Interserve, Inc. et al v. Fusion Garage PTE. LTD

Filing 168

REDACTION to 81 Memorandum in Opposition, (Re-filed pursuant to order dated 9/10/2010.) by CrunchPad, Inc., Interserve, Inc.. (Scherb, Matthew) (Filed on 9/16/2010)

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1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 Andrew P. Bridges (SBN: 122761) ABridges@winston.com David S. Bloch (SBN: 184530) DBloch@winston.com Matthew Scherb (SBN: 237461) MScherb@winston.com WINSTON & STRAWN LLP 101 California Street San Francisco, CA 94111-5802 Telephone: (415) 591-1000 Facsimile: (415) 591-1400 Attorneys for Plaintiffs INTERSERVE, INC. dba TECHCRUNCH and CRUNCHPAD, INC. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 Winston & Strawn LLP INTERSERVE, INC. dba TECHCRUNCH, a Delaware corporation, and CRUNCHPAD, INC., a Delaware corporation, Plaintiffs, vs. FUSION GARAGE PTE. LTD., a Singapore company, Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. C 09-cv-5812 RS (PVT) DOCUMENT SUBMITTED UNDER SEAL (HIGHLIGHTED PORTIONS CONTAIN CONFIDENTIAL OR HIGHLY CONFIDENTIAL MATERIAL) PLAINTIFFS' OPPOSITION TO DEFENDANT FUSION GARAGE'S MOTION TO DISMISS THE COMPLAINT Date: May 13, 2010 Time: 1:30 P.M. Place: Courtroom 3, 17th Floor SF:291607.1 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 TABLE OF CONTENTS Page I. II. III. IV. INTRODUCTION .....................................................................................................................1 STATEMENT OF THE ISSUES...............................................................................................2 STATEMENT OF FACTS ........................................................................................................2 ARGUMENT .............................................................................................................................4 A. FALSE ADVERTISING IN VIOLATION OF THE LANHAM ACT .........................4 1. Plaintiffs Have Standing Under the Lanham Act. .............................................4 a. b. 2. 3. TC Adequately Alleged It Has Suffered a Competitive Injury, as Required for Standing........................................................................4 Whether an Injury Is "Competitive" Requires Detailed Inquiry into the Facts of the Particular Case. .....................................................6 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 C. B. 4. Winston & Strawn LLP FG's Statements Were False. .............................................................................7 FG's Other False Statements Concern the Nature, Characteristics, and Qualities of the CrunchPad / JooJoo, as Well as the Commercial Activities of TC and FG, and Provide the Basis for a Valid Lanham Act False Advertising Claim. .............................................................................8 a. b. There Is No Generalized "Authorship or Inventorship" Exception to the Lanham Act under Ninth Circuit Law. .......................9 FG's Motion Does Not Address TC's "Commercial Activities" Allegations, so it is Undisputed that the Complaint States a Claim. ...................................................................................................10 A Lanham Act Claim May Arise From Statements Regarding an Officer and Principal of a Company. ...............................................................11 BREACH OF FIDUCIARY DUTY ............................................................................11 1. 2. TC's Allegations Are All Consistent with the Existence of a Partnership between It and FG.........................................................................12 TC's Complaint Clearly Alleges a Joint Venture Between Both Plaintiffs and FG. .............................................................................................13 FRAUD AND DECEIT ...............................................................................................14 1. TC Properly Alleged Fraud Regarding the Joint Venture, and FG's Reference to Emails Regarding a Failed Merger is Both Beside the Point and Improper. .........................................................................................14 TC Adequately Pleaded Damage from FG's Fraud and Deceit. ......................15 i 2. SF:291607.1 OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 i. ii. iii. 3. D. TC Adequately Alleges Harm from FG's Misrepresentation of Its Credentials. ...........................16 TC Adequately Alleged Harm from Overstating Costs. ............................................................................16 TC Adequately Alleges Harm from FG's Concealment of the Loss of Pegatron. .........................17 TC's Allegations of Fraud Meet the Standard of Rule 9(b).............................17 MISAPPROPRIATION OF BUSINESS IDEAS ........................................................20 1. 2. 3. California Law Provides a Tort Remedy for Misappropriation of Business Ideas. .................................................................................................20 TC's Business Ideas Were Not Publicly Disclosed and a Desny Claim, if Asserted, Would Survive. .............................................................................21 Because the Uniform Trade Secrets Act Requires an Explicit Trade Secret Claim, and TC Does Not Bring Such a Claim, FG's Preemption Argument Fails.................................................................................................23 The Complaint Unambiguously Names the Plaintiffs, and FG Cannot Plausibly Claim to Be Confused. .....................................................................24 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 V. Winston & Strawn LLP 4. UNLAWFUL BUSINESS PRACTICES AND FALSE ADVERTISING IN VIOLATION OF CALIFORNIA LAW ..................................................................................25 SF:291607.1 OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 ii 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 TABLE OF AUTHORITIES Page(s) CASES Advanced Microtherm, Inc. v. Norman Wright Mechanical Equip. Corp., No. C 04-02266, 2004 WL 2075445 (N.D. Cal. Sep. 15, 2004) (Ware, J.).............................13, 24 Akhenaten v. Najee, LLC, 544 F. Supp. 2d 320 (S.D.N.Y. 2008)..............................................................................................7 Baden Sports, Inc. v. Molten USA, Inc., 556 F.3d 1300 (Fed. Cir. 2009)......................................................................................................10 Brockey v. Moore, 107 Cal. App. 4th 86 (2003) ..........................................................................................................25 Callaway Golf Co. v. Dunlop Slazenger Group Americas, Inc., 318 F. Supp. 2d 216 (D. Del. 2004) ...............................................................................................23 City Solutions, Inc. v. Clear Channel Commc'ns, Inc., 365 F.3d 835 (9th Cir. 2004) .........................................................................................................20 Clauson v. Eslinger, 455 F. Supp. 2d 256 (S.D.N.Y. 2006)............................................................................................10 Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725 (9th Cir. 1999) ...........................................................................................................5 Consumer Advocates v. Echostar Satellite Corp., 113 Cal. App. 4th 1351 (2003) ......................................................................................................24 Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003) .............................................9 Digital Envoy, Inc. v. Google, Inc., 370 F. Supp. 2d 1025 (N.D. Cal. 2005) (Seeborg, J.) ....................................................................23 Erickson