Ubiquiti Networks, Inc. v. Kozumi USA Corporation
UBIQUITI NETWORKS, INC., Plaintiff,
KOZUMI USA CORPORATION, SHAO WEI
HSU, and LILIA KUNG, Defendants.
No. C 12-2582 CW
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
Date: June 20, 2012
ORDER GRANTING, IN PART, UBIQUITI'S APPLICATION FOR TEMPORARY RESTRAINING ORDER, GRANTING DEFENDANTS' MOTION TO ACCEPT OBJECTIONS ANDSETTING DATE FOR OSC HEARING
On May 18, 2012, Plaintiff Ubiquiti Networks, Inc. filed an ex parte application for a temporary restraining order (TRO) against Defendants Kozumi USA Corporation, Shao Wei Hsu and Lilia Kung based upon its claims for trademark infringement under the Lanham Act. On May 25, 2012, the Court denied the ex parte application for a TRO, ordered Ubiquiti to serve Defendants and set an expedited briefing schedule. Ubiquiti has served Defendants, who have filed an opposition, and Ubiquiti has filed a reply. With leave of Court, Defendants have also filed a sur-reply and Ubiquiti has filed a further reply. Defendants have filed a motion to submit separate objections to Ubiquiti's evidence and Ubiquiti opposes this motion. The motions were taken
under submission and decided on the papers. Having considered all of the papers filed by the parties, the Court grants Defendants' motion to file objections to evidence and grants, in part, the application for a TRO.
In the May 25, 2012 Order, the Court stated Ubiquiti's version of the facts because Defendants had not yet been served. The Court adopts the facts from its previous order with the following changes and additions that are taken from both parties' submissions. The facts are undisputed, except as noted.
Ubiquiti is incorporated in Delaware with its principal place of business in San Jose, California. It currently offers over thirty products to the global Wireless Internet Service Provider (WISP) market in the United States and in over sixty-five countries around the world. Ubiquiti does not have its own sales force, but relies on the Ubiquiti Community, a large community of network operators, service providers and distributors, to market its products. Distributors enter into contracts with Ubiquiti to distribute its products in specified regions throughout the world and to provide its products to local re-sellers. The re-sellers sell the products to end-users. Ubiquiti actively protects its corporate name, product names, and proprietary software. It currently holds registrations in the United States for seven marks.
Defendant Kozumi, a Florida corporation with its principal place of business in Florida, has been in the business of distributing networking hardware since September 2006. Kozumi distributes multiple suppliers' networking hardware in South America and parts of Eastern Europe. Since its inception, the vast majority of Kozumi's sales have been outside the United States and it has never sold any product in the State of California. Hsu, whom Defendants refer to as Wu, is the owner and sole director of Kozumi. Kung was married to Hsu and they have three minor children. Kung and Hsu were divorced on April 26, 2012. Kung declares that she is a stay-at-home mother with no ownership or other interest in Kozumi and no involvement with any of the business transactions at issue in this lawsuit, except that, in 2011, she applied to register the word "UBIQUITI" as a trademark in the United States.
In May 2008, Kozumi became an official distributor of Ubiquiti products in Latin America, including Argentina. Hsu's understanding was that the distributorship agreement did not bar Kozumi from developing its own products and, in 2009, Kozumi began to develop its own line of networking hardware, as an alternative to Ubiquiti hardware. Hsu Dec. ¶¶ 9, 10. In mid-September 2009, Ben Moore, Ubiquiti's Vice President of Business Development, visited the Kozumi website and discovered that Kozumi was offering products under its own brand, with packaging and graphics very similar to the Ubiquiti products that Kozumi was selling. Moore
Dec. ¶ 48. Moore determined that Kozumi was selling its own products that directly competed with Ubiquiti products and, for that reason, terminated Kozumi's distributorship agreement. Moore Dec. ¶ 48. Moore was concerned that, if Kozumi remained an Ubiquiti distributor, Hsu would use the strength of the Ubiquiti brand to draw resellers to its product offerings, only to sell them Kozumi-branded products. Moore Dec. ¶ 48. On November 9, 2009, Kozumi received an email from Moore indicating that Ubiquiti was terminating Kozumi's distributorship due to "pushback from existing distributors with pricing and some of the new products released by Kozumi." Hsu Dec., Ex. A, November 9, 2009 Moore email.
After Kozumi's distributorship was terminated, it purchased Ubiquiti products from other authorized Ubiquiti distributors "for redistribution through partnered companies in Argentina." Hsu Dec. ¶ 11. Between November 2009 and December 2011, Kozumi purchased thousands of units of Ubiquiti products through Ubiquiti distributors and resellers, nearly 100% of which were imported into Argentina. Hsu Dec. ¶ 11. During this time, Ubiquiti told its distributors to stop selling to Kozumi. However, Kozumi was able to continue to purchase Ubiquiti products from several resellers and Kozumi continued to ship Ubiquiti products to South America. Hsu Dec. ¶ 12. Moore declares that, because Hsu was attempting to "covertly and improperly acquire Ubiquiti products through authorized Ubiquiti Distributors, I contacted some of our
Ubiquiti Distributors and asked them not to do business with Kozumi." Moore Dec. ¶ 55. On March 24, 2011, Moore received an email from a Ubiquiti distributor in Argentina indicating that Kozumi was selling Ubiquiti products in Argentina at a much lower price than he was able to offer for his Ubiquiti products. Moore Dec. ¶ 57. Moore replied that "Ubiquiti was going to do everything it could to stop the sale of Kozumi's knockoff products." Moore Dec. ¶ 57.
Meanwhile, in August 2010, Kozumi was threatened in Argentina with legal action by Ditelco, a former distributor of Ubiquiti hardware, which owned a trademark of the words "UBIQUITI NETWORKS" and of the Ubiquiti logo, in Argentina. In 2011, Kozumi acquired this trademark and logo from Ditelco. In his declaration, Hsu states that he paid $250,000 for the trademark and logo. Hsu Dec. ¶ 15. In an email to Robert Pera, Ubiquiti's Chief Executive Officer (CEO), Hsu stated that he paid $350,000 for them. Hsu Dec., Ex. 5 at 2. Ubiquiti claims that he paid 200 pesos, or fifty dollars, for them. Hsu states that fifty dollars was the registration fee, not the price he paid for the trademark itself.
