQ Labs is a California corporation

manufacturing, and selling hardware and software for computer

7
touch screen products.

Plaintiff "authored software and

8
9

registered with the United States Copyright Office the work

United States District Court
For the Northern District of California

10

entitled PQ Labs MultiTouch System Software as Registration No.

11

TXu 1-620-335.

12

registration works with PQ Labs hardware circuitry and microchips

13

to produce the user interface of its touch screen products."

14

¶ 14.

The software embodied in this copyright

1AC.

15
Defendant Yang Qi worked for Plaintiff as an account manager
16
from 2009 until he was terminated in April 2010.

As an account

17
18

manager, Qi handled the sale of products to customers and was

19

privy to information about Plaintiff's products, customers and

20

policies on the secrecy of client lists and information.

21

Defendant Jinpeng Li was an engineer hired to design hardware for

22

Plaintiff's touch screen products.

23

In May 2010, Defendant Andy

Nguyen was hired as a sales and account manager to replace Qi.

24
Qi developed a plan to use his access to Plaintiff's
25
26

confidential information about customers and the hardware and

27

software design of Plaintiff's products to create a directly

28

competing business, MultiTouch Group LLC.
2

Qi eventually

1

established ZaagTech in China as a direct competitor, using

2

Plaintiff's proprietary information to develop touch screen

3

products and Plaintiff's confidential customer lists to obtain

4

customers.

5

had designed Plaintiff's hardware products.

6

To further his plan, Qi recruited help from Li, who
Li had signed a

document for Plaintiff entitled, "Employee Rules and

7
Confidentiality Agreement," which alerted him to the
8
9

confidentiality of customer information, product information and

United States District Court
For the Northern District of California

10

schematics and instructed that it be protected.

While he was

11

employed by Plaintiff, Li shared confidential information with Qi.

12

When Nguyen was hired by Plaintiff to replace Qi in May 2010,

13

he signed an Employee Agreement and an Employee Confidentiality

14

Agreement.

Before Nguyen left his employment with Plaintiff in

15
June 2011, he copied all accessible company files onto a personal
16
portable hard drive which he transferred to Qi, ZaagTech and Li in
17
18

exchange for compensation.

19

Plaintiff, ZaagTech began soliciting customers from Plaintiff's

20

confidential customer list.

21
22
23

Shortly after Nguyen left his job with

Plaintiff was damaged by Defendants' improper acts and, as a
result, was forced to drop its prices to its customers in order to
compete with Defendants and ensure its viability as a business.

24
Plaintiff asserts the following causes of action:
25
26

(1) misappropriation of trade secrets against Qi, ZaagTech and

27

Nguyen; (2) misappropriation of trade secrets against Qi, ZaagTech

28

and Li; (3) copyright infringement against Qi, ZaagTech and Li;
3

1

(4) unfair competition against Qi, ZaagTech and Nguyen;

2

(5) unfair competition against Qi, ZaagTech and Li; (6) unfair

3

competition against Qi and Haipeng Li; (7) violations of

4

California Penal Code section 502 against Qi, Jinpeng Li and

5

ZaagTech; (8) unfair competition against Qi and ZaagTech;

6

(9) fraud against Qi; (10) tortious interference with contract and

7
prospective economic advantage against Qi and Haipeng Li;
8
9

(11) tortious interference with prospective economic advantage

United States District Court
For the Northern District of California

10

against Qi, ZaagTech and Nguyen; (12) breach of contract against

11

Nguyen; (13) breach of fiduciary duty against Qi and Nguyen;

12

(14) breach of contract against Jinpeng Li; (15) breach of

13

fiduciary duty against Qi and Jinpeng Li; (16) conversion against

14

Qi and Haipeng Li; (17) trespass against chattels against Qi,

15
ZaagTech and Jinpeng Li; (18) violation of the computer fraud and
16
abuse act against Qi and ZaagTech; (19) civil conspiracy against
17
18

all Defendants; and (20) aiding and abetting against all

19

Defendants.
LEGAL STANDARD

20
21
22
23

I. Motion to Dismiss
A complaint must contain a “short and plain statement of the
claim showing that the pleader is entitled to relief.”

Fed. R.

24
Civ. P. 8(a).

On a motion under Rule 12(b)(6) for failure to

25
26

state a claim, dismissal is appropriate only when the complaint

27

does not give the defendant fair notice of a legally cognizable

28

claim and the grounds on which it rests.
4

Bell Atl. Corp. v.

1

Twombly, 550 U.S. 544, 555 (2007).

2

complaint is sufficient to state a claim, the court will take all

3

material allegations as true and construe them in the light most

4

favorable to the plaintiff.

5

896, 898 (9th Cir. 1986).

6

In considering whether the

NL Indus., Inc. v. Kaplan, 792 F.2d

However, this principle is inapplicable

to legal conclusions; “threadbare recitals of the elements of a

7
cause of action, supported by mere conclusory statements,” are not
8
9

United States District Court
For the Northern District of California

10

taken as true.

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(citing Twombly, 550 U.S. at 555).

11

When granting a motion to dismiss, the court is generally

12

required to grant the plaintiff leave to amend, even if no request

13

to amend the pleading was made, unless amendment would be futile.

14

Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911

15
F.2d 242, 246-47 (9th Cir. 1990).

In determining whether

16
amendment would be futile, the court examines whether the
17
18

complaint could be amended to cure the defect requiring dismissal

19

"without contradicting any of the allegations of [the] original

20

complaint."

21

Cir. 1990).