v. Pardus, 551 U.S. 89 (2007) .........................................................................................................................16 Falk v. General Motors Corp., 496 F. Supp. 2d 1088 (N.D. Cal. 2007) .........................................................................................17 Fleck & Assoc., Inc. v. City of Phoenix, 471 F.3d 1100 (9th Cir. 2006) .........................................................................................................6 Hollywood Screentest of Am., Inc. v. NBC Universal, Inc., 151 Cal. App. 4th 631 (Ct. App. 2007) ..............................................................................20, 21, 24 In re UTStarcom, Inc. Securities Litig., 617 F. Supp. 2d 964 (N.D. Cal. 2009) (Ware, J.) ............................................................................8 Jack Russell Terrier Network of N. Cal. v. Am. Kennel Club, Inc., 407 F.3d 1027 (9th Cir. 2005) .....................................................................................................4, 6 OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP iii SF:291607.1 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 Jonathan Browning v. Venetian Casino Resort, No. 07-3983, 2007 WL 4532214 (N.D. Cal. Dec. 19, 2007) (White, J.) .......................................22 Kinkade v. Trojan Express, LLC, No. SACV 08-1362, 2009 WL 799390 (C.D. Cal. Mar. 23, 2009) ...............................................17 Kournikova v. Gen. Media Commc'ns, Inc., 278 F. Supp. 2d 1111 (C.D. Cal. 2003) .......................................................................................5, 6 Memry Corp. v. Kentucky Oil Tech., N.V., No. C-04-03843, 2006 WL 3734384 (N.D. Cal. 2006) (Whyte, J.) ..............................................21 Metrano v. Fox Broad. Co., Inc., No. 00-02279, 2000 WL 979664 (C.D. Cal. 2000) .......................................................................21 Moore v. Kayport Package Express, Inc., 885 F.2d 531 (9th Cir. 1989) .........................................................................................................17 Nat'l Servs. Group, Inc. v. Painting & Decorating Contractors of Am., Inc., No. SACV06-563, 2006 WL 2035465 (C.D. Cal. Jul. 18, 2006) ....................................................5 Neubronner v. Milken, 6 F.3d 666 (9th Cir. 1993) .......................................................................................................17, 19 Phoenix Techs. Ltd. v. DeviceVM, No. 09-4697, 2009 U.S. Dist. LEXIS 114996 (N.D. Cal. Dec. 8, 2009) .......................................23 Procter & Gamble v. Haugen, 222 F.3d 1262 (10th Cir. 2000) ...............................................................................................10, 11 Resnick .v Hayes, 213 F.3d 443 (9th Cir. 2000) ...........................................................................................................4 Robert Bosch LLC v. Pylon Mfg. Corp., 632 F. Supp. 2d 362 (D. Del. 2009) ...............................................................................................10 Safe Air for Everyone v. Meyer, 373 F.3d 1035 (9th Cir. 2004) .........................................................................................................7 Sime v. Malouf, 95 Cal. App. 2d 82 (1949) .............................................................................................................12 Stewart v. Leland Stanford Junior University, No. 05-04131, 2006 WL 889437 (N.D. Cal. Apr. 5, 2006) (Ware, J.) ............................................4 Summit Tech., Inc. v. High-Line Medical Instruments Co., Inc., 933 F. Supp. 918 (C.D. Cal. 1996) ..................................................................................................6 Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137 (9th Cir. 2008) ...................................................................................................9, 10 Tercica, Inc. v. Insmed Inc., No. C 05-5027, 2006 WL 1626930 (N.D. Cal. Jun. 9, 2006) (Armstrong, J.) ................................5 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP SF:291607.1 OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 iv 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 Think Village-Kiwi, LLC v. Adobe Sys. Inc., No. 08-04166, 2009 U.S. Dist. LEXIS 32450 (N.D. Cal. Apr. 1, 2009) (Illston, J.)...............23, 24 Thompson v. Thompson, 798 F.2d 1547 (9th Cir. 1986) .........................................................................................................7 Thorn v. Reliance Van Co., 736 F.2d 929 (3d Cir. 1984).............................................................................................................6 Washington v. Baenziger, 673 F.Supp. 1478 (N.D. Cal. 1987) ...............................................................................................17 Wood v. Apadoca, 375 F. Supp. 2d 942 (N.D. Cal. 2005) ...........................................................................................17 Zyla v. Wadsworth, 360 F.3d 243 (1st Cir. 2004) ..........................................................................................................10 STATUTES Cal. Bus. & Prof. C. 17200 .........................................................................................................24, 25 Cal. Bus. & Prof. C. 17500 .........................................................................................................24, 25 Cal. Bus. & Prof. C. 17505 ...............................................................................................................25 Cal. Civ. Code 1770(a) .....................................................................................................................25 Cal. Civ. Code 3426.7(b) ..................................................................................................................23 Cal. Code Civ. P. 2019.210...............................................................................................................22 Cal. Corp. Code 16801......................................................................................................................12 OTHER AUTHORITIES Fed. R. Civ. P. 8 .............................................................................................................................15, 16 Fed. R. Civ. P. 8(a)(2) ..........................................................................................................................16 Fed. R. Civ. P. 9 ...................................................................................................................................17 Fed. R. Civ. P. 9(b) ............................................................................................................14, 15, 17, 19 Fed. R. Civ. P. 12(b)(1)......................................................................................................................6, 7 Fed. R. Civ. P. 12(b)(6)....................................................................................................................9, 15 Fed. R. Civ. P. 12(e) ............................................................................................................................24 Fed. R. Civ. P. 12(f) ...............................................................................................................................8 Fed. R. Civ. P. 30(b)(6)..........................................................................................................................5 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP SF:291607.1 OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 v 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 I. INTRODUCTION For more than a year, beginning in September 2008, plaintiffs Interserve, Inc. ("Interserve") and CrunchPad, Inc. ("CP") (collectively "TC") and defendant Fusion Garage ("FG") collaborated to develop and market the CrunchPad, an innovative, "dead simple and dirt cheap" tablet computer initially proposed and developed by TC. TC hired staff and consultants, provided important direction on technical aspects of the project, met with vendors and investors, promoted the product on its widely read blog, and devoted hundreds of thousands of dollars in the service of the CrunchPad project, which was to make its public debut at Interserve's "Real Time CrunchUp S.F." event on November 20. But unknown to TC, FG had no intention of debuting the CrunchPad, then or ever. Instead, starting in September, FG ended its relationship with the CrunchPad's original ODM manufacturer, secretly hired PR agency McGrath Power ("MP"), falsified a bogus "meeting of investors" in Miami, in its own words strung along Michael Arrington (CP's CEO), and then at the last minute aborted the joint project on November 17. A week later it relaunched the same CrunchPad product, rebranded the "JooJoo," thus usurping more than a year's worth of joint efforts for its own separate benefit and leaving Plaintiffs in the cold. FG fraudulently leveraged its joint effort with TC, and the massive publicity that TC brought to the project, to its sole advantage. FG's initial marketing materials (written while FG deceived TC that FG was still collaborating with them) emphasized that "crunchpad is now going to be called joojoo" and continued "[w]e need to clearly make the link that this is crunchpad with a different name." (Decl. of Matthew Scherb in Opp. to Mot. to Dismiss ("Scherb Decl.") 2 & Ex. A.) FG dwells at length on the failed merger between CP and FG. The merger failed because FG pulled out after CP thought a deal had been struck. In June 2009, CP and FG reached what CP believed was a clear understanding on the material terms of an eventual merger, to be consummated when FG cleared its books of some highly questionable loans. The notion that FG was planning to walk away from the joint enterprise altogether was, in FG's own words, "out of the blue." In any event, even if one were to consider the outcome of the relationship a "failed merger," that takes nothing away from the fact that, pending the anticipated merger, the parties had unambiguously joined forces on a collaboration, a joint project intended to commercialize a single OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP 1 SF:291607.1 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 product to which they both committed money, staff, and effort. Indeed, absent some definitive agreement to merge, which might have reordered their relationship in other aspects, their conduct a joint enterprise between Interserve, through CP, and FG created rights and responsibilities of the companies with respect to each other, in relation to the CrunchPad project. In the Complaint, TC describes the venture and its collapse in detail. Its allegations, which the Court must take as true at this stage of the case, more than adequately pleaded claims for false advertising under the Lanham Act, breach of fiduciary duty, misappropriation of business ideas, fraud, and violations of California unfair competition and false advertising law. II. STATEMENT OF THE ISSUES Does TC's Complaint state a claim for (i) False Advertising in Violation of the Lanham Act; (ii) Breach of Fiduciary Duty; (iii) Misappropriation of Business Ideas; (iv) Fraud and Deceit; and (v) Unlawful Business Practices and False Advertising under California Law? III. STATEMENT OF FACTS In July 2008, Interserve proposed to design and develop "a dead simple web tablet for $200." (Compl. 11.) Interserve, on its own, created a first prototype of what came to be called the CrunchPad. In September, 2008, Interserve met with FG, a Singapore software start-up, and the parties agreed to collaborate on the CrunchPad project. (Compl. 15.) Interserve and CP, an offshoot of Interserve created for the CrunchPad project, turned down several other companies that also expressed interest in a collaboration. (Compl. 49.) This was a tremendous opportunity for FG, an obscure Singaporean company, to work with a well-known Silicon Valley institution. By January 19, 2009, the parties had constructed a second prototype. (Compl. 18.) TC and FG worked in close collaboration, mostly out of TC's Bay Area headquarters, where FG's CEO and software team came to work for several months. (Compl. 20, 33.) Numerous communications confirm the parties' close connection: each touting their shared vision, each praising the other's efforts, and each clearly moving toward a joint goal. Despite significant friction over the summer of 2009, during which TC considered leaving the joint project, the parties forged ahead, and FG agreed to the material terms of a merger with CP. (Compl. 28, 29.) Relying on FG's representation that they had a deal, TC continued with the mutual development effort. (Compl. 30.) OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP 2 SF:291607.1 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 But then, on November 17, 2009 in an email that FG concedes "came out of the blue" FG suddenly aborted the partnership, asserting that it owned all rights in the CrunchPad product and would manufacture and market the CrunchPad product on its own. (Compl. 38, 79.) FG cast the email at the beginning of this string as the message of a disgruntled shareholder, Dr. Bruce Lee. (Compl. Ex. D.) The evidence suggests that FG had planned to push TC out of the CrunchPad project for months. For example, in October and November 2009, TC believed that Pegatron would manufacture the CrunchPad. In fact Pegatron terminated its relationship with FG on October 9 a fact FG concealed from TC even as FG personnel set up shop at TC's headquarters. (Compl. 33, 51.) FG registered the domain "thejoojoo.com" on November 10, 2009, but continued to assure TC in writing that it would meet the November 20 launch date for the CrunchPad. (Compl. 54, 55.) Through discovery, additional details of the scope of FG's misconduct are emerging, consistent with TC's initial allegations. As noted, TC continued to work closely with FG up until November 17, 2009, when FG pulled the plug. But FG had been engineering this rupture for months. At least as early as September 2009, FG had secretly started working with Silicon Valley PR agency MP to work on "the launch of the Fusion Garage tablet computer." (See Scherb Decl. 3 & Ex. B (agreement following weeks of informal discussion).) Id. 4 & Ex. C. The November 17 email from FG's investor, Dr. Bruce Lee, turns out instead to have been written by Mr. Rathakrishnan himself with input from his PR agency. Id. 5-6 & Exs. D, E. Mr. Bloom wrote, "[i]t is our understanding that [Mr. Rathakrishnan] will send this to Bruce and he will send it back via email so that it appears like a legitimate email communication." Id. 11 & Ex. J. And there was no "meeting in Miami" with FG's shareholders that allegedly led to Dr. Lee's email -- Mr. Rathakrishnan was in San Jose the whole time. Mr. Rathakrishnan's comment: "sure being in Miami wld have been fun!" Id. 7 & Ex. F. On Monday, December 7, FG followed through with its threat to go forward with the CrunchPad on its own. In a webcast, it advertised the CrunchPad, now re-branded as the JooJoo, for sale. (Compl. 60.) At this staged event, FG's CEO made multiple false and misleading statements about the nature, characteristics, and qualities of the CrunchPad/JooJoo device, and FG's and TC's OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP 3 SF:291607.1 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 commercial activities in relationship to the product. For example, FG represented that it had "developed the hardware platform on our own" and "made all the hardware design decisions for the final prototype." (Compl. 