In mid-2011, Hsu looked for a supplier of networking hardware with specifications similar to the Ubiquiti products Kozumi had sold and was referred to Kenny Deng at Hoky Technologies in Shenzhen, China. Deng said that he could procure Ubiquiti products from the Ubiquiti factory in China and sell them to Hsu. Hsu also contracted with Hoky to produce a new brand of networking
products "in the same genre as Ubiquiti's hardware, called 'ZoneWave,' but which used different designs from that of Ubiquiti." Hsu Dec. ¶ 17. Between July 2011 and December 2011, Kozumi placed orders with Hoky for about two million dollars' worth of Ubiquiti and ZoneWave products. According to Hsu, Hoky shipped products to Kozumi directly from China to Argentina, without going through the United States. Hsu Dec. ¶ 18.
In summer 2011, Moore learned that the Hoky facility was manufacturing counterfeit Ubiquiti products. Moore Dec. ¶¶ 58-61. Moore worked with authorized Ubiquiti distributors in Argentina to acquire "fake" Ubiquiti products manufactured by Hoky and sent them to Mike Taylor, Ubiquiti's Senior Software Engineer, for analysis. Moore Dec. ¶ 62. Taylor determined that the Hoky product appeared almost identical to the real Ubiquiti products, including Ubiquiti's name, domain name, logo and AIRMAX trademark. Taylor Dec. ¶ 2(a). Once Taylor confirmed that the products manufactured by Hoky and sold by Kozumi were near duplicates of actual Ubiquiti products, Ubiquiti contacted a law firm in China which worked with the Public Security Bureau in China to shut down the Hoky facility. Moore Dec. ¶ 63.
Yu Cheng Lin, a Ubiquiti employee in Taiwan, went with the Chinese authorities on November 17, 2011, when they shut down the Hoky facility and took photographs and videos of the counterfeiting manufacturing line and products ready for shipment. Moore Dec. ¶ 64; Lin Dec. ¶ 10. Lin saw and photographed
"thousands of counterfeit products labeled with the Ubiquiti, Nanostation and Airos trademarks." Lin Dec. ¶ 11. The Chinese police confiscated Hoky's shipping records. Lin Dec. ¶ 11. Lin obtained a copy of a shipping document that showed that, on November 16, 2011, 6,000 units of counterfeit Ubiquiti NanoStation Loco M5 products were shipped from the Hoky facility to Kozumi with a final destination in Paraguay. Lin Dec. ¶ 11, Ex. D. The Chinese police closed the Hoky factory and took Deng into custody. In December 2011, Deng was released from custody because his production of Ubiquiti-branded products, even if using Ubiquiti's hardware designs, was apparently legal in China in that the products were sold, for export to Argentina, to Kozumi, which owned the Ubiquiti trademark in Argentina. Hsu Dec. ¶¶ 20-21.
Hsu declares that, although the Hoky factory reopened, Kozumi has not purchased any Ubiquiti-branded products from Hoky since December 15, 2011, but has continued to purchase Ubiquiti products on the secondary market from Ubiquiti-recognized distributors and re-sellers. Hsu Dec. ¶ 22. Moore declares that, on April 4, 2012, he received, as attachments to two emails from a Ubiquiti distributor in Argentina, Argentinean customs forms indicating that Kozumi sent three shipments of Ubiquiti products to Tech Depot, a company owned by Hsu in Argentina, that were "priced suspiciously low." Moore Dec. ¶ 67, Ex. Y. Moore also states that one of the shipments was routed through the Everglades Port in Fort Lauderdale, Florida. Moore Dec. ¶ 67, Ex. Y. However,
the exhibit is in Spanish and the claim that the shipment was routed through Florida is not confirmed.
On December 22, 2011, Hsu received an email from Ubiquiti CEO Pera stating that he did not think Kozumi was aware of Hoky's counterfeiting, and asking that Kozumi surrender the Argentinean Ubiquiti trademark to Ubiquiti as a gesture of good faith. Hsu responded that he would consider selling the Argentinean trademark for a certain price and with certain conditions. A series of email exchanges followed which appear to constitute negotiation of the terms and conditions of Kozumi's sale of the Argentinean trademark to Ubiquiti. Hsu Dec., Ex. ¶¶ 25-30, Ex. 5. Ubiquiti characterizes these emails as Hsu's and Kozumi's attempt to extort Ubiquiti by purporting to sell the trademark and logo to Ubiquiti even though Ubiquiti is the rightful owner.
On April 2, 2012, Ubiquiti filed a trademark lawsuit in Argentina against Hsu seeking (1) nullification of Hsu's trademarks of the words "UBIQUITI NETWORKS" and the Ubiquiti logo on the basis that they were obtained in bad faith; (2) dismissal of Hsu's opposition to Ubiquiti's own trademark application in Argentina; (3) sustaining of Ubiquiti's oppositions to Hsu's recently filed Argentinean trademark applications on the ground that they were fraudulent; (4) an injunction preventing further use of any Ubiquiti trademarks; and (5) damages. McCollum Dec. 5 3.
Ubiquiti's application for a trademark for the words "UBIQUITI NETWORKS" in the United States had been rejected on December 1, 2005. See Shang Dec., Ex. A., United States Patent and Trademark Office (PTO) office action. On April 6, 2012, Ubiquiti filed another trademark application with the PTO for the words "UBIQUITI NETWORKS." See Shang Dec., Ex. B. In its complaint, Ubiquiti alleges that "consumers and competitors alike throughout the world have come to recognize Ubiquiti marks, including UBIQUITI [and] UBIQUITI NETWORKS . . . as symbols of Ubiquiti's excellence in wireless communications products." Comp. ¶ 38. Ubiquiti owns in the United States the trademarks for AIROS, AIRMAX, UBNT, AIRGRID, AIRCONTROL, AIRVIEW and UNIFI. Comp. ¶¶ 26-32.
In its reply, Ubiquiti states that, since it filed its original TRO request, it has established that Kozumi's new product, ZoneWave, incorporates intellectual property stolen from Ubiquiti. In supplemental declarations, Ubiquiti states that it has obtained a ZoneWave product from an employee at the Hoky plant, analyzed it and determined that the product uses Ubiquiti software, firmware, and circuit board layouts. Supp. Dec. of Michael Taylor ¶ 2(a)-(g). Taylor states that "much of the internal make-up of the ZoneWave product is identical to the counterfeit Ubiquiti products--Defendants just changed the packaging." Id. Ubiquiti's AIROS trademark displays on the
screen when a user logs in on a ZoneWave product. Id. ¶ 2, Comp. ¶ 20.