22

II. Motion to Strike

23
24

Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th

Pursuant to Federal Rule of Civil Procedure 12(f), the Court
may strike from a pleading Aany redundant, immaterial, impertinent

25
26

or scandalous matter.@

Fed. R. Civ. P. 12(f).

The purpose of a

27

Rule 12(f) motion is to avoid spending time and money litigating

28

spurious issues.

Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527
5

1

(9th Cir. 1993), reversed on other grounds, 510 U.S. 517 (1994).

2

Motions to strike are disfavored because they are often used as

3

delaying tactics and because of the limited importance of

4

pleadings in federal practice.

5

1450, 1478 (C.D. Cal. 1996).

6

Bureerong v. Uvawas, 922 F. Supp.

They should not be granted unless it

is clear that the matter to be stricken could have no possible

7
bearing on the subject matter of the litigation.

Colaprico v. Sun

8
9

United States District Court
For the Northern District of California

10

Microsystems, Inc., 758 F. Supp. 1335, 1339 (N.D. Cal. 1991).
III. Motion to Dismiss for Improper Venue

11

A defendant may raise a Rule 12(b)(3) motion to dismiss for

12

improper venue in its first responsive pleading or by a separate

13

pre-answer motion.

14

challenges venue, the plaintiff bears the burden of establishing

Fed. R. Civ. P. 12(b)(3).

Once the defendant

15
that venue is proper.

Piedmont Label Co. v. Sun Garden Packing

16
Co., 598 F.2d 491, 496 (9th Cir. 1979).
17
18

When considering a Rule 12(b)(3) motion to dismiss, the

19

pleadings need not be accepted as true, and the court “may

20

consider facts outside of the pleadings.”

21

London, 135 F.3d 1289, 1292 (9th Cir. 1998).

22

determines that venue is improper, it may dismiss the case, or, if

23

Richards v. Lloyd's of
If the court

it is in the interest of justice, transfer it to any district in

24
which it properly could have been brought.

28 U.S.C. § 1406(a);

25
26

Dist. No. 1, Pac. Coast Dist. v. State of Alaska, 682 F.2d 797,

27

799 (9th Cir. 1982).

The decision to transfer rests in the

28

discretion of the court.

28 U.S.C. § 1404(b); King v. Russell,
6

1

963 F.2d 1301, 1304 (9th Cir. 1992)(holding that the trial court

2

did not abuse its discretion under 28 U.S.C. § 1406(a) when it

3

chose to dismiss, and not transfer, the action because of improper

4

venue).

5
6

DISCUSSION
I. Motion to Dismiss

7
8

A. Claim 1 for Misappropriation of Trade Secrets Against Qi
and ZaagTech

9

In this cause of action, Plaintiff alleges that Qi and

United States District Court
For the Northern District of California

10

ZaagTech misappropriated Plaintiff's trade secret customer

11
information by taking this information from Nguyen with knowledge
12
13

that he had acquired it by improper means, namely, by breaching

14

his duty as Plaintiff's employee to keep the customer lists

15

confidential.

16

To state a claim for misappropriation of trade secrets under

17

the California Uniform Trade Secrets Act (CUTSA), Cal. Civ. Code

18

§§ 3426 through 3426.11, the plaintiff must allege that (1) the

19

plaintiff owned a trade secret; (2) the defendant acquired,

20
disclosed, or used the plaintiff's trade secret through improper
21
22

means, and (3) the defendant's actions damaged the plaintiff.

23

Cytodyn, Inc. v. Amerimmune Pharmaceuticals, Inc., 160 Cal. App.

24

4th 288, 297 (2008).

25

3426.1(b), misappropriation of a trade secret means

26
27

Under California Civil Code section

(1) Acquisition of a trade secret of another by a person who
knows or has reason to know that the trade secret was
acquired by improper means; or

28
7

1

(2) Disclosure or use of a trade secret of another without
express or implied consent by a person who:

2

(A) Used improper means to acquire knowledge of the
trade secret; or

3
4

(B) At the time of disclosure or use, knew or had reason
to know that his or her knowledge of the trade secret
was:

5
6

(i) Derived from or through a person who had
utilized improper means to acquire it;

7
8

(ii) Acquired under circumstances giving rise to a
duty to maintain its secrecy or limit its use; or

9

(iii) Derived from or through a person who owed a
duty to the person seeking relief to maintain its
secrecy or limit its use; or

United States District Court
For the Northern District of California

10
11
12

(C) Before a material change of his or her position,
knew or had reason to know that it was a trade secret
and that knowledge of it had been acquired by accident
or mistake.

13
14
15

Defendants Qi and ZaagTech argue that this claim against them

16

must be dismissed because the 1AC does not allege that they knew

17

that Nguyen obtained the alleged trade secrets by improper means

18

or that the customer information provided by Nguyen belonged to

19

Plaintiff.

20
The 1AC, taken as a whole, sufficiently alleges that Qi and
21
22

ZaagTech knew that the customer information they received from

23

Nguyen belonged to Plaintiff and that he obtained it through

24

improper means.

25

B. Claims 4, 5, 11 and 13 Preempted by CUTSA

26

Defendants Qi, ZaagTech and Li argue that Plaintiff's claims

27

against them for unfair competition, tortious interference with

28
8

1

prospective economic advantage and breach of fiduciary duty are

2

preempted by CUTSA because they are based on the same nucleus of

3

facts as Plaintiff's claims for trade secret misappropriation.

4

Plaintiff responds that these claims are not preempted because

5

claims 11 and 13 are based on the additional factual element of

6

breach of contract by Nguyen and claims 4 and 5 are based on the

7
misappropriation of proprietary information in addition to trade
8
9

United States District Court
For the Northern District of California

10

secrets.
“CUTSA preempts common law claims that are based on

11

misappropriation of a trade secret.”

