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

Filing 174

Memorandum in Opposition to Motion for Preliminary Injunction (Re-filed pursuant to order dated 9/10/2010) filed byFusion Garage PTE. LTD. (Doolittle, Patrick) (Filed on 9/16/2010)

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Interserve, Inc. et al v. Fusion Garage PTE. LTD Doc. 174 1 2 3 4 5 QUINN EMANUEL URQUHART OLIVER & HEDGES, LLP Claude M. Stern (Bar No. 96737) claudestem @ quinnemanuel.com Patrick Doolittle ( Bar No. 203659) patrickdoolittle @ quinnemanuel.com 50 California Street , 22d Floor San Francisco , California 94111 Telephone : ( 415) 875-6600 Facsimile : ( 415) 875-6700 6 Attorneys for Defendant Fusion Garage PTE. Ltd 7 8 9 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION 10 II 12 13 14 15 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. 09-cv-5812 RS DEFENDANT FUSION GARAGE'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION Date: Time: Dept.: May 13, 2010 1:30 p.m. Hon. Richard Seeborg 16 17 18 19 20 FILED UNDER SEAL 21 22 23 24 25 26 27 28 04049.51632/3470147.1 Case No. 09-cv-5812 RS DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION Dockets.Justia.com I 2 TABLE OF CONTENTS Page PRELIMINARY STATEMENT ....................................................................................................... 1 3 4 FACTS ............................................................................................................................................. 3 5 6 7 8 9 ARGUMENT .................................................................................................................................... 8 1. PLAINTIFFS CANNOT SHOW THEY ARE ENTITLED TO A PRELIMINARY INJUNCTION ....................................................................................................................... 8 A. Plaintiffs Cannot Show Likelihood of Success on the Merits ................................... 9 1. Plaintiffs ' Claim for Breach of Fiduciary Duty Fails .................................... 9 (a) Mr. Arrington' s Declaration and Oral Testimony Is Inconsistent with a Partnership ......................................................... 9 Plaintiffs ' Scheme to " Poach " Fusion Garage's Employees and "Kill" Fusion Garage Proves That No Partnership Existed ............................................................................................. 10 A Partnership Could Not Exist Where Plaintiffs Had the Unilateral Right to End It ................................................................ 11 Plaintiffs Present No Evidence that the Parties Were CoOwners of a Business ...................................................................... 12 The Parties' Relationship Was Subject to Contingencies That Never Took Place ............................................................................ 13 Plaintiffs Proposed an Agreement with a "No Shop" Provision .......................................................................................... 14 No Partnership Can Be Created by Mere Acquisition Negotiations .................................................................................... 15 No Partnership Existed Because the Terms were Impermissibly Vague or Disputed ................................................... 16 10 II 12 13 14 (d) (c) (b) 15 16 17 18 19 20 (h) 21 22 2. 3. 4. B. C. D. (f) (g) (e) Plaintiffs' Claim for Fraud and Deceit Fails ............................................... 17 Plaintiffs' Lanham Act Claim Fails ............................................................ 18 Plaintiffs' Claim for "Misappropriation of Business Ideas" Fails .............. 19 23 24 25 Plaintiffs Will Not Suffer Irreparable Harm if the Injunction Is Denied ................ 20 The Balance of Equities Weighs Against Plaintiffs ................................................ 23 A Preliminary Injunction Would Harm the Public Interest ..................................... 24 26 27 28 04049.51632/3470147.1 CONCLUSION ............................................................................................................................... 25 Case No. 09-cv-5812 RS -iDEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION I 2 3 TABLE OF AUTHORITIES Page Cases 556 F.3d 1300 (Fed. Cir. 2009) ..................................................................................................18 4 Baden Sports, Inc. v. Molten USA, Inc., 5 Bank of Cal. v. Connolly, 36 Cal. App. 3d 350 (1973) ..........................................................................................................9 Bustamante v. Intuit, Inc., 141 Cal. App. 4th 199 (2006) .............................................................................13, 14, 15, 16, 17 In re CMR Mortg. Fund, LLC, 416 B.R. 720 (Bankr . N.D. Cal. 2009 ) ......................................................................................... 9 City Solutions, Inc. v. Clear Channel Commnns, 201 F. Supp. 2d 1035 (N.D. Cal. 2001) .....................................................................................13 City Solutions, Inc. v. Clear Channel Commn's, 201 F. Supp. 2d 1048 (N.D. Cal. 2002) ...............................................................................14, ,15 14 Clean Energy v. Applied LNG Tech. USA, LLC, No. 08-746, 2008 WL 4384179 (C.D. Cal. Sept. 3, 2008) .........................................................20 In re Dimas, LLC, 2007 WL 2127312 ( Bankr . N.D. Cal. July 23, 2007) ................................................................15 6 7 8 9 10 11 12 13 14 15 16 DuFour v. Be LLC, No. 09-3770, 2009 WL 4730897 (N.D. Cal. Dec. 7, 2009) .......................................................22 17 18 19 20 21 22 23 24 25 K. C. Multimedia, Inc. v. Bank of Am. Tech. & Operations, Inc., 171 Cal. App. 4th 939 (2009) .....................................................................................................19 Love v. The Mail on Sunday, 489 F. Supp. 2d 1100 (C.D. Cal. 2007) ......................................................................................12 Mazurek v. Armstrong, 520 U.S. 968 (1997) ..................................................................................................................... 8 Gulf Coast Produce, Inc. v. Am. Growers, Inc., No. 07-80633,2007 WL 2302109 (S.D. Fla. Aug. 8, 2007) ......................................................21 Jack Russell Terrier Network off. Cal. v. Am. Kennel Club, Inc., 407 F.3d 1027 (9th Cir. 2005) .................................................................................................... 18 Freudenberg Household Prods. LP v. Time, Inc., No. 06-399,2006 WL 1049569 (N.D. Ill. April 18, 2006) ........................................................24 Green Book Intern. Corp. v. InUity Corp., 2 F. Supp . 2d 112 (D . Mass. 1998) ............................................................................................23 26 27 28 04049.51632/3470147.1 Case No. 09-cv-5812 RS -iiDEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION I 2 Natural Selection Foods, LLC v. Premium Fresh Farms, LLC, No. 07-197,2007 WL 128230 (N.D. Cal. Jan. 11, 2007) ..........................................................22 Nelmida v. Shelly Eurocars, Inc., 3 112 F.3d 380 (9th Cir. 1997) ......................................................................................................23 Pellegrini v. Weiss, 165 Cal. App. 4th 515 (2008) ...............................................................................................10, ,11 10 Reebok Intern. Ltd v. Marnatech. Enter., Inc., 970 F.2d 552 (9th Cir, 1992) ......................................................................................................22 Robert Bosch LLC v. Pylon Mfg. Co., 632 F . Supp . 2d 362 ( D. Del. 2009) ........................................................................................... 