Profil Institut fur Stoffwechselforschung GmbH v. Prosciento, Inc.

Filing 48

ORDER Discharging Order to Show Cause; and Order Granting In Part and Denying Motion to Dismiss (ECF No. #17 ). Profil can amend within 21 calendar days of the date this order. Signed by Judge Larry Alan Burns on 3/31/2017. (rlu)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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PROFIL INSTITUT FUR
STOFFWECHSELFORSCHUNG GMBH,

CASE NO. 16cv1549-LAB (BLM)

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Plaintiff,
vs.

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ORDER GRANTING IN PART AND
DENYING MOTION TO DISMISS

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ORDER DISCHARGING ORDER TO
SHOW CAUSE; AND

PROSCIENTO, INC.,

[Docket number 17.]
Defendant.

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This is one of two related cases involving intellectual property disputes between these

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parties. Both cases concern the "Profil" trademark; this case also alleges misappropriation

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of trade secrets. In case 16cv1549, Plaintiff Profil Institut für Stoffwechselforschung GmbH

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("Profil") is suing its onetime subsidiary ProSciento, Inc. (formerly known as Profil Institute

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for Clinical Research, Inc.)

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counterclaim. There are two "Profil" marks at issue, one a U.S. mark and one an EU mark,

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but the briefing suggests that use of each mark is not limited to the place of its registration,

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and that there is some spillover into the other mark's territory.

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for trademark infringement.

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ProSciento recently filed a

16cv1549

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Partial Mootness

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The Court is obligated to address jurisdictional issues even if the parties do not raise

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them. See Mt. Healthy City School Dist. Bd. of Ed. v. Doyle, 429 U.S. 274, 278 (1977). At

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a hearing in the related case, 16cv2762, Profil Institut für Stoffwechselforschung GmbH v.

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Prosciento, Inc., the Court held a hearing on Profil's motion for a preliminary injunction

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involving alleged trademark infringement in the EU. At that hearing, Defendant's counsel

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announced that the company was changing its name to ProSciento. The Court accepted this

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representation and concluded that, going forward, ProSciento would be unlikely to use the

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"Profil" trademark in the EU and would be abandoning further use of the trademark. In light

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of this, the Court ordered the parties to show cause why claims for injunctive relief

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concerning use of the trademark were not moot. (Docket no. 32.)

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Before either party filed briefing, ProSciento filed a motion for a preliminary injunction,

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claiming that it owns the trademark and asking the Court to enjoin Profil from using it. The

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Court denied the motion without prejudice, noting that ProSciento had no counterclaim

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pending, and that mootness had not yet been addressed. The parties filed responses to the

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Court's order to show cause, saying that ownership of the mark is still being actively disputed

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and that ProSciento intends to keep using it in the U.S. This change in position causes

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concern; a party should not benefit from contradictory factual assertions.

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circumstances do not suggest an intent to mislead the Court. The Court accepts that the

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parties both intend to use the mark in the United States, and its ownership is actively

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contested. The order to show cause is therefore DISCHARGED.

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Motion to Dismiss

But the

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ProSciento filed a motion under Fed. R. Civ. P. 12(b)(6) (Docket no. 17) to dismiss the

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amended complaint (the "FAC"). Three agreements which were mentioned in the amended

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complaint are attached as exhibits were attached to the motion. (Docket no. 17-2.) Profil

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does not dispute these documents' authenticity or object to the Court's considering them in

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connection with the motion; in fact, its own briefing refers to these documents and relies on

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them.
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16cv1549

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Judicial Notice

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The motion was accompanied by requests for judicial notice under Fed. R. Evid. 201.

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Most of the documents (Exhibits A through I) are journal articles. Profil objects to the Court's

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taking notice of those, and points out they are not authenticated. Profil does not object to the

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Court's taking notice of Exhibits J or K, which are records from the U.S. Patent and

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Trademark Office (USPTO).

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The journal articles are offered to show that certain alleged trade secrets are not in

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fact secret, and that the information has been made public through articles like these.

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"Courts may take judicial notice of publications introduced to indicate what was in the public

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realm at the time . . . ." Von Saher v. Norton Simon Museum of Art at Pasadena, 592 F.3d

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954, 960 (9th Cir. 2010). Profil is correct that these articles have not been authenticated.