12

Inc., 544 F. Supp. 2d 1064, 1070 (E.D. Cal. 2008).

13

exempts certain claims from the scope of its pre-emption: it “does

14

Ali v. Fasteners for Retail,
However, CUTSA

not affect (1) contractual remedies, whether or not based upon

15
misappropriation of a trade secret, (2) other civil remedies that
16
17

are not based upon misappropriation of a trade secret, or

18

(3) criminal remedies, whether or not based upon misappropriation

19

of a trade secret.”

20

trade secret as

21
22
23
24
25
26
27

Cal. Civ. Code § 3426.7(b).

CUTSA defines a

Information, including a formula, pattern, compilation,
program, device, method, technique, or process, that:
(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.
Cal. Civ. Code § 3426.1(d).

28
9

1

“Courts have held that where a claim is based on the

2

‘identical nucleus’ of facts as a trade secrets misappropriation

3

claim, it is preempted by [C]UTSA.”

4

Analogix Semiconductor, Inc., 2007 WL 1455903, at *9 (N.D. Cal.).

5

“The preemption inquiry for those causes of action not

6

Silicon Image, Inc. v.

specifically exempted by § 3426.7(b) focuses on whether other

7
claims are no more than a restatement of the same operative facts
8
9

supporting trade secret misappropriation. . . . If there is no

United States District Court
For the Northern District of California

10

material distinction between the wrongdoing alleged in a [C]UTSA

11

claim and that alleged in a different claim, the [C]UTSA preempts

12

the other claim.”

13

WL 839022, at *6 (S.D.N.Y.) (applying California law).

14

is based on confidential information other than a trade secret, as

Convolve, Inc. v. Compaq Computer Corp., 2006
If a claim

15
that term is defined in CUTSA, it is not preempted.

First

16
Advantage Background Servs. Corp. v. Private Eyes, Inc., 569 F.
17
18

Supp. 2d 929, 942 (N.D. Cal. 2008).

19

The Court must, therefore, compare Plaintiff's claims for

20

misappropriation of trade secrets with the claims Defendants argue

21

are preempted to determine if the latter are based on confidential

22

information other than a trade secret or if there is some material

23

distinction between the wrongdoing alleged in the claims.

24
Plaintiff's first and second causes of action are for
25
26

misappropriation of trade secrets.

In the first cause of action,

27

Plaintiff defines its trade secret as "customer lists for its

28

products from which it obtained independent economic value from
10

1

the fact that, among other things, said lists were not generally

2

known to the public or to the touch screen industry and PQ Labs

3

utilized this trade secret information to sell its products to

4

customers, generate revenues, and generate profits."

5

In the second cause of action, Plaintiff defines its trade secrets

6

1AC ¶ 43.

as "confidential designs and drawings for hardware, circuitry, and

7
FPGA microchip, as well as multi-touch software code for its touch
8
9

United States District Court
For the Northern District of California

10

screen products."

1AC ¶ 51.

Plaintiff's fourth cause of action for unfair competition

11

alleges that Qi, ZaagTech and Nguyen "appropriated PQ Labs'

12

valuable business property in the form of PQ Labs' stable of

13

customers and information relating to customers . . ."

14

Plaintiff also alleges that "there is a public policy against

1AC ¶ 65.

15
third parties, particularly newly established competitors,
16
stealing another business's list of customers, rather than
17
18

developing customers themselves."

19

cause of action is premised upon the same nucleus of facts as the

20

first cause of action for misappropriation of trade secrets, and

21

it must be dismissed as preempted by CUTSA.

22

leave to amend if Plaintiff is able to add allegations that remedy

23

1AC ¶ 67.

Thus, the fourth

Dismissal is with

this deficiency.

24
Plaintiff's fifth cause of action for unfair competition
25
26

alleges that Qi, ZaagTech and Nguyen "appropriated PQ Labs'

27

valuable business property in the form of PQ Labs' proprietary

28

product designs for touch screens, including internal and external
11

1

components and user interface . . ." 1AC ¶ 70.

2

cause of action is premised upon the same nucleus of facts as the

3

second cause of action for misappropriation of trade secrets and

4

must be dismissed as preempted by CUTSA.

5

to amend if Plaintiff is able to add allegations that remedy this

6

Thus, the fifth

Dismissal is with leave

deficiency.

7
The eleventh cause of action for tortious interference with
8
9

prospective economic advantage against Qi, ZaagTech and Nguyen

United States District Court
For the Northern District of California

10

alleges that "Andy Nguyen intentionally disrupted PQ Labs'

11

business relationships with its customers and distributors by

12

collaborating with Yang Qi and ZaagTech to help them obtain that

13

business by disclosing PQ Labs' confidential customer lists to

14

them with knowledge that Yang Qi and ZaagTech would contact said

15
customers and distributors in an effort to poach sales from PQ
16
Labs."

1AC ¶ 114.

Although Plaintiff argues that this claim is

17
18

also based on breach of contract by Nguyen, there is no allegation

19

in this cause of action addressing a contract or breach of

20

contract.

21

ZaagTech as well as Nguyen.

22

for the breach of Nguyen's contract with Plaintiff.

23

Furthermore, this claim is brought against Qi and
Qi and ZaagTech could not be liable

this claim is dismissed as preempted by CUTSA.

Therefore,

Dismissal is with

24
leave to amend if Plaintiff is able to add allegations that remedy
25
26

the deficiencies noted.