18 8 9 Smith v. MPIRE Holdings, LLC, No. 08-0549, 2009 WL 804069 (M.D. Tenn. March 25, 2009) .................................................21 483 F. Supp. 2d 327 (S.D.N.Y. 2007 ) ........................................................................................17 II 12 13 14 15 Statutes Cal. Corp. Code 16202 ....................................................................................................................9 Miscellaneous Weiner v. Fleischman, 54 Cal . 3d 476 (1991) ...................................................................................................................9 Winter v. Natural Res. Def. Council, Inc., 129 S. Ct. 365 (2008) .................................................................................................8, 19, 20, 22 10 In Re Tower Automotive Sec. Litig., 16 17 18 Charles Alan Wright & Arthur Miller, Federal Practice & Procedure 2948 (2d ed. 1995) ............8 19 20 21 22 23 24 25 26 27 28 04049.51632/3470147.1 Case No. 09-cv-5812 RS -iiiDEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION Preliminary Statement Plaintiffs ' Motion for a Preliminary Injunction (the "Motion") is baseless and should be denied .' Plaintiff Interserve , Inc. dba TechCrunch (" TechCrunch") is an Internet " blog" founded by blogger Michael Arrington . Mr. Arrington also formed another company , Plaintiff CrunchPad , Inc. ("CP Inc .") to acquire Defendant Fusion Garage PTE Ltd. ("Fusion Garage") and its software and web tablet technology . After the parties ' acquisition talks fell through , plaintiffs filed this lawsuit.2 Plaintiffs ' motivation in bringing the Motion was to use this Court to strangle Fusion Garage's business . The ill-conceived Motion seeks specific , yet drastic, relief. plaintiffs seek to 10 impound Fusion Garage ' s revenues in a Court-controlled account, a move designed to kill Fusion II 12 Garage. Plaintiffs present no competent evidence to support the Motion. To the contrary, the declaration of Michael Arrington in support of the Motion contains -as is proven by his subsequent deposition-foundationless, false or misleading testimony . Rather than seeking legal 13 14 redress based on colorable claims, Mr. Arrington (through his companies) is acting like a jilted 15 girlfriend because he is embarrassed that he was unable to close an acquisition and offer a product 16 he had promised his Internet blogging community. Having failed to acquire Fusion Garage, 17 plaintiffs claim that, in the course of acquiring Fusion Garage , they became "partners " with Fusion 18 19 20 21 22 23 24 25 26 27 28 04049 , 51632 /3470147.1 Garage. Although plaintiffs and Mr. Arrington state as a conclusion that they made material contributions to Fusion Garage's product, their deposition testimony and documentation shows that is a fabrication. Plaintiffs ' argument that a partnership existed is absurd in light of Mr. Arrington ' s own declaration . He attests that "[t]he parties agreed that each would bear its own losses of time energy and money if the project was not successful, and share profits if it was." (Arrington Decl. 31 ). A partnership is an agreement to share profits and losses-not, as Mr. Arrington wants, an agreement for him to share in Fusion Garage's upside but have Fusion Garage bear the entire downside risk. ( Remarkably, although Mr. Arrington swore to this "partnership" ' To be blunt , the Motion constitutes sanctionable conduct. In discovery, plaintiffs have disavowed any intellectual property infringement claim. Case No. 09 - cv-5812 RS DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION I 2 relationship in his declaration, at his deposition, he conceded that no such agreement was ever actually reached or made). TechCrunch has also produced internal documents showing they were considering "poaching" Fusion Garage's employees or "killing" Fusion Garage as a business. 3 4 Those are not the actions of a partner. Plaintiffs nowhere define the terms of the supposed 5 6 7 8 partnership, either.3 Plaintiffs also cannot show irreparable injury. Plaintiffs have no product of their own. Mr. Arrington attests that "it is not inconceivable that TechCrunch could start over and develop a new device." (Arrington Decl. 33). This is almost comical: perhaps it is not inconceivable that Mr. 9 Arrington could one day become President of the United States, but this is no basis to seek a 10 recount of the 2008 Presidential election. The Ninth Circuit has not yet endorsed a "not II inconceivable" test for the award of injunctive relief. TechCrunch's 30(b)(6) witness (Mr. 12 Arrington) also admitted in deposition that TechCrunch has never even seen or handled Fusion 13 Garage's product, the JooJoo. (Arrington Tr. 107:2-15; 158:7-12). Plaintiffs argue in conclusory 14 fashion that "Fusion Garage is a financially unstable start-up that can only remain viable by 15 dissipating revenues," but they proffer no competent evidence to support this contention. In fact, 16 the opposite is true: Fusion Garage has raised significant funding and has released its product. 17 Finally, plaintiffs are asking this Court to do equity, but plaintiffs' misconduct in this case does not entitle them to equity. They supported the Motion with a lawyer-concocted declaration, 18 19 then proffered a 30(b)(6) deponent who could not support the declaration and refused to answer 20 21 22 23 24 25 questions regarding key issues in the case, claiming he was not "comfortable" doing so. While Plaintiffs have used their public position and blog to embark on a public relations campaign designed to tarnish and embarrass Fusion Garage, they designated the entire 30(b)(6) deposition confidential to shield the testimony. (Fusion Garage does not believe almost anything in the transcript is confidential, but has lodged it under seal to comply with the Protective Order in the case.) Equity is not in Plaintiffs' favor and the Motion should be denied. 26 27 3 Plaintiffs do not allege or argue the existence of any acquisition agreement , partnership agreement , joint venture agreement , NDA, or any contract at all between the parties. 28 04049.51632/3470147.1 Case No. 09-cv-5812 RS -2DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION Facts The TechCrunch Blog and Arrington ' s Public Offer regarding Development of a Web Tablet. Plaintiff TechCrunch is a publisher of technology-oriented blogs and other web media. (Cmpl. If 3). Its founder and editor is Michael Arrington. (Arrington Decl. 1). In 5 July 2008, Mr. Arrington publicly posted a challenge on the Internet "to himself and the world" to 6 build "a dead simple web tablet for $200." (Cmpl. 11). He solicited the public at large to assist 7 on the project and stated "[i]f everything works well, we'd then open source the design and 8 software and let anyone build one that wants to." (1d.) (emphasis added). This point cannot be 9 over-emphasized: Mr. Arrington conceded in his deposition that the public offer "to let anyone 10 can build it" was a proposal he never retracted, even to Fusion Garage. (Arrington Tr. at 364:9II 368:6.) TechCrunch eventually planned to call the web tablet a "CrunchPad." (Cmpl. 4 & 13). 12 Mr. Arrington also formed a corporation CP Inc. to "commercialize the CrunchPad." (1d. 4). 13 14 15 16 Prototype A. Plaintiffs allege that by August 30, 2008, they had constructed a Prototype A of the web tablet. The prototype was still crude as it "was still far from having beta units." (1d. 12). Plaintiffs "posted pictures and a description" of the prototype on the Internet in a blog post. (1d.) Plaintiffs revealed in that post that it was "[a] humble (and messy) beginning. Prototype A 17 has been built. It's in a temporary aluminum case that a local sheet metal shop put together." 18 (Rathakrishnan Decl., Ex. E).4 Fusion Garage had no involvement with Prototype A. (1d. 31). Fusion Garage Meets TechCrunch /Arrington in September 2008. Fusion Garage, a Singapore-based software and technology company, formed in February 2008. (1d. 2). Fusion Garage's CEO, Chandrasekhar Rathakrishnan, first met Arrington at a conference called "TechCrunch 50" in September 2008. (1d. 10). Fusion Garage had already developed a customized browser operating system by this point. (1d. 9). After learning about Fusion Garage's technology and development efforts, TechCrunch eventually offered to pursue an acquisition of Fusion Garage. (1d. 10). 