In Hsu's supplemental declaration, he states that, although he contracted with Hoky to produce ZoneWave products in mid-2011, before the Hoky factory was closed by the Chinese authorities, he has not received any final ZoneWave products, he has not sold any ZoneWave products and, due to Hoky's financial troubles resulting from the December 2011 shut-down of its factory, he does not know if Hoky will be able to fulfill its obligation to provide ZoneWave products. Hsu Supp. Dec. ¶ 2. Hsu states that the product Ubiquiti acquired and analyzed is not a ZoneWave product, because final ZoneWave products are still in the development phase and, when they are complete, they will not use any Ubiquiti copyrighted software and will have a design different from Ubiquiti products. Hsu Supp. Dec. ¶ 3.
In its further reply to Defendants' sur-reply, Ubiquiti cites a May 7, 2012 email from Hsu to a former Ubiquiti distributor in Dubai, in which Hsu stated, "I have many customers that contacted me that wanted to become my distributors in middle east. I have now one in Iraq/Dubai and other [sic] in Lebanon. I can sell to you if you want to try our solution . . ." Doc. No. 8, McCollum Dec., Ex. I. In the email, Hsu also stated:
The only product that can beat Ubiquiti or make a dent o [sic] Ubiquiti's market share has to be a product that can be compatible with the Airmax TDMA. . . . But Ubiquiti has been too dominant with the Airmax. We are the only company that is selling a product that works the same as theirs. . . .
Ubiquiti stock fell from $35.99 to $26 in 3 days. They lost around USD 800 million market cap in 3 days. And this is not over. They are doing damage control but as they committed a crime we will continue to release strong evidence that Ubiquiti sent the mafia to us. . . I certainly welcome all the allies that want to fight Ubiquiti [sic] bullying behavior. . . . If you have some evidence that we can present I think that can cause them really very big trouble.
A temporary restraining order may be issued only if "immediate and irreparable injury, loss, or damage will result to the applicant" if the order does not issue. Fed. R. Civ. P. 65(b). To obtain a temporary restraining order, the moving party must establish either: (1) a combination of probable success on the merits and the possibility of irreparable harm, or (2) that serious questions regarding the merits exist and the balance of hardships tips sharply in the moving party's favor. Baby Tam & Co. v. City of Las Vegas, 154 F.3d 1097, 1100 (9th Cir. 1998); Rodeo Collection, Ltd. v. West Seventh, 812 F.2d 1215, 1217 (9th Cir. 1987).
The test for granting a temporary restraining order, like that for granting a preliminary injunction, is a "continuum in which the required showing of harm varies inversely with the required showing of meritoriousness." Id. "Under this approach, the elements of the preliminary injunction test are balanced, so that a stronger showing of one element may offset a weaker showing of another. For example, a stronger showing of irreparable harm
to plaintiff might offset a lesser showing of likelihood of success on the merits." Alliance for the Wild Rockies v. Cottrell, 632 F.3 1127, 1131 (9th Cir. 2011).
Defendants object to certain evidence presented by Ubiquiti. The Court has reviewed these evidentiary objections and has not relied on any inadmissible evidence. The Court will not discuss each objection individually. To the extent that the Court relies on evidence to which Defendants object, such evidence has been found admissible and the objections are overruled.
In the May 25, 2012 Order, the Court found that Ubiquiti had submitted prima facie evidence of federal subject matter jurisdiction and personal jurisdiction over Defendants in this forum. Defendants dispute both.
I. Subject Matter Jurisdiction
Subject matter jurisdiction is a threshold issue which goes to the power of the court to hear the case. Federal subject matter jurisdiction must exist at the time the action is commenced. Morongo Band of Mission Indians v. Cal. State Bd. of Equalization, 858 F.2d 1376, 1380 (9th Cir. 1988). A federal court is presumed to lack subject matter jurisdiction until the contrary affirmatively appears. Stock W., Inc. v. Confederated Tribes, 873 F.2d 1221, 1225 (9th Cir. 1989).
Citing Reebok Int'l, Ltd. v. Marnatech Ents., Inc., 970 F.2d 552, 554 (9th Cir. 1992), Ubiquiti argues that, although it alleges only extraterritorial activities, this Court has jurisdiction over this case pursuant to the Lanham Act. The Lanham Act provides a broad jurisdictional grant that extends to all commerce which may lawfully be regulated by Congress. Id. "Congress has the power to prevent unfair trade practices in foreign commerce by citizens of the United States, although some of the acts are done outside the territorial limits of the United States." Steel v. Bulova Watch Co., Inc., 344 U.S. 280, 286 (1952); Van Doren Rubber Co. Inc. v. Marnatech Ents., Inc., 1989 U.S. Dist. LEXIS 17323 *6 (S.D. Cal.). A three-part test is used to determine if a court has extraterritorial jurisdiction under the Lanham Act: (1) there must be some effect on American foreign commerce; (2) the effect must be sufficient to present a cognizable injury to the plaintiffs; and (3) the interests of and links to American foreign commerce must be strong enough in relation to those of other nations' commerce to justify an assertion of extraterritorial authority. Reebok, 970 F.2d at 554. The first two criteria for extraterritorial jurisdiction may be met even where all "challenged transactions occurred abroad, and where injury seems to be limited to the deception of consumers abroad, as long as there is monetary injury in United States to an American plaintiff"). Love v. Associated Newspapers, Ltd., 611 F.3d 601, 613 (9th Cir. 2010); Reebok, 970 F.2d at 554-55.
The third prong, which requires a comparison between American foreign commerce and the commerce of other nations, involves the balancing of the following seven factors: (1) the degree of conflict with foreign law or policy; (2) the nationality or allegiance of the parties and the locations or principal places of business of corporations; (3) the extent to which enforcement by either state can be expected to achieve compliance; (4) the relative significance of effects on the United States as compared with those elsewhere; (5) the extent to which there is explicit purpose to harm or affect American commerce; (6) the foreseeability of such effect; and (7) the relative importance to the violations charged of conduct within the United States as compared with conduct abroad. Id. at 555.
The Court reaffirms its finding in the May 25, 2012 Order that the facts alleged here appear to meet the first two prongs for jurisdiction under the Lanham Act. The Court now further addresses the seven factors composing the third prong for extraterritoriality jurisdiction--how the interests of and links to American foreign commerce compare to those of other nations' commerce.