27

The thirteenth cause of action for breach of fiduciary duty

28

against Qi and Nguyen alleges that, as agents of PQ Labs, Qi and
12

1

Nguyen were in fiduciary relationships with PQ Labs which they

2

breached by disclosing PQ Labs' trade secret confidential customer

3

lists to others.

4

adds the element of breach of fiduciary duty, it is also based on

5

the same nucleus of facts as the misappropriation claim and is

6

preempted.

1AC ¶ 126-27.

Even though this cause of action

See Farhang v. Indian Inst. of Tech., Kharagpur, 2010

7
WL 2228936, *11 (N.D. Cal.) (breach of fiduciary duty claim
8
9

preempted by misappropriation claim where conduct alleged in both

United States District Court
For the Northern District of California

10

claims based on same nucleus of facts).

11

Therefore, this claim is

dismissed, with leave to amend.

12

C. Claims 13 and 15

13

Defendants argue that the thirteenth and fifteenth causes of

14

action for breach of fiduciary duty should be dismissed against Qi

15
because the allegations in the 1AC do not indicate the existence
16
of a fiduciary relationship between Plaintiff and Qi.
17
18

The elements of a cause of action for breach of fiduciary

19

duty are the existence of a fiduciary relationship, its breach,

20

and damage proximately caused by that breach.

21

v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal. App. 4th

22

445, 483 (1998); Pierce v. Lyman, 1 Cal. App. 4th 1093, 1101

23

(1991).

City of Atascadero

Under California law, a fiduciary relationship arises in

24
one of two ways.

A party may be subject to fiduciary obligations

25
26

if that party “knowingly undertake[s] to act on behalf and for the

27

benefit of another, or . . . enter[s] into a relationship which

28

imposes that undertaking as a matter of law.”
13

GAB Bus. Servs.

1

Inc. v. Lindsey & Newsom Claim Servs., Inc. 83 Cal. App. 4th 409,

2

416 (2000) (“There are two kinds of fiduciary duties–-those

3

imposed by law, and those undertaken by agreement.”), disapproved

4

on other grounds in Reeves v. Hanlon, 33 Cal. 4th 1140 (2004).

5

fiduciary duty is undertaken by agreement when a confidence is

6

A

reposed by one party in the integrity of another, and the party in

7
whom the confidence is reposed voluntarily accepts or assumes to
8
9

United States District Court
For the Northern District of California

10
11

accept the confidence.

Id. at 417.

The existence of the repose

and the acceptance of a confidence are questions of fact.

Id.

Plaintiff acknowledges that the 1AC does not allege that Qi

12

was subject to fiduciary obligations as a matter of law, but

13

argues that the 1AC contains sufficient factual allegations of the

14

existence of a fiduciary relationship "so as to raise Plaintiff's

15
right to relief above the speculative level."

Plaintiff points to

16
¶ 126 of the 1AC which alleges that, as Plaintiff's "workers with
17
18

access to and knowledge of confidential information including

19

customer lists, and as agents of PQ Labs, Yang Qi and Andy Nguyen

20

were in fiduciary relationships, respectively, with PQ Labs during

21

the period they worked for PQ Labs and, thus they owed PQ Labs

22

undivided loyalty."

23

Paragraph 126, however, does not allege that

Qi knowingly undertook the responsibility to act on behalf and for

24
the benefit of Plaintiff.

In other words, the paragraph alleges

25
26

that Plaintiff may have reposed its confidence in Qi, but nowhere

27

does it allege that Qi accepted that responsibility.

28

138 of the 1AC, Plaintiff alleges that Qi "was in a fiduciary
14

In paragraph

1

relationship with PQ Labs as its sales representative and agent."

2

However, this conclusory allegation is also insufficient to

3

establish that Qi entered into an agreement with Plaintiff to act

4

as its fiduciary.

5
6

Therefore, Defendants' motion to dismiss claims 13 and 15 as
to Qi is granted.

Dismissal is with leave to amend.

7
D. Claim 9
8
9

Defendants argue that claim 9 for fraud against Qi for

United States District Court
For the Northern District of California

10

failure to disclose the existence of competitor MultiTouch Group

11

and the alleged diversion of customer sales orders from Plaintiff

12

to MultiTouch Group should be dismissed for failure to allege a

13

duty for Qi to disclose such information.

14

respond to this argument and, therefore, concedes it.

Plaintiff does not
Defendants'

15
motion to dismiss this claim is granted, with leave to amend.
16
E. Claim 16
17
18

The sixteenth cause of action for conversion alleges that

19

Plaintiff owned and possessed a certain thirty-two inch touch

20

screen monitor entitled PQ Labs Multi-Touch 32 G3X32 Overlay which

21

was "involved in a sales transaction" with one of Plaintiff's

22

customers on February 10, 2010.

23

1AC ¶ 145.

Qi, through his

company MultiTouch Group LLC, took possession of the monitor and

24
fulfilled an order request sent directly to Plaintiff.

1AC ¶ 146.

25
26

Plaintiff did not consent to Qi's taking possession of the monitor

27

and acting as its distributor, nor did Plaintiff have knowledge of

28

Qi's actions.

1AC ¶ 147.

Plaintiff was harmed by Qi's actions
15

1

because MultiTouch Group LLC took payment at the full retail price

2

of $3,300 and paid to Plaintiff the wholesale price of $2,650.

3

Plaintiff would have realized the full retail price of $3,300 but

4

for Qi's interference.

5
6

1AC ¶ 148.

