Mintel Learning Technology, Inc. v. Ambow Education Holding, Ltd et al

Filing 60

ORDER by Hon. Edward J. Davila DENYING 53 Motion to Dismiss. Signed on 3/8/2012.(ejdlc3, COURT STAFF) (Filed on 3/8/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION
CASE NO. 5:11-CV-01504-EJD

MINTEL LEARNING TECHNOLOGY,
INC.,

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For the Northern District of California

United States District Court

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ORDER DENYING AMBOW’S MOTION
TO DISMISS

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Plaintiff,
v.

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[Re: Docket Item No. 53]

AMBOW EDUCATION HOLDING LTD.,
et al.,

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Defendants.
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/
Pending before the court is the motion of Defendant Ambow Education Holding Ltd.

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(“Ambow”) to dismiss Mintel Learning Technology’s (“Mintel”) First Amended Complaint for

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failure to state a claim upon which relief may be granted. For the reasons set forth below, Ambow’s

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motion is denied.

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I. BACKGROUND

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Mintel develops software and services designed to help students learn and remember

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information. First Am. Compl. ¶ 12. Mintel’s offerings are all based on a set of core software

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modules which Mintel calls its “Memory Engine.” Id. ¶ 14. The core modules are incorporated into

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both web-based services and physical devices made available for sale. Id. ¶¶ 14–15.

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According to the complaint, Mintel entered into a distribution agreement in 2002 with a
Chinese company called Kaidi by which Kaidi obtained the source code for Mintel’s Memory
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CASE NO. 5:11-CV-01504-EJD
ORDER DENYING MOTION TO DISMISS

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Engine. Id. ¶ 16. In 2005, Kaidi breached its agreement with Mintel by providing Mintel’s source

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code to Ambow, which used the technology to develop a competing product. Id. ¶ 17. The complaint

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alleges that Ambow, through its CEO and an agent of the CEO, knew that it was acquiring Mintel’s

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trade secrets from Kaidi. Id. ¶¶ 18–19. To bolster that allegation, Mintel points to a provision of the

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Kaidi–Ambow contract by which both parties agreed not to disclose “the relationship between

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Nuclear Explosion English [Ambow’s competing product] and Mintel’s products.” Id. ¶ 19.

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Ambow’s competing product allegedly incorporates Mintel’s trade secrets, and Mintel complains of

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lost profits as a result of the competition.

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II. LEGAL STANDARD

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For the Northern District of California

United States District Court

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On a Rule 12(b)(6) motion to dismiss for failure to state a claim, the complaint must be

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construed in the light most favorable to the non-moving party, and all material allegations in the

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complaint are taken to be true. Sanders v. Kennedy, 794 F.2d 478, 481 (9th Cir. 1986). This rule

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does not apply to legal conclusions. “Threadbare recitals of the elements of a cause of action,

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supported by mere conclusory statements, do not suffice” to state a claim. Ashcroft v. Iqbal, 556

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U.S. 662, 129 S. Ct. 1937, 1949 (2009). While a complaint does not need detailed factual allegations

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to survive a 12(b)(6) motion, the plaintiff must provide grounds demonstrating its entitlement to

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relief. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, the plaintiff must allege

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sufficient factual allegations “to raise a right to relief above the speculative level.” Id. This threshold

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is reached when the plaintiff pleads sufficient facts to allow the Court to draw a reasonable inference

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that the defendant is liable for the alleged misconduct. Iqbal, 129 S. Ct. at 1950.
Claims for misappropriation of trade secrets are not held to the heightened pleading standard

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of Rule 9(b). See PhoneDog v. Kravitz, 11-CV-3474, 2011 WL 5415612 at *7 (N.D. Cal. Nov. 8,

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2011).

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III. DISCUSSION

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The California Uniform Trade Secrets Act prohibits misappropriation of trade secrets, which

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it defines as:
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CASE NO. 5:11-CV-01504-EJD
ORDER DENYING MOTION TO DISMISS

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

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(2) Disclosure or use of a trade secret of another without express or implied consent
by a person who:
(A) Used improper means to acquire knowledge of the trade secret; or
(B) At the time of disclosure or use, knew or had reason to know that his or
her knowledge of the trade secret was:
(i) Derived from or through a person who had utilized improper means
to acquire it;
(ii) Acquired under circumstances giving rise to a duty to maintain its
secrecy or limit its use; or
(iii) Derived from or through a person who owed a duty to the person
seeking relief to maintain its secrecy or limit its use; or
(C) Before a material change of his or her position, knew or had reason to
know that it was a trade secret and that knowledge of it had been acquired by
accident or mistake.
Cal. Civ. Code § 3426.1(b). “Improper means” include the “breach or inducement of a breach of a

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To state a claim for misappropriation of trade secrets under the California Uniform Trade
For the Northern District of California