A. Conflict with Foreign Law or Policy
On April 2, 2012, Ubiquiti filed a trademark lawsuit in Argentina seeking nullification of Hsu's trademark of the words "UBIQUITI NETWORKS" and of the Ubiquiti logo.
Relying on Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633 (2nd Cir. 1956), and George W. Luft Co. v. Zande Cosmetic Co., 142 F.2d 536, 540 (2nd Cir. 1944), Defendants argue that this litigation is substantially likely to conflict with that in Argentina because Hsu owns a valid trademark to the words "UBIQUITI NETWORKS" and the Ubiquiti logo in that country. In Vanity Fair, the Second Circuit ruled that extraterritorial jurisdiction cannot be exercised over acts committed by a foreign national in his home country under a presumably valid trademark registration in that country. Vanity Fair, 234 F.2d at 641-42. In Luft, 142 F.2d at 540, the Second Circuit held that it was inequitable to enjoin the defendant, a New York resident, from selling products in foreign countries in which it held a valid trademark. Id.
Similarly, "[t]he Ninth Circuit has held that the existence of a conflict with a foreign trademark registration weighs against extraterritorial application of the Lanham Act." Aristocrat Techs., Inc. v. High Impact Design & Entertainment, 642 F. Supp. 2d 1228, 1236 (D. Nev. 2009) (citing Wells Fargo & Co. v. Wells Fargo Exp. & Co., 556 F.2d 406, 428-29 (9th Cir. 1977)). In Star-Kist Foods, Inc. v. P.J. Rhodes & Co., 769 F.2d 1393, 1396 (9th Cir. 1985), where both parties were California corporations, the court held that extraterritorial jurisdiction did not reach wholly foreign commerce in the Philippines, consisting of the defendant's purchases from Japan and sales in the Philippines, where the
defendant had a pending petition to cancel the plaintiff's Philippine registration of the trademarks at issue.1 Not only would application of the Lanham Act create a conflict with Philippine trademark law, but also the effect of the alleged illegal use of the trademark on United States commerce was insignificant compared to the effect on Philippine commerce with other nations. Id. The court distinguished Steele v. Bulova Watch Co., 344 U.S. 280, 289 (1952), where the plaintiff had succeeded in cancelling the defendant's Mexican trademark registration prior to the Court's decision, thereby avoiding a conflict with established foreign rights.
Here, too, the adjudication in this country of the Argentinean UBIQUITI NETWORKS and Ubiquiti logo trademarks could conflict with Argentina's trademark law and affect commerce in Argentina more than it would affect the commerce of the United States, where no Ubiquiti products are sold by Kozumi.
At least two district court cases in the Ninth Circuit have followed Star-Kist and found no extraterritorial jurisdiction under similar circumstances.
In Pinkberry, Inc. v. JEC Int'l Corp., 2011 WL 6101828, *1 (C.D. Cal.), the plaintiffs were California corporations, the corporate defendants were headquartered in California and Japan
and the individual defendants were citizens of Japan but resided in California. The plaintiffs had a trademark registered in the United States and other countries and the defendants had an identical trademark registered in Japan. Id. There was a pending lawsuit filed by the plaintiffs in Japan to cancel the defendants' registration of the trademark. Id. Citing Star-Kist, the court found that there was no extraterritorial jurisdiction over the plaintiffs' trademark claims because a decision by a United States court "as to how the [ ] trademark may be used in Japan creates a serious potential for conflict with foreign law." Id. at *5.
In Aristocrat v. High Impact Design, the court found that, because the defendant had a registered trademark in Venezuela, that country had the right to adjudicate the use of that trademark within its borders and, thus, there was a high potential for conflict if American authority were asserted to resolve the dispute over the Venezuelan trademark. 642 F. Supp. 2d at 1237.
Reebok, upon which Ubiquiti relies, is distinguishable because the plaintiff had a valid trademark in both the United States and Mexico and there did not appear to be trademark litigation in Mexico. 970 F.2d at 553. Although Ubiquiti argues that it is the rightful owner of the Argentinean UBITQUITI NETWORKS and Ubiquiti logo trademarks, that is the issue the court in Argentina will decide. Reebok is also distinguishable because the court relied upon the fact that the defendant organized and directed the manufacture of counterfeit shoes in Mexican border-
towns, knowing that many of the shoes would enter United States commerce. Id. at 554-55. Here, Kozumi is not selling Ubiquiti products in the United States nor are products sold in Argentina being shipped to or sold in the United States. The fact that one of Kozumi's shipments from China to Argentina may have been routed through a port in Florida does not greatly affect United States commerce.
Argentina has the right to adjudicate how a trademark issued in that country is used in that country. A ruling by this Court involving that trademark would likely create a conflict with Argentinean law. However, the allegedly counterfeit products that Kozumi imports into Argentina may also display Ubiquiti's AIROS and other trademarks. To the extent that the allegedly counterfeit products Kozumi is importing into Argentina display Ubiquiti's trademarks other than the UBIQUITI NETWORKS and Ubiquiti logo trademarks that are being litigated in Argentina, there is no conflict with Argentina law.
Furthermore, Ubiquiti presents evidence that Defendants are selling either counterfeit or infringing products in countries other than Argentina or planning to do so. Notably, in Hsu's May 7, 2012 email, he refers to present and future distributors of Kozumi products in Middle East. Defendants do not present evidence that they have a valid trademark or pending litigation in any country other than Argentina. Thus, application of the Lanham Act to conduct in those countries would not create a conflict.
See Ocean Garden, Inc. v. Marktrade Co., Inc., 953 F.2d 500, 503 (9th Cir. 1991) (if there are no pending proceedings abroad, it would not be an affront to the foreign country's sovereignty to apply the Lanham Act); Mattel, Inc. v. MCA Records, Inc., 28 F. Supp. 2d 1120, 1130 (C.D. Cal. 1998) (accord).
Gallup, Inc. v. Business Research Bureau Ltd., 688 F. Supp. 2d 915 (N.D. Cal. 2010), is not to the contrary. In Gallup, the court held that it could not apply the Lanham Act extraterritorially where a Pakistani citizen was using the Gallup trademark only in Pakistan, where the plaintiff had filed suit against the defendant in Pakistan and where the effect on American commerce was insignificant compared to the effect on Pakistani commerce. Id. at 924-25. Here, Defendants are residents of or incorporated in the United States and, even though none of their counterfeit products are sold in the United States, the effect of their infringement on Ubiquiti, which is located in the United States, appears to be significant.