Defendants argue that the cause of action for conversion must
be dismissed because the intangible right of a sales opportunity

7
cannot be converted and because Plaintiff admits that it was paid
8
9

for the touch screen monitor that it alleges was converted.

United States District Court
For the Northern District of California

10

Under California law, a claim for conversion requires a

11

plaintiff to allege (1) “ownership or right to possession of

12

property;” (2) a defendant’s wrongful act toward the property,

13

causing interference with the plaintiff’s possession; and

14

(3) damage to the plaintiff.

PCO, Inc. v. Christensen, Miller,

15
Fink, Jacobs, Glaser, Weil & Shapiro, LLP, 150 Cal. App. 4th 384,
16
394 (2007).
17
18

Plaintiff alleges all of the elements necessary to state a

19

claim for conversion.

20

for the allegedly converted property does not negate the

21

allegations that Qi acted wrongfully in regard to it and that his

22

actions caused damage to Plaintiff.

23

That Plaintiff was given partial payment

Therefore, the motion to

dismiss this claim is denied.

24
F. Claim 19 and 20
25
26

Defendants argue that the nineteenth and twentieth causes of

27

action for conspiracy and aiding and abetting should be dismissed

28

because they do not constitute independent causes of action.
16

1

Plaintiff responds that, although conspiracy is not a cause of

2

action, it is a legal doctrine that imposes liability on persons

3

who have not actually committed a tort themselves, but shared with

4

the tortfeasors a common plan or design.

5

argues that the aiding and abetting claim is sufficient to state a

6

Similarly, Plaintiff

claim because the 1AC alleges that each Defendant provided

7
substantial assistance and encouragement to the others in
8
9

perpetrating the alleged wrongs.

United States District Court
For the Northern District of California

10

Civil conspiracy “is not a cause of action, but a legal

11

doctrine that imposes liability on persons who, although not

12

actually committing a tort themselves, share with the immediate

13

tortfeasors a common plan or design in its perpetration.”

14

Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 510

Applied

15
(1994) (citing Wyatt v. Union Mortgage Co., 24 Cal. 3d 773, 784
16
(1979)).

“Standing alone, a conspiracy does no harm and engenders

17
18

no tort liability.

19

actual tort.”

20

It must be activated by the commission of an

Applied Equipment Corp., 7 Cal. 4th at 511.

Civil conspiracy consists of three elements: “(1) the

21

formation and operation of the conspiracy, (2) wrongful conduct in

22

furtherance of the conspiracy, and (3) damages arising from the

23

wrongful conduct.”

Kidron v. Movie Acquisition Corp., 40 Cal.

24
App. 4th 1571, 1581 (1995).

“The conspiring defendants must . . .

25
26

have actual knowledge that a tort is planned and concur in the

27

tortious scheme with knowledge of its unlawful purpose.”

28

1582 (citing Wyatt, 24 Cal. 3d at 784-86).
17

Id. at

This knowledge must be

1

combined with an intent to aid in achieving the objective of the

2

conspiracy.

3

Cal. App. 3d 1321, 1328 (1987).

4

must contain “enough fact to raise a reasonable expectation that

5

discovery will reveal evidence of illegal agreement.”

6

Kidron, 40 Cal. App. 4th at 1582; Schick v. Bach, 193

550 U.S. at 556.

A claim of unlawful conspiracy

Twombly,

A bare allegation that a conspiracy existed does

7
not suffice.

Id.

8
9

Plaintiff's cause of action for conspiracy alleges that each

United States District Court
For the Northern District of California

10

Defendant "did agree, conspire, plan and effectuate a common plan

11

and scheme to misappropriate PQ Labs proprietary information in

12

order to establish a new business to compete directly with PQ

13

Labs, poach PQ Labs customers, interfere with PQ Labs business and

14

divert the same to ZaagTech and otherwise for Defendants'

15
commercial gain.

Defendants did the acts and things herein

16
alleged pursuant to, and furtherance [sic] of, the conspiracy and
17
18

above-alleged Plan.

19

conspiracy by cooperating with, lending aid and encouragement to,

20

and/or ratifying and adopting acts of other Defendants, as alleged

21

above."

22

to raise a reasonable expectation that discovery will reveal

23

1AC ¶ 162.

Each of the Defendants furthered the

These conclusory allegations are insufficient

evidence of an illegal agreement.

Furthermore, Plaintiff has not

24
specified which alleged torts are the predicate for the conspiracy
25
26

claim.

See Kelly v. Mortgage Electronic Registration Systs.,

27

Inc., 642 F. Supp. 2d 1048, 1058 (N.D. Cal. 2009).

28

claim of civil conspiracy is dismissed, with leave to amend.
18

Therefore, the

1

"Liability may also be imposed on one who aids and abets the

2

commission of an intentional tort if the person (a) knows the

3

other's conduct constitutes a breach of duty and gives substantial

4

assistance or encouragement to the other to so act or (b) gives

5

substantial assistance to the other in accomplishing a tortious

6

result and the person's own conduct, separately considered,

7
constitutes a breach of duty to the third person."

Saunders v.

8
9

Sup. Ct., 27 Cal. App. 4th 832, 846 (1994).

Aiding and abetting

United States District Court
For the Northern District of California

10

does not require an agreement, but simply assistance.

11

GM Hughes Elecs., 46 Cal. App. 4th 55, 78 (1996).

12

conspiracy, the basis for liability for aiding and abetting is

13

concerted wrongful action.

14

Janken v.

Like

Id.