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See Madeja v. Olympic Packers, LLC, 310 F.3d 628, 639 (9th Cir. 2002) (district court was

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not required to take notice of unauthenticated documents). Profil also argues that while the

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articles cover generally the same subject matter as the trade secrets, the trade secrets

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include information not in the articles. Assuming this is true, the articles would not be helpful

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at this stage of litigation. The request for judicial notice of Exhibits A through I is therefore

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DENIED. But Exhibits J and K meet the standards for notice under Fed. R. Evid. 201, and

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the unobjected-to request for judicial notice of those exhibits is GRANTED.

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Legal Standards for Motion to Dismiss

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A Rule12(b)(6) motion to dismiss tests the sufficiency of the complaint. Navarro v.

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Block, 250 F.3d 729, 732 (9th Cir. 2001). Under Fed. R. Civ. P. 8(a)(2), only "a short and

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plain statement of the claim showing that the pleader is entitled to relief," is required, in order

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to "give the defendant fair notice of what the . . . claim is and the grounds upon which it

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rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554-55 (2007). The well-pleaded facts

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must do more than permit the Court to infer "the mere possibility of conduct"; they must show

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that the pleader is entitled to relief. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

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When determining whether a complaint states a claim, the Court accepts all

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allegations of material fact in the complaint as true and construes them in the light most
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favorable to the non-moving party. Cedars-Sinai Medical Center v. National League of

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Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007) (citation omitted). At the pleading

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stage, the Court may consider not only the complaint itself, but also documents it refers to,

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whose authenticity is not questioned, and matters judicially noticed. Zucco Partners LLC v.

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Digimarc Corp., 552 F.3d 981, 990 (9th Cir. 2009).

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ProSciento raises the statute of limitations as a defense. A claim may be dismissed

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as untimely on a Rule 12(b)(6) motion only when the running of the statute of limitations is

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apparent on the face of the complaint. United States ex rel. Air Control Techs., Inc. v. Pre

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Con Indus., Inc., 720 F.3d 1174, 1178 (9th Cir. 2013).

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If a motion to dismiss is granted, leave to amend is ordinarily granted unless

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amendment would be futile. Lopez v. Smith, 203 F.3d 1122, 1130-31 (9th Cir.2000) (en

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banc).

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Factual Background

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Profil, a German entity, was ProSciento's parent corporation. The two companies are

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in the business of medical research. In 2003, Profil created ProSciento (then Profil Institute

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for Clinical Research) as a subsidiary. In 2008, the companies formally separated, but

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worked together under a Cooperation Agreement that terminated in 2012. The Cooperation

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Agreement is attached to ProSciento's motion to dismiss as Exhibit A.

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agreement's provisions was that the companies' work would be coordinated, and that they

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would each use a similar logo that incorporated the word "Profil". Profil alleges it owned the

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"Profil" mark at this time, and was granting ProSciento a license to use it.

One of the

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In 2009, ProSciento filed an application to register the "Profil" mark in the United

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States. Also in 2009, the two companies entered into a Lease Agreement for devices known

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as Biostators. The Lease Agreement is attached to the motion to dismiss as Exhibit B. Profil

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says it developed and owned trade secrets regarding use of Biostators and related

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technology and procedures, and that both the Cooperation Agreement and the Lease

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Agreement included provisions intended to protect trade secrets. (FAC, ¶ 26.)

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16cv1549

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After the Cooperation Agreement terminated, the parties entered into a

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Non-Disclosure Agreement ("NDA"). The NDA is attached as Exhibit C to the motion to

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dismiss. It included a provision concerning the protection of Profil's interest in trademarks and

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trade secrets.

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Profil alleges that ProSciento fraudulently registered the "Profil" mark with the USPTO

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by falsely claiming it had used the mark first, when in fact Profil had. Profil alleges

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ProSciento falsely claimed its first use of the mark occurred on December 31, 1999, before

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ProSciento was even formed. Profil alleges other false statements regarding the first use of

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that mark. (FAC, ¶¶ 46-52.) ProSciento did not tell Profil it was attempting to register the

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mark, and Profil first discovered the registration attempt "in or about 2010". (Id. ¶¶ 5, 53.)

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The registration was issued on May 17, 2011.

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The two companies' relationship soured, and beginning May 18, 2016, ProSciento

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made it clear it intended to compete with Profil. (FAC, ¶¶ 5-6.) Profile filed this action on

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June 20, 2016, bringing the following claims:

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Claim 1, for a declaration that Profil is the mark's prior user and owner;

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Claim 2, for cancellation of the mark as invalid based on Profil's first use and
ownership;

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Claim 3, for cancellation of the mark for fraud in its procurement;
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Claim 4, for cancellation of the mark for misuse;
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Claim 5, for trademark infringement and unfair competition under California
law;

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Claim 6, for trade secret misappropriation under federal law; and

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Claim 7, for trade secret misappropriation under California law.