19 20 21 22 23 24 25 26 27 28 04049.51632/3470147.1 4 In addition to his declaration, Fusion Garage is submitting certain excerpts of Mr. Rathakrishnan's deposition transcript. -3Case No. 09-cv-5812 RS DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION 1 2 3 4 5 The Early Acquisition Negotiations. In December 2008, Plaintiffs sent a Letter of Intent to acquire Fusion Garage. (Rathakrishnan Decl. 11 and Ex. B). The Letter of Intent contained a 60 day no-shop clause, clearly indicating that even Plaintiffs understood there was no perpetual partnership relationship between the parties. (Arrington Tr. 229:2-230:2). The parties never signed this Letter of Intent, although they continued over the ensuing months to have on-and-off verbal 6 and email discussions about a potential acquisition. (Rathakrishnan Decl. 11). The parties' 7 acquisition discussions during this period were relatively limited, due in part to the fact that Mr. 8 9 10 11 12 13 14 Arrington took time off from TechCrunch for personal reasons in early 2009. (Id. 12). Prototype B. In January 2009, while the parties were still in sporadic acquisition discussions, TechCrunch published a blog post announcing "Prototype B" of the web tablet. (Id. 32). Prototype B did not use Fusion Garage's customized operating system, nor did Fusion Garage have any input into the hardware for this prototype. (Id. 33). In fact, the hardware for Prototype B was essentially components scavenged from personal computers and other devices, held together by case that TechCrunch had designed. (Id. 34). Fusion Garage Creates Its Own Web Tablet. Around February 2009, Louis Monier someone hired by TechCrunch to help build Prototype B - informed Fusion Garage that the TechCrunch web tablet project "had no legs." (Id. 35). Mr. Monier advised Fusion Garage to figure out its own plans. (Id.) Before this exchange with Mr. Monier, Fusion Garage had largely focused on developing its browser-based software rather than building hardware for a web tablet. After this exchange, however, Fusion Garage started in earnest to develop both web tablet hardware and software. (Id. 136). "All the Credit Should Go to Fusion Garage ." Fusion Garage presented its new web tablet (running software that Fusion Garage had begun developing in late 2008) to Mr. Arrington and TechCrunch in April 2009. (Id. 1 37). Impressed with Fusion Garage's web tablet, Mr. Arrington wrote a blog post highlighting this device - which TechCrunch adopted and called "Prototype C." (Id. T 38). Mr. Arrington's blog post stated that "the ID and hardware work was driven by Fusion Garage, "referred to Fusion Garage as "rock stars," and stated that "[i]n fact, all the credit should go to Fusion Garage." (Rathakrishnan Decl., Ex. G). Indeed, TechCrunch itself -4Case No. 09-cv-5812 RS DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION 15 16 17 18 19 20 21 22 23 24 25 26 27 28 04049.51632/3470147.1 I 2 had played no role in the development of the web tablet that Mr. Arrington called "Prototype C." The hardware and software for this device were designed and developed entirely by Fusion Garage. (Rathakrishnan Decl. 40; see also Arrington Tr. 136:23-138:8). The Continued Acquisition Negotiations . The successful demonstration of "Prototype C" also had the effect of causing Mr. Arrington to reinvigorate acquisition discussions. (Rathakrishnan Decl. 37). Specifically, Mr. Arrington offered another deal in June 2009 in 7 8 which Fusion Garage would be acquired in exchange for equity in CP Inc. - the company TechCrunch had set up to commercialize a web tablet. After Fusion Garage equivocated on 9 whether this deal would be acceptable to Fusion Garage, Arrington rescinded the offer on June 27. 10 11 (Cmpl. Ex. B) (e-mail from Arrington to Rathakrishnan, June 27, 2009 2:17 p.m.) ("You don't seem to be able to speak authoritatively for your imvestors [sic] and creditors. For reputation 12 reasons I'm forced to notify our investors that the deal is off.") In response, Rathakrishnan 13 proposed a counteroffer whereby Fusion Garage would be acquired for 40% interest in CP Inc., although he also expressed willingness to go forward on a 35% equity offer, so long as the deal addressed the treatment or repayment of certain loans. (Id.) (e-mail from Rathakrishnan to Arrington, June 27, 2009 3:01 p.m.); see also Rathakrishnan Decl. 17). After this exchange, no acquisition term sheet or letter of intent was sent to Fusion Garage, nor was one ever signed. 18 (Rathakrishnan Decl. 18). Nonetheless, throughout the middle of 2009, the parties continued engaging in meetings, 19 20 due diligence, and product demonstrations in hopes of consummating an acquisition. For instance, 21 22 23 Mr. Rathakrishnan spent time at TechCrunch's offices from April through June 2009 to engage in acquisition discussions and meet with potential third-party investors to fund an acquisition. (Id. T 46-47). Likewise, TechCrunch personnel Brian Kindle and Nik Cubrilovic traveled to Fusion 24 Garage's Singapore offices in the summer of 2009 to conduct due diligence on both Fusion 25 Garage and Pegatron Corp., the designated original device manufacturer (ODM) for the web 26 tablet. (Id. 49-51). However, plaintiffs have since produced documents showing that while in 27 28 04049,51632/3470147.1 Singapore, Mr. Cubrilovic was reporting back to Mr. Arrington, suggesting that plaintiffs "poach" Fusion Garage's employees or "kill" Fusion Garage. (Doolittle Decl., Exs. B & C). -5Case No. 09-cv-5812 RS DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION Arrington Threatens To Unwind " the Project." Neither the Complaint nor any other paper filed in this case defines the metes and bounds of what plaintiffs allege to be a joint venture or partnership between themselves and Fusion Garage. However, Mr. Arrington has since declared that the venture was only "joint" as to potential profits, not potential losses. (Arrington Decl. 31) ("The parties agreed that each would bear its own losses of time, energy, and money if 6 the project was not successful, and to share profits if it was.") Even more remarkably, the "joint 7 venture" was apparently terminable at will by plaintiffs, but not by Fusion Garage: While plaintiffs 8 have sued Fusion Garage for walking away from the supposed joint venture, Arrington threatened to 9 unilaterally "turn the project off' on at least two occasions. (Id. T 21; Cmpl. 28 & 32). 10 II 12 The End of the Acquisition Negotiations . In October 2009, TechCrunch CEO Heather Harde sent Fusion Garage a capitalization table proposing that CP Inc. acquire Fusion Garage for 23.5% equity. (Rathakrishnan Decl. 19 and Ex. D). This figure was obviously less than the 35% that Plaintiffs swear (in the Arrington Declaration at 19) that Fusion Garage had previously agreed to. Fusion Garage, in turn, counter-offered with a different deal structure whereby TechCrunch and/or CP Inc. would obtain 10% equity in Fusion Garage as part of an acquisition. 