Plaintiff's cause of action for aiding and abetting alleges

15
that Defendants "gave substantial assistance and encouragement to
16
one or more of the intentionally tortious actions of other
17
18

Defendants alleged hereinabove, with knowledge that the other

19

Defendants' conduct constitutes a wrongful action, and did so by,

20

inter alia, cooperating with each other, assisting each other,

21

and/or failing to conduct themselves in a fashion requisite to

22

protect Plaintiff's interests or to avoid any adverse effect on

23

Plaintiff where the other Defendants had a fiduciary duty to

24
Plaintiff."

1AC ¶ 167.

These conclusory allegations fail to

25
26
27

indicate how or what Defendants aided and abetted.

Therefore, the

claim of aiding and abetting is dismissed, with leave to amend.

28
19

1

Defendants also argue that, because Plaintiff alleges that

2

all Defendants did all the wrongful acts, the concepts of

3

liability through conspiracy or aiding and abetting is

4

unnecessary.

5

theories of relief.

6

However, a complaint may contain alternative
Therefore, the conspiracy and aiding and

abetting allegations are not dismissed on this ground.

7
III. Motion to Strike
8
9

Defendants argue that the portions of Plaintiff's fifth cause

United States District Court
For the Northern District of California

10

of action for unfair competition that are based on a copyrighted

11

work are preempted by the Copyright Act, 17 U.S.C. § 301(a), and

12

should be stricken.

13

cause of action for unfair competition should be stricken because

14

they are preempted by CUTSA.

They also argue that portions of the eighth

Without addressing the merits of

15
Defendants' motion, Plaintiff argues that the motion should be
16
denied because striking these allegations would be tantamount to
17
18

dismissing the claims on which they are based.

These allegations

19

are stricken, and Plaintiff is granted leave to amend to remedy

20

the noted deficiencies.

21

A. Preemption by Copyright Act

22

The Copyright Act protects “original works of authorship

23

fixed in any tangible medium of expression, now known or later

24
developed, from which they can be perceived, reproduced, or
25
26

otherwise communicated, either directly or with the aid of a

27

machine or device.”

17 U.S.C. § 102(a).

28

satisfied for the Copyright Act to preempt a state law cause of
20

Two conditions must be

1

action: (1) “‘the content of the protected right must fall within

2

the subject matter of copyright as described in 17 U.S.C. §§ 102

3

and 103’” and (2) “‘the right asserted under state law must be

4

equivalent to the exclusive rights contained in section 106 of the

5

Copyright Act.’”

6

Sybersound Records, Inc. v. UAV Corp., 517 F.3d

1137, 1150 (9th Cir. 2008) (quoting Downing & Abercrombie & Fitch,

7
265 F.3d 994, 1003 (9th Cir. 2001)).
8
9

United States District Court
For the Northern District of California

10
11
12
13
14
15

The “equivalent rights” prong of the test requires a court to
consider whether the state claim asserts rights
within the general scope of copyright as specified by section
106 of the Copyright Act. Section 106 provides a copyright
owner with the exclusive rights of reproduction, preparation
of derivative works, distribution, and display. To survive
preemption, the state cause of action must protect rights
which are qualitatively different from the copyright rights.
The state claim must have an extra element which changes the
nature of the action.

16

Laws v. Sony Music Entm’t, Inc., 448 F.3d 1134, 1143 (9th Cir.

17

2006).

18
19

In its third cause of action for copyright infringement,
Plaintiff alleges that it owns a copyright for software which

20
collaborates with its hardware circuitry and microchips to produce
21
22

the interface of its touch screen products.

1AC ¶ 59.

Plaintiff

23

alleges that Qi, ZaagTech and Jinpeng Li infringed its copyright

24

by "copying, reproducing, adapting, distributing, and otherwise

25

using the copyrighted material of PQ Labs' multi-touch system

26

software in touch screen products developed and offered for sale

27

by ZaagTech."

1AC ¶ 60.

Furthermore, this cause of action

28
21

1

incorporates previous allegations of the 1AC, in particular

2

paragraph 23, which alleges that Qi and ZaagTech copied "PQ Labs'

3

FPGA software, driver code, and ARM processor code registered with

4

the Copyright Office in its touch screen products designed and

5

manufactured after the establishment of ZaagTech."

6

Plaintiff's fifth cause of action for unfair competition is

7
premised almost entirely on Defendants' misappropriation of
8
9

Plaintiff's trade secrets, and as such is preempted by CUTSA.

One

United States District Court
For the Northern District of California

10

sentence in paragraph 72 mentions infringement:

"The motivation,

11

reasons, justifications, and actions behind said Defendants'

12

infringement and misappropriation evince a desire to develop a

13

business to compete in the touch screen business against PQ Labs

14

while not expending the work necessary to achieve independent

15
success lawfully and fairly."

To the extent that Plaintiff is

16
alleging unfair competition based upon Defendants' infringement of
17
18

copyrighted material, the allegation meets the first requirement

19

for preemption in that it falls within the subject matter of the

20

Copyright Act.

21

that changes the nature of the action, it meets the second

22

requirement for copyright preemption.

23

To the extent that it is without an extra element

Therefore, the allegation regarding infringement in the fifth

24
cause of action is preempted by the Copyright Act and is stricken.
25
26

Plaintiff is granted leave to amend to show that its allegation of

27

infringement does not meet the requirements for preemption, if it

28

truthfully can do so.
22

1

B. Preemption by CUTSA

2

Paragraph 86 of Plaintiff's eighth cause of action for unfair

3

competition is based, in part, on the allegation that Jinpeng Li

4

wrongfully transmitted to Qi, at Qi's urging, "certain PQ Labs

5

confidential, trade secret computer files containing schematics

6

and design drawings for the newest circuitry and hardware and

7
software for PQ Labs touch screen prototypes."