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ProSciento's motion seeks dismissal of claims 2, 3, 6, and 7 with prejudice.

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Discussion

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To a great extent, the standard for ruling on motions to dismiss controls the outcome

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of this motion. Much of what ProSciento's motion asks the Court to do is inappropriate at the

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pleading stage.

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16cv1549

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Incontestability

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ProSciento argues Claims 2 and 3 are barred because the trademark is now

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incontestable under 15 U.S.C. § 1065. Profil does not dispute that the mark has achieved

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incontestability, but argues that exceptions apply.

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With regard to Claim 2, Profil argues that incontestability is not valid against the senior

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user of the mark. Although there is some inconsistency in decisional law, the law of this

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Circuit favors Profil's position. See Kabushiki Kaisha Megahouse v. Anjar Co. LLC, 2014 WL

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5456523 at *5 (C.D. Cal., Oct. 20, 2014) (discussing conflicting authority).

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The Ninth Circuit has explained that "the label of 'incontestability' is rather

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misdescriptive," and that "[a]n incontestable registration is still subject to certain defenses

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or defects, set forth in 15 U.S.C. § 1115 . . . ." KP Permanent Make-Up, Inc. v. Lasting

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Impression I, Inc., 408 F.3d 596, 603 (9th Cir. 2005). Among the defects that provide an

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exception are claims "[t]hat the registration or the incontestable right to use the mark was

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obtained fraudulently . . . ." § 1115(b)(1). Because fraud in registration or procurement of

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incontestability is an exception to incontestability, Claim 3 is not barred.

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Statute of Limitations

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ProSciento also argues that Claims 6 and 7 are time-barred, because both the federal

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and state limitations periods for trade secrets misappropriations claims are three years and

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the alleged misappropriation began four years ago. It cites Intermedics, Inc. v. Ventritex,

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Inc., 822 F. Supp. 634, 653 (N.D. Cal. 1993) and MedioStream, Inc. v. Microsoft Corp., 869

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F. Supp. 2d 1095, 1110 (N.D. Cal. 2012), arguing that the claim accrues as of the first

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misappropriation. The limitations period runs from the time alleged misappropriation is

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actually discovered, or with the exercise of reasonable diligence should have been

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discovered, and a continuing misappropriation constitutes a single claim. Cal. Civ. Code §

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3426.6; 18 U.S.C. §1836(d).

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Although the Cooperation Agreement allowed ProSciento to use the alleged trade

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secrets, it continued to use them continuously after the agreement was terminated, around

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April 4, 2012. If its use amounted to misappropriation, ProSciento argues that the claim
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16cv1549

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accrued shortly after the Cooperation Agreement was terminated, and Profil had three years

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from that time to bring suit. ProSciento maintains that the FAC fails to allege facts that would

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suggest Profil was unable to discover the misappropriation, and therefore has not pled facts

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suggesting it is entitled to tolling.

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Statutes of limitations are an affirmative defense, Fed. R. Civ. P. 8(c), and a plaintiff

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is not required to plead facts in anticipation of it. Unique Functional Products, Inc. v. JCA

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Corp., 2012 WL 1416201, at *2 (S.D. Cal., Apr. 23, 2012).

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ProSciento asks the Court to conclude that Profil was failed in its obligation to

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investigate reasonable suspicions of misappropriation. (Docket no. 17-1 at 19:11-21.) The

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FAC does not, however, make plain that "even the most cursory investigation" (id. at 19:16)

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would have revealed misuse of the Biostators. Nor can the Court conclude that because the

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Cooperation Agreement had terminated, the parties' cooperative relationship had ended, as

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ProSciento argues. For example, after it was terminated, the parties entered into the NDA

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in order to protect trade secrets. A reasonable inference from that might be that the parties

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were maintaining some kind of cooperative relationship. Another reasonable inference is that

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ProSciento did not give Profil any reason to suspect it was doing anything improper.

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In addition, Profil has attached two June 20, 2016 demand letter to the FAC. (Docket

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no. 5, Exs. A and B.) This letter demands the return of all proprietary information, and

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identifies the Biostator machines as well as various documents and information. Accepting

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these letters at face value, it would appear Profil had consented, or thought it may have

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consented, to ProSciento's retaining the trade secrets, and had come to realize they were

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being misappropriated. In other words, ProSciento's retention of the Biostator machines,

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documents, and information did not give Profil any reason for concern for some time after the

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Cooperation Agreement was terminated. The fact that the parties had entered in to the NDA

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further supports this inference.