Therefore, the conflict factor favors extraterritorial jurisdiction over acts occurring in Argentina involving any trademark other than the UBIQUITI NETWORKS and Ubiquiti logo marks and over acts involving infringement of all of Ubiquiti's marks occurring in any country other than Argentina.
B. Nationality of Parties and Locations of Corporations
Here, both Ubiquiti and Kozumi are incorporated and have their principal places of business in the United States and Hsu
and Kung are residents of the United States. Therefore, this factor weighs in favor of extraterritorial jurisdiction.
C. Extent That Enforcement by Either State Can Be Expected to Achieve Compliance
In Reebok, the court held that, even where Mexico could enforce its own trademark laws, the United States had the superior ability to enforce its own and Mexico's trademark laws because the defendants had their principal place of business and the vast majority of their assets in the United States. 970 F.2d at 557. Similarly, here, Kozumi is incorporated in the United States, the individual Defendants are residents of the United States and it appears that they have significant assets in the United States. In Reebok, it was not clear whether an infringement suit was pending in Mexico. Id. at 555-56. And, it appears that Kozumi or Hsu has assets in Argentina because Ubiquiti has discovered that Hsu is the owner of, or affiliated with, several companies in Argentina. Comp. ¶ 61. This weighs in favor of leaving the litigation of the Argentinean trademark dispute to the Argentina courts. However, it does not weigh against this Court's exercise of jurisdiction over Defendants' infringement in Argentina of other Ubiquiti trademarks, or infringement in other countries of any Ubiquiti trademark; Defendants own no other Ubiquiti-related trademark and Argentina is the only country in which there is pending litigation.
D. Relative Significance of Effects on United States as Compared to Other Countries
Ubiquiti has presented evidence of the significant economic impact Defendants' alleged infringement activities in other countries has had on Ubiquiti's finances and net worth in the United States. Defendants have submitted evidence that Argentina implemented import restrictions in February, 2012 and that Ubiquiti's lost sales result from these restrictions. However, Ubiquiti responds that its sales decline occurred in 2011, before the trade restrictions were enacted. Richie Dec. ¶¶ 5, 8. There is no evidence of the effect on other countries. This factor weighs in favor of exercising extraterritorial jurisdiction.
E. Explicit Purpose to Harm or Affect American Commerce
Ubiquiti submits evidence that Kozumi and Hsu had an explicit purpose to harm or affect American commerce by harming Ubiquiti. See McCollum Dec., Ex. I, May 7, 2012 Hsu email. This factor weighs in favor of exercising jurisdiction.
F. Foreseeability of Such Effect
A negative effect on Ubiquiti was foreseeable, as is evidenced by Hsu's email. This factor weighs in favor of exercising jurisdiction.
G. Relative Importance to Violations Charged of Conduct in the United States as Compared with Conduct Abroad
Ubiquiti is an American corporation and alleges that it has been harmed in the United States, which is sufficient for this factor to weigh in favor of exercising jurisdiction. See Mattel,
28 F. Supp. 2d at 1131 (that American corporation has been harmed sufficient to fulfill factor regarding relative importance of violations charged).
On balance, the seven factors relevant to the third prong for extraterritorial jurisdiction, together with the first two prongs which support extraterritorial jurisdiction, weigh in favor of finding jurisdiction to adjudicate the Lanham Act claims as to all infringing acts in countries other than Argentina and to infringing acts in Argentina regarding all trademarks other than the UBIQUITI NETWORKS and Ubiquiti logo marks that are subject to litigation pending in that country.
II. Personal Jurisdiction
A. Legal Standard
Specific jurisdiction is analyzed using a three-prong test: (1) the non-resident defendant must purposefully direct its activities or consummate some transaction with the forum or a resident thereof, or perform some act by which it purposefully avails itself of the privilege of conducting business in the forum, thereby invoking the benefits and protections of its laws; (2) the claim must be one which arises out of or results from the defendant's forum-related activities; and (3) the exercise of jurisdiction must be reasonable. Lake v. Lake, 817 F.2d 1416, 1421 (9th Cir. 1987). Each of these conditions is required for asserting specific jurisdiction. Insurance Co. of N. Am. v. Marina Salina Cruz, 649 F.2d 1266, 1270 (9th Cir. 1981).
In intentional tort cases, the purposeful direction or availment requirement for specific jurisdiction is analyzed under the "effects" test." Dole Foods Co., Inc. v. Watts., 303 F.3d 1104, 1111 (9th Cir. 2002). The "effects test" requires that the defendant allegedly (1) committed an intentional act, 2) expressly aimed at the forum state, (3) causing harm that the defendant knew was likely to be suffered in the forum state. Id.
If the first two prongs for specific jurisdiction have been met, the defendant has the burden of presenting a compelling case that the presence of some other considerations would render jurisdiction unreasonable. Id. Seven factors are considered in assessing whether the exercise of jurisdiction over a non-resident defendant is unreasonable: (1) the extent of the defendant's purposeful injection into the forum state's affairs, (2) the burden on the defendant, (3) conflicts of law between the forum state and the defendant's home jurisdiction, (4) the forum state's interest in adjudicating the dispute, (5) the most efficient judicial resolution of the dispute, (6) the plaintiff's interest in convenient and effective relief, and (7) the existence of an alternative forum. Caruth v. Int'l Psychoanalytical Ass'n, 59 F.3d 126, 128 (9th Cir. 1995); Roth v. Garcia Marquez, 942 F.2d 617, 623 (9th Cir. 1991).
1. Effects Test--Intentional Act
Citing Panavision Int'l, LP v. Toeppen, 141 F.3d 1316, 1322 (9th Cir. 1998), Ubiquiti argues that the fact that Defendants targeted Ubiquiti by attempting to register its trademark and attempting to extort millions of dollars from it satisfies the personal availment prong of the effects test for specific personal jurisdiction.
Panavision addressed claims under the Federal Trademark Dilution Act and the California Anti-dilution statute, considered these to be akin to tort claims, and applied the effects test in analyzing specific jurisdiction. 141 F.3d at 1319, 1321. The defendant purposefully registered Panavision's trademarks as his domain names on the Internet to force Panavision to pay him money. Id. The court held that the brunt of the harm was felt in California, as the defendant knew it would be, because Panavision, although a Delaware corporation, had its principal place of business in California. Id. Therefore, under the effects test, the purposeful availment or direction requirement for personal jurisdiction was satisfied. Id.