As discussed

8
9

previously, Plaintiff's second cause of action for

United States District Court
For the Northern District of California

10

misappropriation of trade secrets alleges that Defendants

11

misappropriated its confidential designs and drawings for

12

hardware, circuitry and microchips as well as its multi-touch

13

software code for its touch screen products.

14

allegation in paragraph 86 is premised upon the same nucleus of

1AC ¶ 51.

Thus, the

15
facts as the second cause of action for misappropriation of trade
16
secrets, and is stricken as preempted by CUTSA.

Plaintiff is

17
18

granted leave to amend to remedy this deficiency, if it truthfully

19

can do so.

20

IV. Nguyen's Motion to Dismiss for Improper Venue

21
22
23

Nguyen moves to dismiss all the claims against him for
improper venue based on the fact that his written employment
agreement with Plaintiff promised that a California state court,

24
not a federal court in California, would be the only court to hear
25
26

disputes relative to the employment agreement.

Plaintiff argues

27

that the forum selection clauses in the employment agreement and

28

the confidentiality agreement do not require it to bring suit
23

1

against Nguyen in a California state court, but allows suit in a

2

federal court in California.

3

The facts that are relevant to this motion are as follows.

4

When Plaintiff hired Nguyen in May 2010 as a sales and account

5

manager in its San Jose, California office, he signed an

6

Employment Agreement and an Employee Confidentiality Agreement,

7
both dated May 28, 2010.

The Employment Agreement specifies the

8
9

terms of Nguyen's employment with Plaintiff, such as his salary.

United States District Court
For the Northern District of California

10

Paragraph D of the Employment Agreement provides that Nguyen must

11

keep confidential Plaintiff's proprietary information specified in

12

that paragraph.

13

"Exclusive Jurisdiction for Suit in Case of Breach," provides:

14
15
16
17
18
19

Section S of the Employment Agreement, entitled,

The Parties, by entering into this agreement, submit to the
jurisdiction in the State of California for adjudication of
any disputes and/or claims between the parties under this
agreement. Furthermore, the parties hereby agree that the
courts of State of California shall have exclusive
jurisdiction over any disputes between the parties relative
to this agreement, whether said disputes sounds [sic] in
contract, tort, or other areas of the law.
The Employee Confidentiality Agreement also contains a forum

20
selection clause, entitled, "Jurisdiction and Venue," which
21
22
23
24
25
26
27

provides:
In case of any dispute hereunder, the parties will submit to
the exclusive jurisdiction and venue of any court of
competent jurisdiction sitting in Santa Clara County,
California, and will comply with all requirements necessary
to give such court jurisdiction over the parties and the
controversy.
Employee Confidentiality Agreement, ¶ 14.8.

28
24

1

A contract must be interpreted to give effect to the mutual

2

intention of the parties as it existed at the time of contracting.

3

Cal. Civ. Code § 1636.

4

a contract is to be taken together, so as to give effect to every

5

part, each clause helping to interpret the other.

6

§ 1641.

When interpreting a contract, the whole of

Cal. Civ. Code

"It is solely a judicial function to interpret a written

7
instrument unless the interpretation turns upon the credibility of
8
9

extrinsic evidence.”

De Guere v. Universal City Studios, Inc., 56

United States District Court
For the Northern District of California

10

Cal. App. 4th 482, 501 (1997).

First, the court provisionally

11

receives all credible evidence concerning the parties’ intentions

12

to determine if there is an ambiguity.

13

extrinsic evidence, the court determines the language of the

14

contract is ambiguous, the extrinsic evidence is admitted to aid

Id.

If, in light of the

15
in the second step: interpreting the contract.

Id.

16
Here, the two forum selection clauses read together appear to
17
18

be ambiguous, but the parties do not submit extrinsic evidence to

19

aid in the determination of their intent at the time the

20

agreements were signed.

21

ambiguity solely on the agreements themselves.

22
23

Therefore, the Court must resolve the

The parties agree that, in general, federal law governs the
interpretation of the forum selection clauses in the Employment

24
Agreement and the Employment Confidentiality Agreement because
25
26
27

this is a diversity case.

See Manetti-Farrow, Inc. v. Gucci Am.,

Inc., 858 F.2d 509, 513 (9th Cir. 1988) (in diversity cases,

28
25

1

federal procedural issues raised by forum selection clauses

2

significantly outweigh state interests).

3

Plaintiff points out, both agreements contain provisions that

4

California law should govern the interpretation of the agreements.

5

Whether federal or California law applies here is not

6

However, as

determinative of the outcome because federal courts interpreting a

7
contract under federal law look for guidance to general principles
8
9

United States District Court
For the Northern District of California

10
11

for interpreting contracts.

Doe 1 v. AOL LLC, 552 F.3d 1077, 1081

(9th Cir. 2009).
The parties agree that the phrase, "the courts of State of

12

California," in the second sentence of Section 8 of the Employment

13

Agreement, provides that the forum for disputes shall be the state

14

courts of California.

This is a correct interpretation of this

15
phrase; the Ninth Circuit has interpreted the language, "of the
16
court of a specific state," to mean that jurisdiction is proper in
17
18

the courts of the state specified, not in the federal courts

19

located in that state.

20

Id. at 1082.