61.) It also represented that it was "FG shareholders who have provided the necessary funds" for the CrunchPad project. (Compl. 61.) FG repeatedly asserted that it took "all the risk" in the endeavor, "did all the work needed to move forward and bring the product to market," and undertook "all of the physical and intellectual business actions required to take the product to market." (Compl. 61.) These representations were false. TC had conceived the CrunchPad device, developed its original prototype with no input from FG, and contributed substantial intellectual and financial resources at all stages of the product's development and preparation for launch. FG, with MP's assistance, plotted and lied to cut TC out of the project that TC had conceived and then invited FG to join. The truth is, FG "strung [TC's Michael Arrington] along" (Scherb Decl. 8 & Ex. G), and now is fighting desperately to avoid the consequences of its own bad faith. IV. ARGUMENT TC has adequately pleaded claims for false advertising under the Lanham Act, breach of fiduciary duty, misappropriation, fraud, and California unfair competition and false advertising law. FG's motion to dismiss fails to offer any sound argument for dismissal of any of TC's claims.1 A. FALSE ADVERTISING IN VIOLATION OF THE LANHAM ACT 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 Winston & Strawn LLP TC states a valid claim under the Lanham Act for false advertising. TC has proper standing. The false advertising in question is not "true" as FG argues, and FG cannot win a motion to dismiss with a manufactured fact dispute. Finally, the alleged false advertising is actionable, as it concerns the nature, characteristics, or qualities of the CrunchPad and the parties' commercial activities. 1. Plaintiffs Have Standing Under the Lanham Act. a. TC Adequately Alleged It Has Suffered a Competitive Injury, as Required for Standing. Standing for a false advertising claim under the Lanham Act requires an allegation of On a motion to dismiss, courts must accept as true all material allegations in the complaint as well as reasonable inferences to be drawn from them, and view all allegations in the light most favorable to the plaintiff. Stewart v. Leland Stanford Junior University, No. 05-04131, 2006 WL 889437, at *2 (N.D. Cal. Apr. 5, 2006) (Ware, J.); Resnick .v Hayes, 213 F.3d 443, 447 (9th Cir. 2000). 4 SF:291607.1 OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 "competitive" injury. Jack Russell Terrier Network of N. Cal. v. Am. Kennel Club, Inc., 407 F.3d 1027, 1037 (9th Cir. 2005). Where false advertising seeks "to divert business from [plaintiff] to [defendant]," there is "no question that the injury ... is competitive." Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 734 (9th Cir. 1999). Such conduct is "the type [of injury] that section 43(a) of the Lanham Act was intended to remedy." Id. at 734. But Ninth Circuit standing doctrine does not require "an exact congruence between the businesses of the plaintiff and defendant." Nat'l Servs. Group, Inc. v. Painting & Decorating Contractors of Am., Inc., No. SACV06-563, 2006 WL 2035465, at *3-4 (C.D. Cal. Jul. 18, 2006). Rather, "the Court must determine whether or not the two parties vie for the same dollars from the same consumer group, and whether the conduct of the defendant ... could be said to create `competitive injury.'" Kournikova v. Gen. Media Commc'ns, Inc., 278 F. Supp. 2d 1111, 1117 (C.D. Cal. 2003). Indeed, standing may be found where there is potential future competition, even when a competitor is not yet in the market. Tercica, Inc. v. Insmed Inc., No. C 05-5027, 2006 WL 1626930 (N.D. Cal. Jun. 9, 2006) (Armstrong, J.). The defendant in Tercica was a pharmaceutical company that had received FDA approval but not actually brought its drug to market; it moved to dismiss a Lanham Act false advertising claim brought by a rival pharmaceutical company, on the grounds that the two companies "were not actually engaged in commercial competition at the time the ... Complaint was filed." Id. at *16. The court rejected defendant's standing argument, holding that "a future potential for a commercial or competitive injury can establish standing." Id. at *17 (quotations marks and citations omitted). TC alleges that it is in competition with FG, in developing and commercializing separate but nearly identical products. (Compl. 65.) It follows that TC and FG "vie for the same dollars from the same consumer group." Kournikova, 278 F. Supp. 2d at 1117. At the Rule 30(b)(6) deposition of Interserve, Mr. Arrington 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP SF:291607.1 OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 5 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 (Scherb Decl. 9 & Ex. H (Interserve Dep. Tr. at 379:7-24, designated AEO).) TC (through CP) and FG are competitors, and FG's conduct has caused TC competitive injury. In response, FG points to a series of irrelevant cases establishing that consumers lack standing under the Lanham Act. (Mot. at 12, citing Barrus and Von Grabe.) These cases are not germane, because TC is not a consumer. FG further argues that TC cannot allege a competitive injury because FG supposedly drove TC from the field. (Mot. at 11.) But, as Mr. Arrington confirms, it has not. FG's conduct has been a grievous, but not a fatal, setback to Mr. Arrington's vision of achieving a dead simple web tablet for under $200. Moreover, it is nonsense to argue that the Lanham Acts affords no relief to TC when FG's attempt to divert business to itself has, to date, succeeded. See, e.g., Thorn v. Reliance Van Co., 736 F.2d 929, 931-33 (3d Cir. 1984) (finding individual investor in bankrupt company had standing to sue for allegedly false advertisements by competitor of the bankrupt company). Whether an actual or future competitor, TC has sufficient standing. b. Whether an Injury Is "Competitive" Requires Detailed Inquiry into the Facts of the Particular Case. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP Furthermore, although the Complaint adequately alleges standing, whether an injury is "competitive" may require detailed inquiry into the facts of a particular case. See, e.g., Jack Russell Terrier at 1032 (upholding Lanham Act standing ruling made "[a]fter a seven-day bench trial"); Summit Tech., Inc. v. High-Line Medical Instruments Co., Inc., 933 F. Supp. 918, 939 (C.D. Cal. 1996) (declining to dismiss Lanham Act claim for standing on a 12(b)(6) motion where plaintiff's allegations "could reasonably include some form" of competition with defendant); Kournikova, 278 F. Supp. 2d at 1113 (stating, in granting summary judgment, that "Plaintiff might have overcome the absence of any allegation regarding competitive injury by presenting evidence"). Because the purpose of a 12(b)(6) motion is to determine the sufficiency of the pleadings, not the facts, dismissal OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 6 SF:291607.1 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 on standing grounds would be inappropriate.2 2. FG's Statements Were False. FG next argues that TC's Lanham Act claim fails because four of the eleven false or misleading statements that TC identifies in the Complaint are actually true. FG does not dispute the falsity of the other seven statements. And in fact, each of the four statements it disputes is false and actionable. The Court could only construe the four statements as true if it decides contested fact issues against TC. Because a 12(b)(6) motion tests the sufficiency of allegations in the Complaint, not competing evidence, the Court must deny FG's motion. FG contends these statements, made at its December 7, 2009 press conference, were true: "We had many discussions about a future potential deal whereby TechCrunch would acquire our company, but nothing tangible ever came out of that." "[W]e were never able to reach an agreement for a mutually acceptable business deal." "There was never any agreement of any kind between the two companies. This was nothing more than a potential acquisition that didn't occur as the parties would never come to terms." "Nothing has been signed, nothing was ever on the table." 