Here, too, Kozumi and Hsu engaged in intentional acts which, though not undertaken in California, appear to have injured Ubiquiti which has its principal place of business here. Thus, the purposeful availment requirement for specific jurisdiction is satisfied as to these Defendants.
With respect to Kung, Ubiquiti alleges that an Argentinean company, Tech Depot S.A., and other Argentinean companies are owned by or associated with Hsu, and are falsely identified by Defendants as distributors of Ubiquiti products. Comp. ¶¶ 61b, 63. An individual named Jung Hsin Peng is listed as the President of Tech Depot and Kung is listed as the "Director Alternative." McCollum Dec., Ex. K., Tech Depot Corporate Records. Ubiquiti also alleges that Kung is a shareholder of Netcom, another putative distributor of Ubiquiti products in Argentina. Comp. ¶ 61d. Finally, Ubiquiti alleges that, on June 20, 2011, Kung filed a trademark application with the United States PTO for the word, "UBIQUITI." The email contact on the application was listed as "firstname.lastname@example.org." McCollum Dec., Ex. G. The trademark application was deemed abandoned because a response was not received to the PTO finding that there was a likelihood of confusion between the "UBIQUITI" mark and two other previously registered trademarks. Id.
Kung's filing a trademark registration application for the word "UBIQUITI" in the United States, allegedly knowing that the mark was identified and used by Ubiquiti, is an intentional act of purposeful direction sufficient to satisfy the first requirement for personal jurisdiction.
2. Effects Test--Directed at the Forum
The second requirement for specific jurisdiction is that the claims arise out of the defendant's forum-related activities. In
other words, the court must determine if the plaintiff would not have been injured "but for" the defendant's conduct directed at it in the forum. Id. at 1322. The court in Panavision held that the defendant's registration of the plaintiff's trademarks as his own domain name had the effect of injuring the plaintiff in California. Id. The same holds true in this case where there is evidence that, but for Hsu's and Kozumi's actions, the injury to Ubiquiti would not have occurred.
The facts related to Kung--her trademark registration application, her alternative directorship in Tech Depot, and her ownership of shares in Netcom--provide evidence that she is a participant in the overall infringement scheme. Therefore, this requirement is satisfied in regard to Kung.
C. Reasonableness Factors
1. Extent of Defendants' Purposeful Injection Into the Forum
There may be circumstances in which the level of purposeful injection into the forum is sufficient to support a finding of purposeful availment yet not enough to bolster the reasonableness of jurisdiction. Dole Food, 303 F.3d at 1115.
Hsu argues that the exercise of personal jurisdiction over him in this forum would be unreasonable because he owns no property in California and, since moving to Florida, has been to California less than ten times, excluding the times when he was in a California airport on the way to another destination. Hsu Dec.
¶ 3. However, Ubiquiti produces a December 26, 2011 email from Hsu to Pera, in which Hsu stated, "If you want to meet me or talk with me let me know as I am in Bay Area these days." Jabbaz Dec., Ex. B. Also, the distributorship contract between Kozumi and Ubiquiti and the email exchange between Hsu and Pera concerning the sale of the Argentinean UBITQUITI NETWORKS and Ubiquiti logo trademarks to Ubiquiti, represent Hsu and Kozumi's additional purposeful interjection into this forum. Hsu's argument that, in his individual capacity, he never did any business with Ubiquiti and, therefore, only Kozumi should be subject to personal jurisdiction is undercut by the fact that Hsu purchased the UBIQUITI NETWORKS and Ubiquiti logo trademarks in Argentina in his own name and many of his emails to Pera are sent from him personally, not mentioning his role as an officer of Kozumi.
Therefore, this factor weighs in favor of the reasonableness of personal jurisdiction over Hsu and Kozumi.
Kung declares that she has no property in California, she has been to California less than ten times in the last ten years and never conducted business during any of those visits, she is a stay-at-home mother in Florida, and she has never engaged in any conversations, e-mail or other communications with Ubiquiti. As indicated previously, the allegations about Kung are that, in 2011, she filed and abandoned a trademark application for the word "UBIQUITI," she is an alternative director of an Argentinean company that falsely advertises itself as a distributor of
Ubiquiti products and she is a shareholder in another Argentinean company that may be a distributor of counterfeit Ubiquiti products. These allegations show only minimal purposeful injection by Kung into California and, thus, this factor does not support the reasonableness of jurisdiction over her.
2. Burden on Defendants
Kung declares that it would be a significant burden on her to litigate in California because she is the primary caretaker of her three young children. She states that she has no alternative caretaker for her children so that, if she had to litigate here, she would have to bring her children with her and, because she provides for her family on a fixed income, flying with them from Florida to California would be financially burdensome.
Kung's declaration supports her argument that it would be a burden on her to defend herself in this forum and, therefore, this factor supports the unreasonableness of jurisdiction over her. Hsu and Kozumi do not address this factor.
C. Other Factors
Defendants do not address the five other reasonableness factors. Because it is Defendants' burden to present a compelling case that the exercise of jurisdiction would be unreasonable, the other five factors weigh in favor of exercising jurisdiction.
Even though Kung's activities meet the first two prongs of the effects test, because the first two reasonableness factors weigh strongly against jurisdiction over her, the Court determines
that Ubiquiti is not likely to succeed in showing that Kung is subject to personal jurisdiction in this forum. Therefore, a TRO will not issue against her absent a further showing by Ubiquiti.
Because all the factors, including the reasonableness factors, support jurisdiction over Hsu and Kozumi, the Court concludes that Ubiquiti is likely to succeed in showing that they are subject to personal jurisdiction in this forum.
Although Ubiquiti asserts thirteen causes of action in its complaint, only the three Lanham Act claims are at issue here. Ubiquiti does not seek a TRO for its copyright claims, nor could it because federal copyright law does not apply to extraterritorial acts of copyright infringement. Allarcom Pay Television, Ltd. v. General Instrument Corp., 69 F.3d 381, 387 (9th Cir. 1995). The three claims under the Lanham Act are (1) counterfeiting under 15 U.S.C. § 1114, based upon Hsu and Kozumi's use of Ubiquiti's registered AIROS and AIRMAX trademarks; (2) infringement under 15 U.S.C. § 1114, based upon Hsu and Kozumi's infringement of Ubiquiti's registered AIROS and AIRMAX trademarks; and (3) false designation of origin under 15 U.S.C. § 1125(a) based upon Hsu and Kozumi's use of the UBIQUITI and UBIQUITI NETWORKS trademarks knowing that Ubiquiti had valid and protectable rights in these marks prior to Defendants' first use of them.