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The reasoning ProSciento asks the Court to engage in might be acceptable at trial.

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But the FAC simply does not provide the level of factual information that would make this

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clear as a matter of law. ProSciento's characterization of the situation could, in the end, turn
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16cv1549

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out to be correct. But when the Court has to draw this many inferences from factual

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pleadings and supply additional facts, the running of the limitations period cannot be said to

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appear on the face of the complaint.

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Pleading Standards: Fraud

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ProSciento cites the heightened pleading standard for fraud under Fed. R. Civ. P.

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9(b), and argues that Claim 3, for cancellation based on fraud, is inadequately pled.

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The Ninth Circuit has explained that "[a]ny false statements made in an incontestability

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affidavit may jeopardize not only the incontestability claim, but also the underlying

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registration." Robi v. Five Platters, Inc., 918 F.2d 1439, 1444 (9th Cir. 1990). Various false

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statements will suffice to show fraud. See id. (citing examples). See also Halo Mgt., LLC

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v. Interland, Inc., 308 F. Supp. 2d 1019 (N.D. Cal. 2003) (discussing standards for trademark

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cancellation based on fraud in registration). The Court accepts as true the allegations that

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Profil first used the mark in the U.S. in 1999, that ProSciento was created in 2003, that in

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2008 Profil and ProSciento formally separated, and that at the time of the application Profil

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was using the mark in U.S. commerce. (FAC, ¶¶ 1, 21, 30, 33.) This would make several

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of ProSciento's statements in the 2009 application and affidavit false, most significantly the

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representations that ProSciento was the mark's senior user, that ProSciento first used the

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mark in 1999, and that no one else had the right to use the mark. (FAC ¶¶ 46-49.)

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Much of ProSciento's argument depends on its status as a subsidiary of Profil. But

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in 2009 when it submitted the materials, the two companies had already separated and

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ProSciento was no longer Profil's subsidiary. ProSciento cites no authority to support its

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contention that former subsidiaries are treated the same as current ones for purposes of

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trademark registration. It cites the Trademark Man. of Exam. Proc. § 903.05 (5th ed. 2007)

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for the proposition that use by a related company can be the "first use" date (Docket no. 17-1

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at 23:27), but this section does not stand for that proposition. The intended citation may

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have been § 1201.03, but even under that section, it does not appear that ProSciento was

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a related company at the time it submitted the application.

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The FAC alleges sufficient facts to plausibly suggest ProSciento knew these facts
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16cv1549

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were false, that they were material, and that the USPTO relied on them. The facts given in

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the FAC are specific enough to put ProSciento on notice of the particular fraudulent conduct

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it is charged with, i.e., "the who, what, when, where, and how of the misconduct charged."

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See Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009).

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Trade Secrets: Pleading Standards

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The Court is exercising supplemental jurisdiction over Profil's state law claims (FAC,

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¶ 10), and therefore applies state substantive law but federal procedural law. Cortez v. Skol,

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776 F.3d 1046, 1054 n. 8 (9th Cir. 2015). Although the parties have cited and relied on state

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pleading standards, pleading standards are procedural, and the Court therefore applies

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federal rather than state pleading standards. See Hatton v. Bank of America, N.A., 2015 WL

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6739137, at *3 (E.D. Cal., Nov. 2, 2015) (citing Vess v. Ciba-Geigy Corp. USA, 317 F.3d

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1097, 1103 (9th Cir. 2003)).

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In federal court, plaintiffs seeking relief for misappropriation of trade secrets must

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identify what they are, and should describe it with sufficient particularity to separate it from

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either matters of general knowledge in the trade or of special knowledge of those skilled in

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the trade. Imax Corp. v. Cinema Technologies, Inc., 152 F.3d 1161, 1164-65 (9th Cir. 1998).

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While Imax applied the standard at the summary judgment stage, the pleading standard at

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this stage requires only notice and plausibility. This requirement has been applied, in a more

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relaxed form, at the pleading stage. In Modus LLC v. Encore Legal Solutions, Inc., 2013 WL

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6628125 at *7-8 (D. Ariz., Dec. 17, 2013), for example, the court found it adequate to allege

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that its trade secrets consisted of software programs it created or modified and that it used

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in the provision of its business services.

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Significantly, Profil was the source of the trade secrets, and should know what they

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are well enough to be able to plead a claim. This is not a case where discovery is needed,

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or might be needed, to allege facts identifying the trade secrets.