13 14 15 16 (Rathakrishnan Decl. 20). The parties never reached agreement on an acquisition. The parties 17 never even agreed on how much equity TechCrunch and Fusion Garage each would have in a new acquiring entity, or whether TechCrunch would obtain an equity stake in Fusion Garage as part of 18 19 a different deal structure. (Id. 21). Nor was any non-disclosure agreement, development 20 21 22 23 24 25 agreement, or any other contract signed between the parties. (Id. T 22-24). The JooJoo Product . After discontinuing negotiations with TechCrunch, Fusion Garage publicly announced the release of its web tablet, the JooJoo, on December 7, 2009. (Cmpl. T 44). Three days later, on December 10, 2009, plaintiffs filed this lawsuit. TechCrunch ' s 30(b)(6) Deponent Refused to Answer Questions . Fusion Garage noticed the deposition of TechCrunch's 30(b)(6) witness on a number of topics relevant to this 26 lawsuit. (Doolittle Decl., Ex. D (deposition notice)). TechCrunch designated Mr. Arrington-the 27 28 0404951632/3470147.1 same person who submitted the declaration in support of the Motion-as its witness. Remarkably, in response to question after question, Mr. Arrington refused to provide substantive testimony, Case No. 09-cv-5812 RS _6_ DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION I stating he was not "comfortable" doing so.5 Fusion Garage's counsel repeatedly told Mr. 2 Arrington that Fusion Garage did not care about Mr. Arrington's comfort level (Arrington Tr. 3 4 5 115:21-22; 116:1-4; 118:8-14; 133:4-8), but he still declined to answer questions. Mr. Arrington was asked when the parties had agreed that each party would bear its own losses of time energy and money if the project was not successful and share profits if it was (as he had attested in his 6 declaration), but Mr. Arrington was not "comfortable" giving a response. (Arrington Tr. 86:217 87:8). Mr. Arrington was asked when the supposed partnership was formed, but Mr. Arrington 8 declined to respond, stating he was not "comfortable" doing so. (Id. at 115:12-19). Mr. Arrington 9 was asked if a partnership was formed the first date he met Fusion Garage's CEO, but Mr. 10 Arrington stated he was not "comfortable" giving a response. (Id. at 117:1-12). Mr. Arrington 11 was asked if a partnership was formed when TechCrunch first began working with Fusion Garage, 12 but Mr. Arrington was not "comfortable forming legal conclusions." (Id. at 117:24-118:6). 13 14 15 Counsel asked Mr. Arrington if it was his belief that a partnership was formed between Fusion Garage, TechCrunch, and CrunchPad, but Mr. Arrington stated he was not "comfortable" providing a response. (Id. at 120:9-15). Mr. Arrington was asked whether TechCrunch and Fusion 16 Garage ever agreed to share profits, but Mr. Arrington would not provide a response because he 17 was "not comfortable forming legal conclusions." (Id. at 120:17-22). When asked if Fusion Garage 18 and TechCrunch had formed an agreement to create a partnership in late October 2008, Mr. Arrington 19 stated he was not comfortable so stating. (Id. at 187:22-188:4). He was not "comfortable" stating 20 whether the parties had reached agreement in December 2008, either. (Id. at 233:17-234:7). Mr. 21 22 23 24 25 Arrington was not comfortable-and refused to provide a substantive response-regarding whether a partnership between the parties existed or when one started. (Id. at 188:6-22; 190:1-16). Mr. Arrington was not comfortable stating whether partners owe each other fiduciary duties, either. (Id. at 214:10-215:13). When asked why Mr. Arrington was "comfortable" stating in his 26 27 5 Fusion Garage plans to bring an appropriate motion to compel to make Mr. Arrington answer. 28 04049.51632/3470147.1 -7Case No. 09-cv-5812 RS DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION declaration when a partnership ended, but was not comfortable testifying in deposition when the partnership began, Mr. Arrington testified "I don't have an answer." (Id. at 192:2-10). Mr. Arrington was "not comfortable making legal conclusions" about patents that Fusion Garage's product might be associated with that plaintiffs claim to own. (Id. at 136:4-21). Mr. Arrington was "not comfortable" stating what aspects of Fusion Garage's product are associated 6 with intellectual property or proprietary rights of TechCrunch. (Id. at 136:23-137:7). Mr. 7 Arrington was "not comfortable" stating what aspects of Fusion Garage's product were owned by 8 TechCrunch or CP Inc. (Id. 137:8-14). Based on a lack of "comfort," Mr. Arrington would not 9 10 II 12 answer what property Fusion Garage allegedly misappropriated from TechCrunch or CP Inc. (Id. at 137:25-138:8). Mr. Arrington was "not comfortable" responding what ownership rights plaintiffs have in intellectual property rights relating to the CrunchPad. (Id. at 332:19-25). He was similarly not comfortable-and refused to provide a substantive response-regarding what contributions TechCrunch or CP Inc. had made to Fusion Garage's product. (Id. at 333:2-17). Despite the fact that 13 14 Louis Monier plays a prominent role in plaintiffs' complaint, Mr. Arrington was not "comfortable" 15 16 stating whether Monier was an employee or contractor of TechCrunch. (Id. at 203:6-10). Accordingly, after he submitted a declaration attesting that the parties formed a partnership 17 and that plaintiffs had contributed to Fusion Garage's product, in his capacity as a 30(b)(6) 18 witness, Mr. Arrington would not support-or even talk about-those matters in his deposition. 19 Moreover, Plaintiffs' lawyer objected to nearly every question in the 30(b)(6) deposition.6 20 21 22 A party seeking a preliminary injunction has the burden to establish the following four 23 elements: "[1] that he is likely to succeed on the merits, [2] that he is likely to suffer irreparable 24 harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] 25 1. Argument PLAINTIFFS CANNOT SHOW THEY ARE ENTITLED TO A PRELIMINARY INJUNCTION 26 27 28 04049 . 51632 /3470147.1 6 Fusion Garage anticipates that plaintiffs will try to repair Mr. Arrington's declaration on reply, but submitting new evidence on reply is not allowed. Case No. 09-ev-5812 RS -gDEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION 1 2 that an injunction is in the public interest." Winter v. Natural Res. Def. Council, Inc., 129 S. Ct. 365, 374 (2008). A preliminary injunction is an "extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion." 3 4 Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (quoting 1 IA Charles Alan Wright & Arthur 5 Miller, Federal Practice & Procedure 2948 (2d ed. 1995)) (emphasis in original). Plaintiffs do 6 not carry their burden of establishing any of the four elements necessary to secure an injunction. 7 A. Plaintiffs Cannot Show Likelihood of Success on the Merits 1. Plaintiffs' Claim for Breach of Fiduciary Duty Fails. 8 9 Plaintiffs' breach of fiduciary duty claim arises from their contention that they were 10 members of a partnership or joint venture with Fusion Garage. Under California law, "the II association of two or more persons to carry on as coowners a business for profit forms a 12 partnership, whether or not the persons intend to form a partnership." Cal. Corp. Code 16202. 13 14 15 A "joint venture" is functionally similar to a partnership, except that a joint venture is usually formed for a specific set of transactions while a partnership is more indefinite. See Bank of Cal. v. Connolly, 36 Cal. App. 3d 350, 364 (1973). Due to the similarity of these two relationships, "the 16 courts freely apply partnership law to joint ventures when appropriate." Weiner v. Fleischman, 54 17 Cal. 3d 476, 482 (1991). (a) Mr. Arrington ' s Declaration and Oral Testimony Is Inconsistent with a Partnership 18 19 The declaration plaintiffs filed to support the Motion contains an admission that is fatal to 20 plaintiffs' position that a partnership existed. See Arrington Decl. 31. Specifically, Mr. 21 Arrington attests that "[t]he parties agreed that each would bear its own losses of time, energy, and 22 money if the project was not successful, and to share profits if it was." Id. The existence of such 23 an agreement is more than at issue, since Mr. Arrington denied any knowledge of such agreement 24 in his deposition. (Arrington Tr. at 86:21-87:8). Nonetheless, Mr. Arrington's statement, were it 25 true, conclusively establishes that there was no partnership, because a partnership is an agreement 26 to share profits and losses. See In re CMR Mortg. Fund, LLC, 416 B.R. 720, 733 (Bankr. N.D. 27 Cal. 2009) ("A partnership involves two or more people who contribute capital or labor with an 28 04049.51632/3470147.1 -9Case No. 09-cv-5812 RS DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION I 2 understanding that they will proportionately share profits and losses"). There is no agreement to be partners if there is an upside and not be partners if there is a downside. Indeed, plaintiffs' 3 position is convenient, because it allows them to claim most of Fusion Garage's profits if the 4 JooJoo is successful but disclaim any financial responsibility if the JooJoo's costs end up exceeding its revenues. Simply put, Mr. Arrington's statements belie the existence of a 5 6 partnership, and without a partnership there can be no breach of fiduciary duty. 7 Indeed, Mr. Arrington equivocated and backtracked on whether he believed that the parties 8 ever had a partnership. For instance, Mr. Arrington's declaration attests that "on November 17 in an email that Defendant concedes `came out of the blue' - Fusion Garage aborted the partnership." (Arrington Decl. 25). At his deposition, however, Mr. Arrington repeatedly - and under significant cross-examination - declined to testify to any partnership, instead contending he was "not comfortable" stating whether the parties ever had a partnership. (See, e. g., Arrington Tr. at 188:16-22 ("Q: Do you believe there was a partnership between Fusion Garage and TechCrunch? 