A claim of trademark infringement may be brought against any person who, without the consent of the holder of the mark, uses in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake or to deceive. 15 U.S.C. § 1114(1)(a); Century 21 Real Estate Corp. v. Sandin, 846 F.2d 1175, 1178 (9th Cir. 1988). An infringing mark is one that is sufficiently similar to a registered mark to cause public confusion. Montres Rolex, S.A. v. Snyder, 718 F.2d 524, 530 (2nd Cir. 1983). A counterfeit mark is one which is identical to, or substantially indistinguishable from, a registered trademark. 15 U.S.C. § 1127.
To state a claim under 15 U.S.C. § 1125(a), the plaintiff must show that the defendant is using a mark confusingly similar to a valid, protectable trademark of the plaintiff's. Brookfield Communs., Inc. v. West Coast Entertainment Corp., 174 F.3d 1036, 1046 (9th Cir. 1999). Whether a mark is registered or not, the first to use it is deemed the "senior" user and has the right to enjoin "junior" users from using confusingly similar marks in the same industry and market. Id. at 1047. The Lanham Act authorizes injunctive relief as a remedy for violations. 15 U.S.C. § 1116; Penpower Tech. Ltd. v. S.P.C. Tech., 627 F. Supp. 2d 1083, 1094 (N.D. Cal. 2008) (injunctive relief is remedy of choice for
trademark cases, because there is no adequate remedy at law for the injury caused by a defendant's continuing infringement).
A. Ubiquiti's Valid, Protectable Trademarks
Ubiquiti owns federal registrations for the AIROS and AIRMAX trademarks and, therefore, is presumed to be the owner of these valid protectable trademarks. See 15 U.S.C. § 1115(a) (certificate of registration evidence of validity of the mark and of registrant's exclusive right to use the mark). Ubiquiti argues that, because it has been using the UBIQUITI, UBIQUITI NETWORKS and Ubiquiti Logo marks since at least 2005, it has common law rights in them that precede Hsu and Kozumi's counterfeiting and infringing activities in 2011. As discussed previously, the ownership of the UBIQUITI NETWORKS and Ubiquiti logo trademarks in Argentina will be decided by the Argentina courts. Otherwise, however, Ubiquiti's ownership and use of its marks precedes Hsu and Kozumi's use of the marks. Therefore, except for the marks that are being litigated in Argentina, it is likely that Ubiquiti will succeed on the merits of proving it has valid, protectable trademarks.
B. Counterfeit Products Likely to Deceive the Public
Although the likelihood of confusion is usually a factual determination made by examining eight factors, in cases involving counterfeiting, it is unnecessary to perform the eight-factor evaluation because counterfeit marks are inherently confusing.
Phillip Morris USA Inc. v. Shalabi, 352 F. Supp. 2d 1067, 1073 (C.D. Cal. 2004).
Ubiquiti has submitted the declarations of Michael Taylor, Ubiquiti Senior Software Engineer, and Gustavo Presman, an Engineering Computer Forensics Specialist, who compared actual Ubiquiti products with the allegedly counterfeit products Kozumi imported into Argentina. Each determined that the counterfeit product used design, hardware and software identical to the original Ubiquiti product. Notably, the counterfeit product used Ubiquiti's registered AIRMAX trademark, as well as Ubiquiti's name and corporate address. Moore Dec. ¶ 2(a). Also, when a user logs on to the counterfeit product, Ubiquiti's AirOs trademark comes up on the screen.
Moreover, Lin, Ubiquiti's employee who documented the counterfeit Ubiquiti products found at the Hoky factory at the time of the police raid, declares that he saw thousands of products labeled with the UBIQUITI, NANOSTATION and AirOS trademarks and submits photographs of some of these products. Lin Dec. ¶¶ 10-11. He also obtained shipping records showing that counterfeit Ubiquiti products were shipped to Kozumi. Lin Dec. ¶ 11, Ex. C.
Defendants argue that Ubiquiti has not proved counterfeiting because the declarations do not provide a chain of custody and the products compared by Taylor and Presman could have been original Ubiquiti products.
There is sufficient evidence to show that counterfeit products were produced by the Hoky factory in China and shipped to Kozumi for sale in South America or elsewhere and that some of these products were obtained in Argentina for testing by Ubiquiti's experts. Furthermore, Defendants do not deny that they have purchased products from the Hoky factory; they merely claim that they have stopped doing so.
Therefore, based on the evidence submitted by Ubiquiti, it is likely to prevail on the issue of likelihood of confusion.
C. Immediate, Irreparable Injury
Defendants argue that a TRO is not warranted because Ubiquiti is not threatened with immediate, irreparable injury. They point out that, since the beginning of 2012, they have not bought any allegedly counterfeit or infringing products from Hoky, or sold any, and they have not put any of their own ZoneWave products on the market because these products are still in the development stage. Furthermore, they argue that they have a right to purchase Ubiquiti products from Ubiquiti distributors and to re-sell them.
Ubiquiti counters that emails from Hsu demonstrate that he and Kozumi are presently selling counterfeit products.
In his May 7, 2012 email, Hsu stated, "The only product that can beat Ubiquiti or make a dent o [sic] Ubiquiti's market share has to be a product that can be compatible with the Airmax TDMA . . . We are the only company that is selling a product that works the same as theirs." Because Hsu states that he is not selling
any of his own ZoneWave products, the only product that he could be selling that "works the same" as Ubiquiti's are counterfeit Ubiquiti products. Although Defendants claim that, in the past six months, they have only sold Ubiquiti products obtained from authorized distributors, they offer no proof of this. Hsu attaches to his declaration two invoices showing that, in 2011, Kozumi purchased Ubiquiti products from authorized Ubiquiti distributors.2 Hsu Dec., Ex. 2. However, Defendants do not produce invoices for purchases of Ubiquiti products in 2012 to demonstrate that they have continued to purchase Ubiquiti products from authorized distributors. On the other hand, Ubiquiti submits invoices for Ubiquiti products shipped by Kozumi into Argentina at prices lower than expected, which show, according to Ubiquiti, that the products have not been purchased from an authorized distributor.
Although trademark infringement by products sold in Argentina with the UBIQUITI NETWORKS and Ubiquiti logo trademarks may not be within the subject matter jurisdiction of this Court, sale of products with the AirOS and AIRMAX trademarks are likely subject to this Court's jurisdiction. Therefore, Kozumi and Hsu will be enjoined from selling counterfeit Ubiquiti products with these trademarks in Argentina and other countries.