United States District Court

duty to maintain secrecy.” Cal. Civ. Code § 3426.1(a).
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Secrets Act, a plaintiff must allege that: (1) the plaintiff owned a trade secret; (2) the defendant
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misappropriated the trade secret; and (3) the defendant’s actions damaged the plaintiff. Nexsales
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Corp. v. Salebuild, Inc., 11-CV-3195, 2012 WL 216260 at *2 (N.D. Cal. Jan. 24, 2012). Ambow
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moves to dismiss the complaint on the grounds that Mintel fails to sufficiently allege the second and
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third elements—misappropriation and resulting damages.
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A. Misappropriation
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Ambow argues that the complaint does not establish Ambow’s knowledge that Mintel’s trade
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secrets were improperly disclosed.
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The complaint does directly allege that Jin Huang (Ambow’s founder and CEO) and Jianhua
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Xu (Huang’s agent) knew that Ambow was acquiring Mintel’s trade secrets from Kaidi in breach of
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Kaidi’s contract with Mintel. FAC ¶ 19. Such bare allegations might be insufficient without further
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concrete, supporting facts. The complaint goes on to recite a provision of the contract between
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Ambow and Kaidi, which prohibited “disclosure to any third party by any means, whether express or
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implied, the relationship between Nuclear Explosion English and Mintel’s products.” Id.
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This language of the alleged agreement between Ambow and Kaidi raises the right to relief
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to the level of plausibility. Though Ambow contends that it would be “pure speculation” to infer
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CASE NO. 5:11-CV-01504-EJD
ORDER DENYING MOTION TO DISMISS

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Ambow’s knowledge of Kaidi’s misconduct from the language of the contract, the contract Ambow

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signed expressly acknowledges some connection with Mintel’s products and evidences a desire to

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keep that connection secret. The combination of the contract language with the allegation that

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Kaidi’s disclosure to Ambow was a breach of its contract with Mintel makes the inference that

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Ambow knew it was acquiring Mintel’s information from Kaidi in breach of the contract plausible.

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Such an interpretation would qualify as misappropriation as defined at Cal. Civ. Code §

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3426.1(b)(2)(B)(iii).

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B. Damages and Proximate Causation
To state a claim under the California Uniform Trade Secrets Act, a plaintiff must also plead
that it suffered damages caused by the alleged misappropriation. The complaint states:

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For the Northern District of California

United States District Court

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Mintel has been damaged due to Defendants’ misappropriation, including, but [] not
limited to, its lost profits due to the direct competition from Ambow’s Nuclear
Explosion English and Defendants’ unjust enrichment derived from the Nuclear
Explosion English.
FAC ¶ 26. Ambow contends that this allegation does not establish a proximate causal link between

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any misappropriation and the alleged harm (lost profits and unjust enrichment) because, for

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example, Mintel’s secrets might not have been used in Ambow’s products.

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While Mintel’s allegation is general, Twombly and Iqbal do not strictly require plaintiffs to

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plead specific facts with regard to each element of every claim. Rather, a complaint need only

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include concrete details that make the plaintiff’s theory of liability plausible and not merely

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speculative. While omitting facts as to a necessary element of the cause of action may often render a

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claim insufficient, the failure to specifically plead the amount of harm or the mechanism of

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causation is not necessarily fatal to a complaint.

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Here, Mintel has made sufficiently detailed allegations of the existence of a valuable trade

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secret and its improper use. The claimed trade secret forms the core of Mintel’s products and

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services, and Mintel alleges that Ambow’s use was to improve its own competing product. Mintel

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further claims to have suffered some lost profits as a result of the competition. The natural inference

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is that Ambow’s product, once improved with Mintel’s secrets, competed more effectively and won

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some of Mintel’s business.

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The cases cited by Ambow on the issue of proximate causation, e.g., Computer Sciences
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CASE NO. 5:11-CV-01504-EJD
ORDER DENYING MOTION TO DISMISS

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Corp. v. Computer Assocs. Int’l, Inc., 1999 WL 675446 (C.D. Cal Aug. 12, 1999), are orders

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denying summary judgment, not orders ruling on the sufficiency of pleadings. At the judgment

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stage, a court must be satisfied of every element of a cause of action by a preponderance of the

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evidence; on a motion to dismiss, a court need only find that a plaintiff’s claim, taken as a whole, is

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“plausible.” The dramatic difference in the applicable legal standards explains the difference in

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results.

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Good cause therefor appearing, IT IS HEREBY ORDERED that Ambow’s Motion to

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Dismiss First Amended Complaint Pursuant to Fed. R. Civ. P. 12(b)(6) (Feb. 3, 2012, ECF No. 53)

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For the Northern District of California

IV. ORDER

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United States District Court

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is DENIED. The parties are ordered to comply with the accompanying Case Management Order

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setting forth a schedule for the case.

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IT IS SO ORDERED.
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Dated: March 8, 2012
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EDWARD J. DAVILA
United States District Judge

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CASE NO. 5:11-CV-01504-EJD
ORDER DENYING MOTION TO DISMISS