14 A: I'm not comfortable making legal conclusions.")) And when asked why he was comfortable 15 opining about the alleged partnership in his declaration but not comfortable doing so in his 16 deposition, Mr. Arrington admitted "I don't have an answer." (Id. at 192:13). 17 Ultimately, this Court and Fusion Garage are left wondering exactly how Mr. Arrington could swear to one thing in his declaration, and be unable to even discuss the subject matter in his deposition, when he was in the crucible of cross-examination. Perhaps Mr. Arrington's declaration 18 19 20 was concocted by Plaintiff's counsel without having first consulted with Mr. Arrington. Perhaps 21 22 23 24 25 Mr. Arrington simply had an unexplained loss of memory in the 4 weeks between the signing of his declaration and his deposition. Perhaps we will never know. Mr. Arrington's own inconsistent and shifting positions about whether the parties ever had a partnership underscores why plaintiffs have. no likelihood of success on their partnership/fiduciary duty claim. (b) Plaintiffs ' Scheme to "Poach " Fusion Garage ' s Employees and "Kill" Fusion Garage Proves That No Partnership Existed 26 Fiduciary duties in a partnership are reciprocal. See Pellegrini v. Weiss, 165 Cal. App. 4th 27 515, 524-525 (2008) ("partners or joint venturers have a fiduciary duty to act with the highest good 28 04049.51632/3470147.1 Case No. 09-cv-5812 RS -10DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION I faith towards each other regarding affairs of the partnership or joint venture.") (emphasis added). 2 Yet plaintiffs' own documents prove that they did not consider themselves to have any fiduciary 3 duties to Fusion Garage. For instance, on August 17, 2009, TechCrunch officer Nik Cubrilovic 4 wrote to Arrington proposing three possible strategies for TechCrunch. In relevant part, Cubrilovic 5 stated that "option two is we kill the project and Fusion Garage also dies," while "option three is we 6 just poach his guys, run it ourselves." (Doolittle Decl., Ex. B). In response, Arrington simply wrote 7 back "if you're around, lets discuss this," id., and never wrote that poaching Fusion Garage's 8 employees or taking actions to kill Fusion Garage would breach plaintiffs' fiduciary duties. 9 Indeed, six days later, Cubrilovic sent Arrington a more detailed plan for poaching Fusion 10 Garage's employees.7 (Doolittle Decl., Ex. C) ("i know all the FG employees well now, depending on what we do with FG I am sure we can take advantage of some internal resentment to poach the key guys away.") Given that fiduciary duties in a partnership are reciprocal, plaintiffs' clear belief that they did not owe fiduciary duties to Fusion Garage demonstrates that no II 12 13 14 partnership existed between the parties. 15 (c) A Partnership Could Not Exist Where Plaintiffs Had the Unilateral Right to End It. 16 Plaintiffs' allegations that Fusion Garage was working in a joint venture with them 17 contradict their allegations that Michael Arrington tried to control "the project" by unilaterally 18 threatening to end "the project" on numerous occasions. (Cmpl. 28 ("For reputational reasons I'm 19 forced to notify our investors the deal is off. At this point it looks like our position is to turn the 20 project off completely."); id. 32 ("On August 31 ... TechCrunch again threatened to shut down the 21 22 23 24 25 7 Mr. Arrington testified in his deposition that he criticized Mr. Cubrilovic after his first suggestion of poaching Fusion Garage employees. This is not even remotely credible. There is no writing evincing any such criticism from Mr. Arrington. And the fact that Mr. Cubrilovic sent emails one after the other over a week's period to Mr. Arrington making the same suggestion without any response from Mr. Arrington criticizing the suggestion proves that Mr. Arrington never made the criticism of Mr. Cubrilovic's poaching recommendation. Moreover, despite the nefarious intent demonstrated by Mr. Cubrilovic, Mr. Arrington concedes that he did not discharge Mr. Cubrilovic for his scheme to poach the employees of TechCrunch's alleged "partner." (Arrington Tr. 388:20-390:12). 26 27 28 04049 . 51632 /3470147.1 Case No. 09-cv-5812 RS -11DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION I 2 collaboration.")). Mr. Arrington specifically attests that in summer of 2009, "[t]here was significant friction during this period, and TechCrunch seriously considered ending the joint project." (Arrington Decl. 21). Plaintiffs' breach of fiduciary duty claim, premised on a partnership or joint venture, is flatly inconsistent with TechCrunch's and Arrington's position that they had the unilateral ability 3 4 5 6 to "turn the project off completely" or "end[] the joint project," because the fiduciary duties in a 7 partnership or joint venture are reciprocal. Pellegrini, 165 Cal. App. 4th at 524-525. Yet plaintiffs' 8 position is that that Fusion Garage had a fiduciary duty to sustain the alleged partnership or joint 9 venture at the whim of TechCrunch while TechCrunch and Arrington could end the relationship at 10 any time. Such asymmetry is inconsistent with a partnership or joint venture under the law. II 12 Another fundamental reason that the parties' relationship`was not a partnership or a joint (d) Plaintiffs Present No Evidence that the Parties Were Co-Owners of a Business. 13 venture is that they were not in business together. TechCrunch's complaint is replete with 14 allegations that the parties jointly created the CrunchPad device and that TechCrunch made 15 contributions to the device. See, e.g., Cmpl. 35; 71 ("Defendant and TechCrunch personnel 16 collaborated to develop the CrunchPad's hardware, software, and industrial components"). 17 However, a partnership is an association to carry on a business, and cannot simply be an 18 association to create a device. For instance, in Love v. The Mail on Sunday, 489 F. Supp. 2d 1100 19 (C.D. Cal. 2007), Beach Boys member Mike Love brought suit against bandmate Brian Wilson 20 alleging breach of fiduciary duty based on an alleged songwriting partnership. Id. at 1102. It was 21 undisputed that Love and Wilson co-wrote songs. Idd, at 1106. However, there was no evidence that they acted as co-owners of a business to sell or license those songs, and thus the court held that there was no partnership as a matter of law. Id. at 1106-07. As in Love, there was no business understanding between plaintiffs and Fusion Garage, even assuming arguendo that they did collaborate to create the CrunchPad device. As discussed further below, plaintiffs have failed to prove any mutual understanding between the parties 27 regarding: (a) how the profits from their alleged business would be divided; (b) how the equity in 28 04049.51632/3470147.1 Case No. 09 - cv-5812 RS -12DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION the alleged business would be divided;. or (c) who would have managerial control over the alleged 2 business. Absent any understanding on even the most basic aspects of a business, there could be no partnership as a matter of law. (e) The Parties' Relationship Was Subject to Contingencies That Never Took Place 3 4 5 Plaintiffs' breach of fiduciary duty claim also fails because the alleged partnership was 6 contingent upon certain events that did not occur. The project to commercialize the CrunchPad 7 was contingent upon CP Inc. receiving adequate outside funding. (Rathakrishnan Decl. 13; 8 Arrington Tr. at 316:9-11 ('52 million [in funding] seemed to be roughly the amount needed to get 9 to the point where we could start producing CrunchPads.")) Moreover, the project was contingent 10 upon CP Inc. acquiring Fusion Garage - at which point the software and hardware that Fusion II Garage had developed would be owned by the entity. Rathakrishnan Decl. 13; Arrington Tr. at 12 85:4-6 ("At that meeting, we, Chandra and 1, agreed that the only way to work together was a 13 merger of the entities.") (emphasis added). 