The parties also agree that the phrase, "any court of

21

competent jurisdiction in the county of Santa Clara," in the forum

22

selection clause in the Employee Confidentiality Agreement permits

23

venue in either state or federal courts located in Santa Clara

24
County.

However, this case is pending in the Oakland division of

25
26

this Court, which is located in Alameda County; therefore, the

27

forum selection requirement of the Employee Confidentiality

28

Agreement is not satisfied.
26

1

In Simonoff v. Expedia, Inc., 643 F.3d 1202, 1206 (9th Cir.

2

2011), the court interpreted the phrase, "in the court in King

3

County," to refer to both federal as well as state courts located

4

in King County because, when a federal court sits in a particular

5

county, the district court is undoubtedly "in" that county.

The

6
court explained that the preposition, "in," denoted geographic
7
8
9

limitation; thus, the phrase, "courts in" a particular state,
includes any court within the physical boundaries of the state,

United States District Court
For the Northern District of California

10

which would include both state and federal courts located in that

11

state.

Id.

12

Simonoff does not apply here because, for this intellectual

13

property case, there is no federal court that sits only in Santa

14

Clara County.

The Northern District of California has three

15
divisions, but parties in intellectual property actions have no
16
17

right to venue in a particular division.

See Local Civil Rule 3-

18

2(a) (actions in the excepted categories, including intellectual

19

property, shall be assigned on a district-wide basis).

20

is an example of the inter-district assignment of actions;

21

Plaintiff filed it in the San Jose division, which is located in

22

Santa Clara County, but it was assigned to the Oakland division of

This case

23
the Court, which is located in Alameda County.

Therefore, even

24
25

though Plaintiff filed this action in the San Jose division, it

26

has not been able to keep it there.

27

court that can meet the forum selection requirements of the

28

Confidentiality Agreement.
27

Thus, there is no federal

1

Further, the two forum selection clauses are not

2

inconsistent.

3

brought only in state court, even if claims under the

4

Confidentiality Agreement could be brought in state or federal

5

court, the forum selection clauses are in harmony when all the

6

If claims under the Employment Agreement can be

claims are brought in state court.

In addition, because the

7
Employment Agreement contains a confidentiality clause, all of
8
9

Plaintiff's causes of action against Nguyen are "relative" to that

United States District Court
For the Northern District of California

10

agreement.

11

breach of fiduciary duty, which relies upon the Employment

12

Agreement to create a duty, do not arise under the Employment

13

Confidentiality Agreement.

14

In contrast, some of the causes of action, such as

Relying on the statutory rule that the whole of a contract

15
should be taken together to give meaning to every part, the Court
16
concludes that the two agreements should be read together.
17
18

The forum selection clause in the Employment Agreement means that

19

the parties shall litigate claims relative to the Employment

20

Agreement in a California state court.

21

in the Employee Confidentiality Agreement means that the parties

22

shall litigate claims under that agreement in a court of competent

23

The forum selection clause

jurisdiction located in Santa Clara County.

Because there is no

24
federal court that is located solely in Santa Clara County, the
25
26
27

claims based on the Confidentiality Agreement must be litigated in
state court in Santa Clara County.

28
28

1

Therefore, Nguyen's motion to dismiss is granted.

Dismissal

2

is without prejudice for Plaintiff to re-file its claims against

3

Nguyen in Santa Clara County Superior Court.

4

CONCLUSION

5

For the foregoing reasons, Plaintiff's motion to dismiss

6

under Rule 12(b)(6) is granted, in part.

The following claims are

7
dismissed, with leave to amend, based on CUTSA preemption: claims
8
9

4 and 5 for unfair competition; claim 11 for tortious interference

United States District Court
For the Northern District of California

10

with prospective economic advantage; and claim 13 for breach of

11

fiduciary duty.

12

against Qi are dismissed with leave to amend for failure to allege

13

a fiduciary relationship between Qi and Plaintiff.

14

allegations of the claims of civil conspiracy and aiding and

Claims 13 and 15 for breach of fiduciary duty

The

15
abetting are dismissed with leave to amend.

Claim 9 for fraud

16
against Qi is dismissed with leave to amend.

The following claims

17
18

are not dismissed:

19

against Qi and Zaagtech;

20

secrets against Qi, Zaagtech and Jinpeng Li; claim 3 for copyright

21

infringement against Qi, Zaagtech and Jinpeng Li; claim 6 for

22

unfair competition against Qi; claim 7 for violation of California

23

claim 1 for misappropriation of trade secrets
claim 2 for misappropriation of trade

Penal Code section 502 against Qi, Zaagtech and Jinpeng Li; claim

24
8 for unfair competition against Qi and Zaagtech; claim 10 for
25
26

tortious interference with contract and prospective economic

27

advantage against Qi; claim 14 for breach of contract against

28

Jinpeng Li; claim 16 for conversion against Qi; claim 17 for
29

1

trespass to chattels against Qi, Zaagtech and Jinpeng Li; and

2

claim 18 for violation of the computer fraud and abuse act against

3

Qi and Zaagtech.

4

regard to the specific allegations in claims 5 and 8 and Plaintiff

5

is granted leave to amend to remedy the deficiencies noted.

6

Defendants' motion to strike is granted in

Nguyen's motion to dismiss for improper venue is granted.

7
Dismissal of the claims against Nguyen is without prejudice to re8
9

filing them in Santa Clara County Superior Court.

Plaintiff may

United States District Court
For the Northern District of California

10

wish to dismiss its claims against all Defendants so that it may

11

litigate all its claims together in state court.

12

IT IS SO ORDERED.

13
14
15

Dated: 6/7/2012
CLAUDIA WILKEN
United States District Judge

16
17
18
19
20
21
22
23
24
25
26
27
28
30