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Trade Secrets: Discussion
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16cv1549

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The FAC gives general categories of the things Profil considered to be trade secrets.

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(FAC, ¶ 26.) The first demand letter attached to the complaint also asks for those categories

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things to be returned. (Docket no. 5 at 29-30.) They are:

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• Biostator machines;

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• Standard Operating Procedures and written manuals for the Biostator
machines to perform Glucose Clamp Studies;

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• methods and procedures for using the Biostator machines with the
appropriate pumps and tubing, and how to perform necessary maintenance
of the machines when performing Glucose Clamp Studies;

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• methods and procedures for preparing clinical development plans to
perform clinical studies;

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• methods and procedures for performing insulin-sensitivity assessment with
Glucose Clamp Studies; methods and procedures in the design,
performance, and data analysis of clinical studies;

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• methods and procedures for data management and analysis;

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• database design, computer software, and procedures for implementing a
database to manage and recruit volunteers for various clinical studies.

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Id. The second letter repeats this information but also elaborates, explaining that Profil

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developed the software for the purpose of analyzing results and reporting. (Docket no. 5 at

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34.) The Cooperation Agreement further identifies the trade secrets. (Docket no. 17-2, Ex.

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A at 40-41.)

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Some of these are not adequately differentiated from general knowledge within the

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trade, or general public knowledge for that matter. For example, the Biostator machines

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themselves are identified as a trade secret. The machines' existence and general nature is

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not a secret, however. It may be that Profil is seeking to have the machines themselves

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returned, or that the machines' design or some aspects of it are trade secrets. But whatever

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the trade secret is supposed to be is not very clear. On the other hand, Standard Operating

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Procedures and manuals for operating the Biostator machines seem to be materials Profil

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authored. The volunteer database and program codes, and their general functions are

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described in the Cooperation Agreement. (Docket no. 17-2, Ex. A at 41.) But the "methods

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and procedures" items are never very well identified, nor are the aspects of them that amount
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16cv1549

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to trade secrets adequately differentiated from what is more generally known. Clearly, others

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in the industry who perform the same or similar functions use methods and procedures as

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well. Whatever it is that distinguishes the trade secrets from those should be adequately

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identified.

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procedures or modified existing procedures, or whether the procedures are generally known

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or used within the industry.

For example, the FAC does not make clear whether Profil created these

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The Court concludes that the Standard Operating Procedures and written manuals

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for the Biostator machines to perform Glucose Clamp Studies; and computer software, and

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procedures for implementing a database to manage and recruit volunteers for various clinical

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studies are adequately identified. The Biostator machines are adequately identified only if

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the FAC is seeking return of the machines themselves; otherwise, they are not. The

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remainder are not adequately identified.

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Because not all of the trade secrets are adequately identified, it is difficult to say

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whether Profil took adequate steps to maintain their status as trade secrets. In some cases,

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it will be clear as a matter of law that the precautions were inadequate. But the FAC and the

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agreements make clear Profil took some steps, and their briefing points those out. (See FAC

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¶ 27; Docket no. 17-2, Ex. A at 42, ¶ 11 and Ex. C at 1, ¶ 4) Whether those steps were

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reasonable under the circumstances is a question of fact that is appropriately resolved either

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at the summary judgment stage or trial. See Learning Curve Toys, Inc. v. PlayWood Toys,

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Inc., 342 F.3d 714, 724-25 (7th Cir. 2003) (whether measures taken to protect trade secrets

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were reasonable is generally a question of fact for the jury, and only in extreme cases can

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be decided as a matter of law).

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Conclusion and Order

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The motion to dismiss is GRANTED IN PART and DENIED IN PART. The Court finds

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the FAC adequately identifies only some of the trade secrets.

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misappropriation of the Standard Operating Procedures and written manuals for the Biostator

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machines to perform Glucose Clamp Studies; and computer software, and procedures for

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implementing a database to manage and recruit volunteers for various clinical studies are
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Claims regarding

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adequately pled. Assuming Profil is seeking return of the Biostator machines, they are

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adequately identified as well; but otherwise, that portion of the claim is not adequately pled.

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The remainder of the trade secrets are not adequately identified, and to the extent the

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misappropriation claim concerns those trade secrets, it is DISMISSED WITHOUT

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PREJUDICE. But because it is very likely Profil can successfully amend, it may do so within

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21 calendar days of the date this order is issued.

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In all other respects the motion to dismiss is DENIED.

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IT IS SO ORDERED.
DATED: March 31, 2017
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HONORABLE LARRY ALAN BURNS
United States District Judge

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16cv1549