14 If the "partnership" was contingent upon outside finding or an acquisition of Fusion 15 Garage, and these events never occurred, then the partnership was stillborn and never truly 16 existed. Bustamante v. Intuit, Inc., 141 Cal. App. 4th 199 (2006). In Bustamante, plaintiff alleged 17 breach of a joint venture to develop software adapted for users in Mexico. Id. at 207. The court, 18 however, held that no enforceable joint venture existed. It reasoned that the alleged joint venture 19 was contingent upon the parties' receiving outside funding - and until that funding was in place, 20 there were no fiduciary obligations on the parties. See id. at 212-13 ("There could be no launch of 21 Intuit Mexico without its formation, no formation without funding, and no funding without a 22 commitment from venture capitalists or private investors. The failure of the parties' money23 raising efforts meant that they were unable to create a working relationship with each other, and 24 consequently, no obligation arose or could arise to `form and launch' the company on any terms.") 25 (emphasis in original); id at 213 ("the parties always understood that it would not be possible to 26 `form and launch' Intuit Mexico without significant third-party involvement in the enterprise. 27 28 04049.51632/3470147.1 Case No. 09 - cv-5812 RS _ 13_ DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION I 2 Clearly there was no expression of mutual consent to create a company without investor financing,,) Similarly, in City Solutions, Inc. v. Clear Channel Comm'ns, 201 F. Supp. 2d 1035 (N.D. Cal. 2001), the court rejected plaintiff's argument that the parties had entered into a joint venture to bid on a city contract to install newsracks. While the parties had several meetings about a joint bidding arrangement, the court reasoned that their "agreement" to submit a joint bid was subject to 7 the condition that they also agree on what their joint business model would look like if they won 8 the contract and had to install the newsracks. See id at 1042 ("The evidence here unmistakably 9 shows that plaintiff and Eller never reached a `closed' and `discrete' agreement to bid together on 10 April 13. Instead, it shows that any such agreement was always subject to agreement upon the parties' eventual business relationship, making it nothing more than an unenforceable `agreement to agree."') (emphasis added). Here, plaintiffs' sworn interrogatory responses reveal that, at most, they had an agreement to collaborate-an "agreement to agree." Doolittle Decl., Ex. E (Supplemental Response to Interrogatory No. 8) ("In late September 2008, the Interserve, Inc. 15 16 17 [sic] and Fusion Garage agreed to collaborate on the project."). Under Bustamante and City Solutions, any partnership between the parties to develop and market the CrunchPad was conditioned on adequate outside investment and a mutually agreeable acquisition of Fusion Garage. Because neither of these conditions were satisfied,8 no partnership 18 19 existed and the parties did not owe fiduciary duties to each other. At best, they had an agreement 20 21 22 23 24 25 26 27 28 04049.51632/3470147.1 to agree, which as a matter of law does not form a partnership. (f) Plaintiffs Proposed an Agreement with a "No Shop" Provision When the parties were in discussions for an acquisition, plaintiffs submitted a draft acquisition agreement to Fusion Garage. (Rathakrishnan Decl., Ex. B). That agreement contained a limited "no-shop" provision that allowed Fusion Garage to "shop" itself to other suitors if the 8 See, e.g., Arrington Tr. at 372:12-18 (" Q: Up through and including November 30, 2009, are you aware of any individual or group of investors who had committed to putting $ 2 million into CrunchPad ? A: No."). Case No. 09-cv-5812 RS -14DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION I 2 acquisition did not occur within 60 days. Id. This "no-shop" provision is flatly inconsistent with plaintiffs' partnership allegations. If the parties were in a partnership and owed fiduciary duties to each other, then plaintiffs' proposed language allowing Fusion Garage to abandon plaintiffs and merge with a third party after 60 days would be nonsensical. In short, plaintiffs' attempts to impose a contractual 60-day "no-shop" period on Fusion Garage proves that the parties did not have any extra-contractual fiduciary duties arising from a partnership or joint venture. 7 8 (g) No Partnership Can Be Created by Mere Acquisition Negotiations Plaintiffs' breach of fiduciary duty claim also fails because the business relationship was 9 nothing more than a set of acquisition negotiations that went sour. As the City Solutions court 10 held (in a later opinion), mere negotiators are not subject to fiduciary duties. City Solutions, Inc. II v. Clear Channel Cominn's, 201 F. Supp. 2d 1048, 1051 (N.D. Cal. 2002) ("This Court will not 12 chill future negotiations (and severely limit eligible pools of bidders in the process) by making 13 negotiators subject to fiduciary duties, including an obligation not to compete for the same bid, 14 where such negotiations fall short of an agreement to bid together.") At best, plaintiffs and Fusion 15 Garage engaged in a set of unsuccessful acquisition discussions that did not create fiduciary duties 16 between the parties. 17 Plaintiffs attempt to portray the acquisition negotiations as successful, suggesting that 18 Fusion Garage agreed in June 2009 to merge into CP Inc. in exchange for 35% of CP Inc's equity. 19 See Mot. at 3 ("By the end of June in 2009, the parties had agreed to the basic terms of their 20 eventual plan to merge Fusion Garage into CrunchPad, Inc., with Fusion Garage receiving 35% of 21 the merged company's stock.") Yet the parties' later actions confirm that that there was never an 22 agreement to merge the companies on any terms. For instance, in October 2009 - four months 23 after the parties supposedly agreed to a acquisition with a 35-65% equity split - TechCrunch CEO 24 Heather Harde proposed an acquisition offer by which Fusion Garage would receive just 23.5% 25 equity in CP Inc. (Rathakrishnan Decl., Ex. D). Harde's October 2009 counteroffer demonstrates 26 that the acquisition negotiations were not successful back in June 2009. Indeed, the acquisition 27 negotiations were not successful at any point. As City Solutions held, it is would be improper to 28 04049.51632/3470147.1 Case No. 09-cv-5812 RS -15DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION impose fiduciary duties on negotiators (such as Fusion Garage and plaintiffs) where these negotiations never resulted in a binding agreement. (h) 4 Yet another reason that there was no partnership between the parties is that the material No Partnership Existed Because the Terms were Impermissibly Vague or Disputed 5 terms of the supposed partnership or joint venture were impermissibly vague, uncertain, or 6 disputed between the parties. See In re Dimas, LLC, 2007 WL 2127312, * 17 (Bankr. N.D. Cal. 7 July 23, 2007) (finding no enforceable joint venture agreement because "[t]he evidence shows that 8 the parties had agreed to different terms. There was no mutual consent between the parties with 9 respect to the amount of capital to be invested, the equity contribution by the property owner, the 10 valuation of the property, the profit distribution, the obligation to make the mortgage payments, II and retention of the existing mortgages."); Bustamante, 141 Cal. App. 4th at 211 ("rather than 12 being definite, all of the following terms - which Bustamante represents as material - were 13 actually unsettled both before and after the alleged commitment by Intuit: the form and amount of 14 Bustamante's compensation; the extent, duration, and nature of his management role, if any; the 15 amount of Intuit's royalty; the equity percentage held by him, `the management team,' Intuit, and 16 outside investors; and the liquidity path for both Bustamante and investors.") 