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP (Mot. at 13, quoting Compl. 61.) These four statements can be true only in the absence of "any agreement of any kind" between the parties or any agreement "on the table" for merger. But there was both a joint venture in place and a merger under consideration. The Complaint contains numerous allegations supporting the conclusion that the parties were joint venturers. TC alleges that FG itself said FG was in a "collaboration with the CrunchPad project." (Compl. 16.) FG personnel "worked closely with" TC personnel. (Compl. 16.) "From April to July, 2009, Mr. Rathakrishnan [of FG] worked with TC personnel in TC's offices in California on virtually a daily basis as part of the joint development of the project." (Compl. 20.) As FG notes, its standing argument is really a motion for dismissal for lack of subject matter jurisdiction under Rule 12(b)(1). (See Mot. at 11, n.5.) See also Fleck & Assoc., Inc. v. City of Phoenix, 471 F.3d 1100, 1107 n.4 (9th Cir. 2006); Akhenaten v. Najee, LLC, 544 F. Supp. 2d 320, 333 n.17 (S.D.N.Y. 2008). Rule 12(b)(1) "jurisdictional dismissals in cases premised on federal question jurisdiction are exceptional." Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1038 (9th Cir. 2004) (finding trial court erred by basing Rule 12(b)(1) dismissal on plaintiff's failure to state a claim). "Federal question jurisdiction exists unless the cause of action alleged is patently without merit, or the allegation is clearly immaterial and made solely for the purpose of obtaining jurisdiction." Thompson v. Thompson, 798 F.2d 1547, 1550 (9th Cir. 1986). In the context of a 12(b)(1) motion, even if a court finds that plaintiff has failed to state a claim, it may not dismiss on that ground. Id. Because FG actually brings its standing motion under Rule 12(b)(1) the court should be exceptionally cautious before dismissing on this basis. 7 SF:291607.1 2 OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 Further, TC alleges that "[FG] and TC mutually agreed and acknowledged that they would each make capital investments of money, time, and services to achieve their common interests." (Compl. 75.) "[FG] and [TC] also agreed ... that they would both benefit from the profits in selling the CrunchPad to consumers." (Compl. 76.) Further, there can be no doubt that a detailed merger agreement was "on the table." TC alleges that FG assented to "the material terms of a merger in which CP would acquire [FG] in exchange for 35% of the merged company's stock." (Compl. 26.) FG committed to the deal, writing that "I will do this deal." (Compl. 29.) FG repeatedly referred to TC's "offer" (Compl, Ex. B), and TC relied on "FG's representation that it accepted." (Compl. 30). If anything, the absence of a signed writing is evidence of FG's bad faith and ill intent in denying what had been a series of verbal understandings. After FG sent the email destroying the collaboration with TC, a nervous Jonathan Bloom, FG's Silicon Valley-based PR advisor, inquired of his client: "No trademarks, contracts, written agreements or inferences in emails, right?" Mr. Rathakrishnan replied, "none watsoever. everything been verbal." (Scherb Decl. 7 & Ex. F (emphasis added).) Given the joint venture and potential merger, TC has properly alleged that the four statements that FG challenges were false advertising. FG has conceded the falsity of the other seven statements. The Court should therefore deny FG's 12(b)(6) motion.2 3. FG's Other False Statements Concern the Nature, Characteristics, and Qualities of the CrunchPad / JooJoo, as Well as the Commercial Activities of TC and FG, and Provide the Basis for a Valid Lanham Act False Advertising Claim. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP FG does not dispute that the following seven statements are false: "We took the following actions under the FG umbrella. We completed development of our operating system. We hired in the necessary expertise to make key hardware design decisions and developed the hardware platform on our own. We solved the remaining technical issues and developed a new and more finished prototype." "If anyone was led on here, it was us as Michael was never willing to come to terms and instead stepped back while we took all the risk, did all the work needed to move forward and bring the product to market." 2 As to FG's related Rule 12(f) motion to strike these statements from the false advertising claim, such a motion is highly disfavored, and "should be denied unless the matter has no logical connection to the controversy at issue." In re UTStarcom, Inc. Securities Litig., 617 F. Supp. 2d 964, 969 (N.D. Cal. 2009) (Ware, J.). Because the logical connection between the statements and TC's Lanham Act claim is clear, and because FG has failed to demonstrate that the statements cannot be the basis of a false advertising claim, FG's motion to strike should likewise be denied. 8 OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 SF:291607.1 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 "FG made all the hardware design decisions for the final prototype and getting a successful contractual relationship with an ODM." "It was the FG shareholders who have provided the necessary funds." "Even after taking all of the risk and undertaking all of the physical and intellectual business actions required to take the product to market, we provided Michael with suggested terms for a possible business deal." "Michael made many promises, many assurances suggesting that he would deliver on the hardware, deliver on the software, deliver on the funding, none of which came through. And we had been working with him for the last one year trying to strike a deal but nothing came out of [inaudible]. Despite those assurances, nothing happened." "Michael did not deliver on his promises." (Compl. 61.) Instead, FG contends that these statements (but not the four previously discussed) "concern inventorship" and so "cannot give rise to false advertising liability." (Mot. at 15.) But these statements have no relationship to "inventorship," a patent-law concept that has nothing to do with this case. In any case, FG is incorrect when it argues that Ninth Circuit law recognizes a broad "authorship or inventorship" exception to the Lanham Act. The Ninth Circuit and the Supreme Court have explicitly recognized that claims such as TC's are not foreclosed. Also, FG's arguments do not address TC's actual claims. TC alleges false advertising with respect to the goods, and the commercial activities, of both TC and FG. (Compl. 66.) FG's arguments address only the allegations as they relate to the goods. (Mot. at 15-16.) Because FG does not fully address TC's Lanham Act claim, it cannot show that the allegations fail to state a claim, as Rule 12(b)(6) requires. The Court should therefore deny FG's motion. a. There Is No Generalized "Authorship or Inventorship" Exception to the Lanham Act under Ninth Circuit Law. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP FG argues that the Lanham Act offers no relief for false advertising about the provenance of goods or services. But Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137 (9th Cir. 2008), the sole Ninth Circuit case that FG cites to support this argument, actually implies the existence of false authorship claims under the false advertising provisions of the Lanham Act. Sybersound noted that "the nature, characteristics, and qualities of karaoke recordings under the Lanham Act are more properly construed to mean characteristics of the good itself, such as the original song and artist of the karaoke recording." Id. (emphasis added). Other courts, including the Supreme Court, conclude OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 9 SF:291607.1 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 that the Lanham Act may reach claims about the authorship of works. See, e.g., Dastar Corp. v. Twentieth Century Fox Film Corp. et al., 539 U.S. 23, 38 (2003) ("respondents might have a cause of action ... for misrepresentation under the `misrepresents the nature, characteristics [or] qualities' provision of 43(a)(1)(B)"); Zyla v. Wadsworth, 360 F.3d 243, 252 n. 8 (1st Cir. 2004) (Dastar left open the possibility of false authorship claims); Clauson v. Eslinger, 455 F. Supp. 2d 256, 261-62 (S.D.N.Y. 2006) (allowing false advertising claim on a 12(b)(6) motion where song advertised as being created and performed solely by defendants); Baden Sports, Inc. v. Molten USA, Inc., 556 F.3d 1300, 1308 (Fed. Cir. 2009) (acknowledging cases). None of the other cases that FG cites for its "authorship exception" to the Lanham Act compels a different result. Baden Sports is a Federal Circuit case without binding effect and misconstruing Ninth Circuit law. Robert Bosch, a district court case, simply parrots Baden Sports with a minimum of analysis. Both the Baden Sports and Robert Bosch profess a concern to prevent overlap between the Lanham Acts and copyright and patent law, Robert Bosch LLC v. Pylon Mfg. Corp., 632 F. Supp. 2d 362, 367 n.4 (D. Del. 2009); Baden Sports, 556 F.3d at 1307, but here, TC makes no copyright or patent claims and, unlike the plaintiff in Sybersound, is not attempting to win copyright-flavored remedies. Misleading the public about who created or designed a product is core false advertising that Congress intended the Lanham Act to redress. b. FG's Motion Does Not Address TC's "Commercial Activities" Allegations, so it is Undisputed that the Complaint States a Claim. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP FG's "inventorship" argument also fails because FG does not address the entirety of TC's Lanham Act claim. The Complaint alleges that FG misrepresented not only the goods but also the "commercial activities" of both FG and TC. (Compl. 66.) FG makes the conclusory statement that its statements "do not constitute material misrepresentations about `the ... commercial activities ...'" of FG and TC. (Mot. at 15, quoting Compl. 66.) But FG's substantive arguments address the Lanham Act claim only as it pertains to goods. (Mot. at 15 ("The advertising statements that Plaintiffs rely on discuss `goods' i.e., products").) Because FG completely fails to address TC's allegations that FG misrepresented its own and TC's commercial activities, FG has not shown that TC has failed to state a claim in that respect, and the motion to dismiss should accordingly be denied. See Procter & Gamble v. Haugen, 222 F.3d 1262, 1270-73 (10th Cir. 2000) (finding 10 SF:291607.1 OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 summary judgment on false advertising claim was inappropriate, even though "the subject message did not implicate the nature, characteristics, or qualities of [plaintiff's] products," where district court did not consider "commercial activities" prong). 4. A Lanham Act Claim May Arise From Statements Regarding an Officer and Principal of a Company. FG's final argument concerns two false statements about Michael Arrington, Interserve's founder and co-editor and CP's CEO. (Compl. 16 ("Michael made many promises, many assurances suggesting that he would deliver on the hardware, deliver on the software, deliver on the funding, none of which came through. And we had been working with him for the last one year trying to strike a deal but nothing came out of [inaudible]. Despite those assurances, nothing happened"); id. ("Michael did not deliver on his promises").) FG argues that these statements cannot form the basis of a Lanham Act false advertising claim, because they are "about a person." (Mot. at 16, emphasis in original.) FG offers no authority for this novel, improbable proposition. There is nothing in the Lanham Act prohibiting claims based on false statements about an officer of a company acting on the company's behalf. In fact, in Procter & Gamble v. Haugen, 222 F.3d 1262 (10th Cir. 2000), the court allowed a suit by Procter & Gamble based on false statements about its president. Statements about its president implicated the "commercial activities" prong of the Lanham Act. The Lanham Act, in short, permits exactly what FG claims it does not. As to FG's statement that "Plaintiffs cannot allege a false advertising claim on [Mr. Arrington's] behalf, it is sheer misdirection. Interserve and CP brings their claims on their own behalf. (Compl. 67.) Mr. Arrington, as the founder, principal, and public face of Interserve, and CEO of CP, is well known in the technology community. (Compl. 10.) It is futile for FG to pretend that statements about Mr. Arrington have "no logical connection" to Plaintiffs' claims, their reputation, or business. FG's ill-considered motion to dismiss and to strike should be denied. B. BREACH OF FIDUCIARY DUTY FG withheld crucial information during the parties' collaboration and ultimately abused TC's trust when it "strung [TC's Michael Arrington] along" before usurping the CrunchPad venture for itself. Attempting to defeat TC's breach of fiduciary duty claim, FG argues that TC's statement that OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP 11 SF:291607.1 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 it would walk away from the joint venture was inconsistent with the venture's existence. This erroneous conclusion is at odds with the allegations in the Complaint and, at most, exposes a factual dispute rather than a pleading defect. And it misunderstands TC's core allegations. TC does not contend that the parties were somehow prohibited from walking away from the venture. It contends instead that it is entitled to share in the benefits of that collaborative effort. In addition, FG argues that it cannot tell from the Complaint to whom FG is supposed to have owed its fiduciary duty. But the Complaint is clear. 1. TC's Allegations Are All Consistent with the Existence of a Partnership between It and FG. The Complaint alleges in detail the parties' collaboration. (Compl. 69-77.) FG, however, argues that TC's threat to "turn the project off" is fatally inconsistent with the existence of a partnership to develop the CrunchPad. (Mot. at 19.) This argument is specious. The very fact that the parties could contemplate ending their joint venture shows that one existed. Partnerships and joint ventures do not endure forever. See Cal. Corp. Code 16801 (listing events that may trigger dissolution of a partnership). FG cites no legal authority for the proposition that one partner may not even propose to halt a collaboration without obliterating the venture. Moreover, TC did not end the project--and certainly did not usurp the project for itself--but continued in the partnership, a decision it made because of FG's false statements and omissions. (Compl. 30, 94-101.) In contrast, FG not only ended the parties' joint venture, it systematically misled TC about its intentions and abilities in order to lure it into partnership; abuse its trust; and usurp a jointlydeveloped product for its sole commercial benefit. See Sime v. Malouf, 95 Cal. App. 2d 82 (1949) ("while [the joint venture agreement] is in force, ordinarily one joint adventurer has no right to exclude another, or to withdraw himself from the arrangement, in order to act independently in respect to the subject matter of the joint venture"). The suggestion that TC's mere threat to stop collaboration with FG proves the non-existence of a joint venture is preposterous. FG's argument merely underscores the existence of the venture. At the very most, it suggests a factual dispute, which the Court cannot resolve on the pleadings. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP SF:291607.1 OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 12 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 2. TC's Complaint Clearly Alleges a Joint Venture Between Both Plaintiffs and FG. FG next argues that the Complaint does not identify to whom FG owed a fiduciary duty. But the Complaint is clear: "This complaint uses `TechCrunch' to refer to both Interserve[] and [CP]" The Complaint further states that CP is "an offshoot of Interserve[]" formed to "commercialize the CrunchPad project" in conjunction with Interserve. (Compl. 4.) It follows that the Complaint alleges a partnership or joint venture among Interserve, CP, and FG. (Compl. 73-74.) As such, FG owed a fiduciary duty to both Interserve and CP. (Compl. 78.) FG points to two instances where the Complaint uses the word "both" to refer to TechCrunch and FG. FG suggests that "both" must imply only two entities. This is nothing more than a grammatical quibble about whether "TechCrunch" should be referred to in the singular or the plural. The distinction between Interserve and CP is important only insofar as Interserve created CP to be the vehicle for its collaboration with and eventual acquisition of FG. So the fiduciary duty originally ran to Interserve, and then expanded to encompass CP when it was incorporated. FG also cavils at TC's use of the word "project" to refer to different things at different times. FG does not explain why it believes that this common word should be a term of art. At any rate, the notion that this is somehow "unclear" is belied by FG's own explanations of what the word means in the various contexts in which it appears. Finally, and confusingly, FG complains that non-party Michael Arrington of TC "figures prominently in the Complaint." (Mot. at 18.) While this is true, it is not clear why it should pose any difficulty. The Complaint does not seek to vindicate Mr. Arrington's rights as an individual, and does not allege that FG owed him a fiduciary duty. Mr. Arrington is the founder, co-editor, principal, and public face of Interserve, as well as CEO of CrunchPad, Inc. It would be surprising if he did not figure prominently in the Complaint. In sum, the language of the Complaint is far from being "hopelessly ambiguous." (Mot. at 18.) FG owed a fiduciary duty to Plaintiffs, and its own arguments demonstrate that it understands the allegations in that regard. No ambiguity provides a basis for dismissal. Nor is there a basis for FG's alternate request for a more definite statement. (Mot. at 17.) Motions for more definite 13 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP SF:291607.1 OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 statement are disfavored and are rarely granted; they are "proper only where a complaint is so indefinite that the defendant cannot ascertain the nature of the claim being asserted." Advanced Microtherm, Inc. v. Norman Wright Mechanical Equip. Corp., No. C 04-02266, 2004 WL 2075445, at *5 (N.D. Cal. Sep. 15, 2004) (Ware, J.). The Complaint is clear on its face, and FG cannot plausibly claim to be confused as to "the nature of the claim being asserted." C. FRAUD AND DECEIT TC has successfully pleaded a fraud claim. FG has not shown that any of the alleged fraudulent misrepresentations were, as it argues (Mot. at 20-21), actually and necessarily true, and its attempt to focus the Court on a fact dispute is improper on a motion to dismiss. Further, TC has met the pleading requirements of Rule 9(b) and has adequately pleaded proximate harm flowing from FG's fraudulent acts and omissions. 1. TC Properly Alleged Fraud Regarding the Joint Venture, and FG's Reference to Emails Regarding a Failed Merger is Both Beside the Point and Improper. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP FG first argues that its alleged fraudulent misrepresentations related to the prospects of a joint venture were true, and therefore not actionable, because of emails in which it kept TC appraised of the failed merger. FG confuses its statements about the failed merger with its fraud in misrepresenting by words and omissions the health of the joint venture itself. FG's "evidence" of truth is irrelevant and entirely improper in response to a motion to dismiss. FG argues that its destruction of the joint venture was really nothing more than a refusal to enter into a prospective merger with CP. This argument depends upon a gross mischaracterization of TC's actual allegations. TC does not allege that FG promised a joint venture by merger that never materialized, but rather that TC and FG were partners in a joint venture well before November 17, 2009. (Compl. 68-74.) FG's fraudulent conduct "was intended to and did induce [TC] to enter into a joint venture." (Compl. 45, emphasis added.) FG, through its further fraud and deceit, leveraged the joint venture relationship to its own advantage. (Compl. 45.) FG continued to deceive TC, even as it conspired to release the CrunchPad under the "JooJoo" name. (Compl. 5455.) The email exchange that FG offers as purported evidence of its honesty and good faith started seven days after FG secretly registered the domain name under which it intended to market the OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 14 SF:291607.1 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 stolen CrunchPad. (Compl. 38.) The exchange concerns the ill-fated merger, not the alreadyexisting joint venture. It has no bearing on the truth of FG's previous statements or on the misleading nature of its omissions related to the joint venture, or, for that matter related to the merger, which had been in the works for months. Indeed, recent discovery shows that the evidence of fraud and deceit is overwhelming. FG formally hired MP to promote "the Fusion Garage tablet computer" on October 6, 2009. (Scherb Decl. 3 & Ex. B.) It never informed TC of this hiring. MP, at FG's direction, reached out to , and others (like the New York Times) where it was actively pursuing options that previously had been discussed in the context of the joint venture. The November 17 email is in fact a fiction, drafted by FG and its PR agency and falsely asserting that Mr. Rathakrishnan was meeting with investors in Miami when he was in fact meeting with MP in San Jose. Id.. 5-6 & Exs. D-E. Mr. Rathakrishnan was merely "playing along" with TC until a convenient time to breach. And its deceptions to TC were designed to manage the fallout FG expected when news of its breach emerged: "its becoming really hard to play along and I do think this it is [sic] going to lead to a massive blowup on [Mr. Arrington's] part (perhaps not translated in his writing) when realization hits that I have strung him along." Id. 8 & Ex. G. As FG's Stuart Tan wrote on September 23 from TC's offices, "Really sucker these people." Id. 10 & Ex. I. FG's entire argument on this point depends on ignoring key facts, taking statements out of context, and interpreting them in the light most favorable to FG while ignoring FG's guilty admission and knowledge of what in fact transpired. This the exact opposite of the Rule 12(b)(6) standard. The Complaint's allegations, taken as true, establish a plausible claim that FG's supposedly honest exchanges with TC about the merger were merely the final pieces of a pattern of misrepresentation, fraud, and deceit intended to benefit FG at TC's expense. (Compl. 99, 101.) 2. TC Adequately Pleaded Damage from FG's Fraud and Deceit. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP FG also wrongly argues that there is a heightened pleading standard for proximate causation for injury due to fraud, and that TC's allegations do not meet that standard. (Mot. at 21.) In fact, there is no heightened standard and the Complaint adequately pleads causation. OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 15 SF:291607.1 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 Neither of the decisions that FG cites supports the heightened standard for which it argues. Neither concerns pleading standards at all, heightened or otherwise. The first, Fladeboe, simply repeats a basic tenet of tort law: "a plaintiff must prove loss proximately caused by the defendant's tortious conduct." The second, O'Hara, is nothing more than a recitation artfully elided by FG of the elements of a fraud cause of action. Moreover, both are state decisions and have no bearing on federal rules, such as Rule 9(b). The plain-statement standard of Rule 8 applies. Under the Rule 8 standard, the Complaint adequately pleaded that TC suffered injury as a result of FG's conduct: "[s]ubstantially as a result of [FG's] conduct, [TC] has suffered damage in its business or property." (Compl. 101.) A pleading need contain only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2); cf. Erickson v. Pardus, 551 U.S. 89, 92-93 (2007) (applying Rule 8(a)(2) standard in approving petitioner's "conclusory allegations" "concerning harm caused petitioner."). TC's allegation of harm in Paragraph 101 is sufficient, and the Court should end its inquiry into the adequacy of pleading harm here. But even the Court demanded a higher standard of pleading, the Complaint goes well above and beyond the allegation of Paragraph 101, alleging injury to TC in detail and with relation to the very misrepresentations that FG raises in its opposition. i. TC Adequately Alleges Harm from FG's Misrepresentation of Its Credentials. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP The Complaint adequately alleges that TC suffered harm from FG's misrepresentation of its credentials. "Based on Defendant's misrepresentations, [TC] selected Defendant over ... other prospective partners." (Compl. 49.) As a result, TC contributed its money, effort, and services to help develop and market the CrunchPad in partnership with FG. (Compl. 59.) FG argues that its ultimate "success" after more than a year of work proves that TC was not harmed by its misrepresentations. (Mot. at 22.) But FG's success is, first, still sheer speculation. More to the point, it owes any success it may attain to usurping the fruits of the CrunchPad project from TC. ii. TC Adequately Alleged Harm from Overstating Costs. FG overstated to TC the costs of the CrunchPad's components by $20-30 per unit. (Compl. 51.) FG's misrepresentation and concealment of the true costs was "material and critical to TC's decision to ... continue [the] partnership." (Compl. 57.) Because FG concealed the true state of OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 16 SF:291607.1 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 affairs, TC "continu[ed] its collaboration and its contribution of money, effort, and services to help develop and market the CrunchPad." (Compl. 59.) iii. TC Adequately Alleges Harm from FG's Concealment of the Loss of Pegatron. "Pegatron [was] the company preparing to manufacture the CrunchPad." (Compl. 51.) In the fall of 2009, Pegatron terminated its relationship with FG because FG had not paid its debts. (Compl. 53.) FG's misrepresentation and concealment of the loss was "material and critical to [TC]'s decision to ... continue [the] partnership." (Compl. 57.) Because FG concealed the true state of affairs, TC "continu[ed] its collaboration and its contribution of money, effort, and services to help develop and market the CrunchPad," all to its detriment. (Compl. 59.) Under any pleading standard, TC has adequately pleaded harm from FG's fraud. 3. TC's Allegations of Fraud Meet the Standard of Rule 9(b). 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Winston & Strawn LLP Finally, FG makes the conclusory and meritless argument that TC has not set forth with particularity its allegations of fraud, as Fed R. Civ. P. 9(b) requires. While Rule 9 does create a higher pleading standard for fraud claims, where the circumstances of those claims are uniquely within the defendant's knowledge, the particularity requirement is satisfied if the pleading "identifies the circumstances constituting fraud ... so that the defendant can prepare an adequate answer from the allegations." Neubronner v. Milken, 6 F.3d 666, 671 (9th Cir. 1993); Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir. 1989). As FG's motion makes clear, it understands the allegations against it. And it fails to point to a single allegation of fraud supposedly lacking in specificity to support its claim that TC has not met the Rule 9 standard. Moreover, a plaintiff alleging fraud by omission, as in this case, need not meet the same heightened pleading standard as plaintiffs alleging other types of fraud. Falk v. General Motors Corp., 496 F. Supp. 2d 1088, 1098-99 (N.D. Cal. 2007) (Alsup, J.). "Clearly, a plaintiff in a fraud by omission suit will not be able to specify the time, place, and specific content of an omission as precisely as would a plaintiff in a false representation claim." Id.; accord, Washington v. Baenziger, 673 F.Supp. 1478, 1482 (N.D. Cal. 1987) ("he is not alleging an act, but a failure to act"); Kinkade v. Trojan Express, LLC, No. SACV 08-1362, 2009 WL 799390, at *3 (C.D. Cal. Mar. 23, 2009). In such cases, "Rule 9(b)'s requirement ... may be relaxed." Wood v. Apadoca, 375 F. Supp. 2d 942, 17 SF:291607.1 OPPOSITION TO DEFENDANT'S MOTION TO DISMISS THE COMPLAINT - Case No. 09-CV-5812 1 2 3 4 5 6 7 8 9 10 101 California Street San Francisco, CA 94111-5802 949 (N.D. Cal. 2005) (Trumbull, J.). Insofar as TC alleges that FG fraudulently failed to disclose its plans to thwart the joint venture, Rule 9(b) does not require the specifics that FG erroneously claims are lacking. Though FG refused to tag any particular allegation of fraud as improperly pleaded under Rule 9, TC offers the Court this chart showing how its allegations meet the standard: Compl. 50 Who: Mr. What: "the When: Where: Via How conduct was fraudulent Loss causation: "[FG] promised [TC] that it would agree to a merger with [CP] and "represented further that its investors and creditors had agreed." Rathakrishnan (Compl. 29) merger transaction would go forward on [TC]'s terms." (Compl. 29) June 27, 2009 (Compl. 26) email. (Compl. 26; Compl. Ex. B.) FG never intended to consummate the merger. (Compl. 57.) "Defendant destroyed the joint venture only three days before the scheduled November 20 launch." (Compl. 56.) FG stated that "we were never able to reach an agreement for a mutually acceptable business deal." (Compl. 61.) TC would have discontinued the CrunchPad project had FG not agreed. (Comp. 28, 50.) "Relying on FG's representation . . . [TC] proceeded forward with the parties' mutual development effort." (Compl. 30.) "[TC] reasonably relied on [FG]'s representations ... in continuing its collaboration and its contribution of money, effort, and services to help develop and market the CrunchPad." (Compl. 59.) FG falsely represented to TC the costs of the product components as $20-30 per unit higher than they were. (Compl. 51.) misrepresented the costs of product components. (Compl. 51.) Prior to August, 2009. (Compl. 51.) In cost estimates prior to August, 2009. (Compl. 51.) FG misrepresented its progress and induced TC to continue the joint venture, especially in light of other material concealments from TC. (Compl. 57.) TC continued "its collaboration and its contribution of money, effort, and services to help develop and market the CrunchPad." (Compl. 59.) "Beginning at a point unknown to Plaintiff, [FG] misrepresented its intention to continue working on the joint project in collaboration with [TC]. FG made the mi

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