17 Here, neither plaintiffs' Complaint, their Motion, nor the Arrington Declaration describe 18 what the agreed-upon material terms were. See, e.g., Arrington Tr. 149:3-9 ("We didn't get to that 19 level of detail."). For instance, plaintiffs do not state how the profits of the alleged venture would 20 be divided. They do not state how managerial control would be divided. They do not state how 21 equity in the joint venture would be parceled out, other than their demonstrably false suggestion 22 that the parties "agreed" to 35%-65% equity split. Nor do they explain how the planned 23 introduction of third-party investment would alter or dilute the equity shares of the principal 24 parties. This uncertainty and vagueness as to every material term of the alleged business 25 collaboration means that no partnership could be created as a matter of law. 26 Similarly, plaintiffs do not explain when the partnership began, when Fusion Garage 27 joined it, or when Fusion Garage became subject to fiduciary duties by virtue of its work. Indeed, 28 04049.51632/3470147.1 Case No. 09 - cv-5812 RS -16DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION I 2 the Complaint alleges that "the project" existed before Mr. Rathakrishnan of Fusion Garage had even been introduced to TechCrunch or Mr. Arrington in September 2008. (Id. 12). Mr. Arrington attested in his declaration when the "partnership" ended, (Arrington Decl. 25), but he refused to testify in deposition when the partnership began or any other aspect of the alleged "partnership." (Arrington Tr. at 86:21-87:19; 117:1-12). Because plaintiffs' breach of fiduciary duty claim is hopelessly ambiguous as to what the 3 4 5 6 7 terms of the partnership were, as to whom Fusion Garage owed a fiduciary duty, and when the 8 partnership began, this claim cannot succeed as a matter of law. See, e.g., Bustamante, 141 Cal. 9 App. 4t" at 211. 10 11 2. Plaintiffs ' Claim for Fraud and Deceit Fails Plaintiffs' fraud claim also has no likelihood of success - not least because Fusion Garage 12 never made any misrepresentations. For instance, plaintiffs' Motion alleges that "Fusion Garage 13 repeatedly promised to merge with TechCrunch" (Mot. at 10) and further specifies that "Mr. 14 Rathakrishnan confirmed that he had spoken with his investors and creditors and they would agree 15 to merge with CrunchPad in exchange for 35 percent equity in the new company." (Id. at 11). Yet 16 this allegation is belied that fact that, just weeks before the acquisition talks broke down for good 17 in November 2009, TechCrunch CEO Heather Harde sent Fusion Garage a written acquisition 18 offer of 23.5% just equity. (Rathakrishnan Decl., Ex. D). As discussed above, this October 2009 19 counteroffer by Harde shows that Fusion Garage had never "promised" to be acquired at any 20 21 22 23 24 25 26 27 28 04049.51632/3470147.1 previous juncture. The parties were still in acquisition negotiations until the bitter end. Plaintiffs also allege fraud based on the fact that Fusion Garage registered the domain name "thejoojoo.com" on November 10, roughly a week before Rathakrishnan informed Arrington that the negotiations were seemingly at an impasse. (Mot. at 10). Yet by this point, the acquisition negotiations had been dragging on for months with no deal in sight. Fusion Garage's registry of "thejoojoo.com" was simply part of Fusion Garage's contingency plan for striking out alone, given the increasingly likely chance that it might never reach an agreeable business deal with plaintiffs. (Rathakrishnan Decl., 59). Plaintiffs can hardly complain about Fusion Garage setting up a contingency plan, given that, as early as August 2009, plaintiffs were considering their own Case No. 09 - ev-5812 RS -17DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION I "contingency plan" of poaching Fusion Garage's employees and marketing the product by 2 themselves. Doolittle Decl., Ex. B ("option three is we just poach his guys, run it ourselves.") 3 Likewise, the fact that Fusion Garage set up a contingency plan in case acquisition negotiations fell 4 through does not show that Fusion. Garage engaged in any fraudulent conduct. See In Re Tower 5 Automotive Sec. Litig., 483 F. Supp. 2d 327, 347-48 (S.D.N.Y. 2007) (holding that company did not 6 engage in fraud for failing to disclose its "contingency plan" of possibly filing for bankruptcy). 7 Plaintiffs next argue that Fusion Garage fraudulently concealed the loss of Pegatron as an ODM in October 2009. (Mot. at 10). But this argument makes no sense in light of plaintiffs' allegations and arguments. If TechCrunch was involved in the development of Fusion Garage's product as it claims, and provided leadership, ongoing support, and contributions on a daily basis as it claims, it would have known that Fusion Garage parted ways with Pegatron. (Rathakrishnan Decl. 57).. 8 13 14 15 Finally, plaintiffs allege that Fusion Garage fraudulently "claimed to have developed a browser-based operating system that turned out to be an off-the-shelf browser with minor variations." (Mot. at 10). Plaintiffs are, wrong. It is true - not false - that Fusion Garage developed 16 its own operating system. While this operating system did include a common Linux kernel, it merged this kernel with a webkit rendering engine to create a unique operating system. (Rathakrishnan Decl. 40). 3. Plaintiffs ' Lanham Act Claim Fails Plaintiffs' Lanham Act claim has no likelihood of success for the threshold reason that plaintiffs cannot show a "competitive injury" (as they have no competing product) and therefore lack standing. See Jack Russell Terrier Network off. Cal. v. Am. Kennel Club, Inc., 407 F.3d 1027, 1037 (9th Cir. 2005). Fusion Garage addressed plaintiffs' lack of standing in its Motion to Dismiss, to Strike, and for a More Definite Statement ("Motion to Dismiss") and incorporates 25 those arguments by reference. Suffice it to say that Mr. Arrington admitted in his deposition that 26 plaintiffs are not selling any competing or successor web tablet. Arrington Tr. at 351:9-10 ("Q: 27 Do you sell a web tablet? A: We do not.") Nor do Plaintiffs have any concrete or imminent plans 28 to sell a web tablet in the future - at most, Arrington conjectured that they might do so at some 04049.51632/3470147.1 Case No. 09 - cv-5812 RS _18DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION I 2 undetermined future time. Arrington Decl., 33 ("it is not inconceivable that TechCrunch could start over and develop a new device for the same market Fusion Garage presently is trying to misappropriate for itself.") (emphasis added). Because plaintiffs are not developing any product to compete with Fusion Garage, and have no concrete or imminent plans to do so, Fusion Garage's advertising statements are not "harmful to the plaintiffs' ability to compete with the defendant." Jack Russell Terrier, 407 F.3d at 1037. 7 Fusion Garage also explained in their Motion to Dismiss that the Lanham Act claim fails 8 because statements that merely take credit for the creation of a product cannot give rise to false 9 advertising liability under the Lanham Act. See Baden Sports, Inc. v. Molten USA, Inc., 556 10 F.3d 1300, 1307 (Fed. Cir. 2009); Robert Bosch LLC v. Pylon Mfg. Co., 632 F. Supp. 2d 362, 366 11 (D. Del. 2009). Fusion Garage further explained in its Motion to Dismiss that the Lanham Act claim fails because plaintiffs are complaining about true statements. For instance, Fusion Garage did design the hardware for the JooJoo. (Rathakrishnan Decl. 40). For the reasons explained in 12 13 14 the Motion to Dismiss, the Lanham Act claim fails and certainly does not warrant injunctive relief. 15 4. Plaintiffs ' Claim for "Misappropriation of Business Ideas" Fails 16 17 Tellingly, plaintiffs' Motion does not even allege a likelihood of success on their "misappropriation of business ideas" claim. The Motion does not even mention this claim, except to argue defensively in two sentences that this claim is not pre-empted by the California Uniform Trade Secrets Act (CUTSA). (Mot., 13). Because plaintiffs do not allege a likelihood of success on the "business ideas" claim, Fusion Garage will not address this claim at length here and respectfully refers the Court to Fusion Garage's Motion to Dismiss for a more complete analysis of why this claim fails as a matter of law. Nonetheless, it should be noted that plaintiffs' attempt to avoid CUTSA pre-emption is unfounded. It would wholly vitiate the principles of CUTSA pre-emption if plaintiffs were allowed to repackage their would-be trade secrets as "business ideas" and bring a common-law "business ideas" claim, especially given that "CUTSA's `comprehensive structure and breadth' suggests a legislative intent to occupy the field." K. C. Multimedia, Inc. v. Bank of Am. Tech. & Operations, Inc., 171 Cal. App. 4th 939, 957 (2009). The Court should reject plaintiffs' artful Case No. 09 - cv-5812 RS -19DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION 18 19 20 21 22 23 24 25 26 27 28 04049 . 51632 /3470147.1 I 2 3 4 5 attempt to plead around CUTSA and should find that the "misappropriation of business ideas" claim is pre-empted. B. Plaintiffs Will Not Suffer Irreparable Harm if the Injunction Is Denied A plaintiff cannot show it will suffer irreparable harm in the absence of a preliminary injunction "based only on a possibility of irreparable harm." Winter, 129 S. Ct. at 375. Rather, 6 "plaintiffs seeking preliminary relief [must] demonstrate that irreparable injury is likely in the 7 absence of an injunction." Id. (emphasis in original). Moreover, a plaintiff must make a "clear 8 showing" that it is entitled to the "extraordinary remedy" of injunctive relief. Id. at 376. Plaintiffs 9 cannot come close to satisfying this standard. To the contrary, Fusion Garage would suffer 10 irreparable injury if an injunction issue, and plaintiffs face no irreparable injury if one does not. II 12 First, plaintiffs have no product, yet claim "it is not inconceivable that TechCrunch could start over and develop a new device." (Arrington Decl. 33). Such a mere possibility is insufficient. Winter, 129 S. Ct. at 375 The only "irreparable injury" that plaintiffs argue is that Fusion Garage may "dissipate" its assets and leave plaintiffs with no money to collect should plaintiffs ultimately win this case on 13 14 15 16 the merits. See Mot. at 7 ("Fusion Garage is a financially unstable foreign start-up that can only 17 remain viable by dissipating revenues from sales of the JooJoo.") 18 However, plaintiffs have no competent evidence to support these fears of dissipation and 19 inability to collect on a judgment. (Arrington Tr. at 327:10-14; 349:19-350:2 (showing 20 TechCrunch 30(b)(6) deponent lacked information regarding Fusion Garage's finances)). To the 21 22 23 24 25 contrary, the evidence shows that Fusion Garage is a well-capitalized company. For instance, Fusion Garage has raised $3.4 million in funding to date and expects to close on another round of $3 million funding within a month. (Rathakrishnan Decl. 64). This significant funding belies plaintiff's suggestion that Fusion Garage is so "financially unstable" that the Court must freeze its revenues to preserve plaintiffs' hypothetical recovery down the road. See Clean Energy v. Applied 26 LNG Tech. USA, LLC, No. 08-746, 2008 WL 4384179, *4, 7 (C.D. Cal. Sept. 3, 2008) (denying 27 preliminary injunction and rejecting argument that defendant would be unable to satisfy a money 28 judgment given that defendant had recently acquired $2.1 million "that has improved [defendant's 04049 . 51632 /3470147.1 Case No . 09-cv-5812 RS -20DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION ] financial condition").9 Fusion Garage has also entered into an arrangement with a company, CSL Group, regarding the manufacturing of the JooJoo device. Under the arrangement, CSL advances the manufacturing costs to make the JooJoo device, and obtains recoupment on the 4 5 backend. Fusion Garage does not need to incur large manufacturing costs since they are being advanced by CSL. However, if the Court impounded Fusion Garage's revenues, Fusion Garage 6 would not be able to meet its obligations to CSL. (Rathakrishnan Decl. 62). 7 8 9 10 11 12 Unable to show that Fusion Garage is undercapitalized, plaintiffs next argue that "payments for JooJoo pre-orders are going directly into a PayPal account in the name of Fusion Garage's CEO, not in the company's name." (Mot. at 7). Plaintiffs do not explain the relevance of this information, but presumably they mean to suggest Fusion Garage would be unable to draw upon a PayPal account in Mr. Rathakrishnan's name to satisfy an eventual money judgment. However, plaintiffs are wrong that the PayPal account holding the JooJoo's revenues is "not in the company's name." Rather, the account specification sheet - which plaintiffs attached to their own Motion - clearly lists the "Account Type" as "Business," not personal. (Bloch Decl., Ex. A). Moreover, "FusionGarage" is listed as the business for which the account was created. Id. 13 14 15 16 Mr. Rathakrishnan is simply registered as the "user" of the account, and only because PayPal 17 requires at least one individual person to register as a user whenever a business account is created. (Rathakrishnan Decl. 67). In any event, Fusion Garage is not even using PayPal for payment 18 19 processing any more. (Id.) 20 21 22 23 24 25 9 Plaintiffs' allegations that Fusion Garage "was on a shoestring budget" and "[o]n several occasions, TechCrunch even paid Fusion Garage's bills" (Mot. at 14) does not show that Fusion Garage is presently so undercapitalized that the Court should take the extraordinary step of freezing its revenues. These allegations refer to a prior time period, before Fusion Garage began marketing the JooJoo and received millions of dollars in funding. See Clean Energy, 2008 WL 4384179 at *7 (citing defendant's "improved [] financial condition" as reason why plaintiff could not show defendant's inability to satisfy a money judgment). In any event, the allegation that TechCrunch "paid Fusion Garage's bills on several occasions" is vastly exaggerated. In fact, TechCrunch advanced just a single $23,500 payment to a touchscreen vendor on Fusion Garage's behalf, back in 2009. (Rathakrishnan Decl., 44). 26 27 28 04049.51632/3470147.1 Case No. 09 - cv-5812 RS -21DEFENDANT'S OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION In short, plaintiffs have offered no competent evidence to support their "bare concerns" that Fusion Garage is financially unstable or is likely to dissipate the JooJoo revenues. See Smith v. MPIRE Holdings, LLC, No. 08-0549, 2009 WL 804069, *7 (M.D. Tenn. March 25, 2009) (denying preliminary injunction motion to freeze defendant's assets where "plaintiffs have offered 5 no evidence beyond their bare `concerns' that any particular defendant is presently absconding 6 with or dissipating assets that might be required to satisfy a judgment.") Conversely, Mr. 7 Rathakrishnan has offered evidence that Fusion Garage is adequately capitalized, which only 8 strengthens the conclusion that plaintiffs have failed to show irreparable injury. See Gulf Coast 9 Produce, Inc. v. Am. Growers, Inc., No. 07-80633, 2007 WL 2302109, *2 (S.D. Fla. Aug. 8, 2007) 10 ("Glenn C. Thomason, principal of American Growers, testified that American Growers is solvent II and has sufficient funds to pay all accounts payable, including Gulf Coast Produce's claim in its 12 entirety ... Gulf Coast Produce had no evidence to sugge

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