Further, sale of the present version of the ZoneWave products can be enjoined under the Lanham Act because, when a user connects the ZoneWave product to a computer, Ubiquiti's software starts and displays Ubiquiti's AirOS trademark on the login screen.
Ubiquiti has adequately shown that it has been and is in imminent danger of being irreparably injured by Hsu and Kozumi's sale of counterfeit and infringing products in other countries. Ubiquiti does not have an adequate remedy at law because the sale of infringing or counterfeit products is likely to damage irreparably its reputation and goodwill and that of its distributors. See Penpower Tech., 627 F. Supp. 2d at 1094.
D. Balance of Hardships
Defendants argue that the balance of hardships weighs in favor of denying a TRO because Ubiquiti seeks to shut down Kozumi's business by freezing its assets, and this will irreparably injure Kozumi and Hsu. Hsu states that a large portion of Kozumi's business is totally unrelated to Ubiquiti products and, if its assets were frozen, it would be unable to purchase goods for resale or pay its bills. Citing Republic of the Philippines v. Marcos, 862 F.2d 1355, 1364 (9th Cir. 1988), Ubiquiti responds that an injunction freezing Kozumi's assets is necessary so that it may obtain the equitable remedy of an accounting of Defendants' ill-gotten profits under 15 U.S.C.
§ 1117.3 However, in Marcos, the evidence established that the defendants had transferred millions of dollars' worth of cash, negotiable instruments, jewelry and other property out of the Philippines to other countries, including the United States. Id. at 1362-63. Here, the significance of Ubiquiti's evidence submitted to show that Hsu cannot be trusted to preserve his and Kozumi's assets is questionable. A dispute regarding the price of the Argentinean trademark does not indicate that Hsu or Kozumi will transfer assets out of the country to avoid paying a judgment. Although Ubiquiti points to Hsu and Kung's divorce petition which lists as an asset only their residence, when public records show they own other real estate valued at $1.6 million. Defendants respond that the other properties are owned by a trust and are not marital assets under Florida law. The Court agrees that freezing Defendants' assets would be too harsh a remedy and harmful to Defendants' business.
However, an order enjoining Hsu and Kozumi from selling counterfeit and infringing products will not harm them. On the other hand, Ubiquiti has made a showing that Kozumi's sale of counterfeit and infringing products affects Ubiquiti's goodwill and reputation and undercuts its sales and the sales of its
authorized distributors, all of which affect Ubiquiti's stock price and market capitalization.
Therefore, the Court finds that Ubiquiti has shown a likelihood of success on the merits of its Lanham Act claims and a significant threat of irreparable injury or, at least, that serious questions regarding the merits exist and the balance of the hardships tips sharply in Ubiquiti's favor. Therefore, the Court enjoins Hsu and Kozumi and their agents, officers, servants, employees, owners and representatives and all other persons, firms or corporations in active concert or participation with them from: (1) using in any manner any registered trademark owned by Ubiquiti, and the UBIQUITI, UBIQUITI NETWORKS, and Ubiquiti logo mark, or any name or mark that wholly incorporates or is confusingly similar to the aforementioned trademarks; (2) moving, destroying, or otherwise disposing of any items confusingly or deceptively similar to Ubiquiti's products and that bear any of the aforementioned trademarks that belong to Ubiquiti; (3) moving, destroying or otherwise disposing of any records or documents containing information related to the manufacturing, distributing, delivering, shipping, importing, exporting, marketing, promoting, selling or otherwise offering for sale of items that bear any of the aforementioned trademarks that belong to Ubiquiti; (4) assisting, aiding or abetting any other person or business entity in engaging in or performing any of the above-mentioned activities. Excepted from this injunction is the selling,
manufacturing, distributing, delivering, shipping, importing, marketing and promoting of products in Argentina bearing the UBIQUITI NETWORKS or Ubiquiti logo trademark, which do not use any other Ubiquiti-owned trademark. Also excepted from this injunction is the re-sale of genuine Ubiquiti products.
Rule 65(c) of the Federal Rules of Civil Procedure requires that a party must post a bond "in such sum as the court deems proper, for the payment of such costs or damage as may be incurred or suffered by any party found wrongfully enjoined or restrained." The Court finds that a bond in the amount of $10,000 is sufficient. This restraining order will take effect, therefore, upon Ubiquiti's posting of a bond in the amount of $10,000.
For the foregoing reasons, the Court grants in part Ubiquiti's application for a TRO against Defendants Hsu and Kozumi, as described above. It is ordered that Defendants Hsu and Kozumi show cause as to why a preliminary injunction should not issue on the same terms as the TRO. A hearing on the Order to Show cause is set for Thursday, July 5, 2012 at 2 p.m. Defendants may file an opposition brief, of no greater than ten pages, containing any facts or law that they were unable to include in their briefs to date, no later than June 25, 2012. Ubiquiti may file a reply brief, no greater than five pages, addressing the new facts and law in Defendants' opposition brief, no later than June 28, 2012.
IT IS SO ORDERED.
United States District Judge
1. The court held that the Lanham Act did apply to infringing products sold within the United States or exported from the United States to the Philippines or any other country in which the defendant did not own the trademark. Star-Kist, 769 F.2d at 1394.
2. Ubiquiti does not dispute that the sellers of these products are authorized Ubiquiti distributors.
3. Section 1117 provides that a prevailing plaintiff in an infringement action may recover the defendant's profits, damages and the costs of the action.
FORMFACTOR, INC., Plaintiff,
MICRO-PROBE, INC., et al., Defendants.
No. C 10-3095 PJH
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
Dated: June 7, 2012
ORDER RE CROSS-MOTIONS FOR SUMMARY JUDGMENT
The parties' cross-motions for summary judgment came on for hearing before this court on May 9, 2012. Plaintiff FormFactor, Inc. appeared by its counsel William J. Robinson; defendant Micro-Probe, Inc. appeared by its counsel Richard I. Yankwich and Rajiv Dharnidharka; and defendant David Browne appeared by his counsel Deborah Sirias. Having read the parties papers and carefully considered their arguments and the relevant legal authority, and good cause appearing, the court hereby GRANTS defendants' motion and DENIES plaintiff's motion.
This is a case alleging patent infringement and state law claims of trade secret misappropriation and breach of confidence. Plaintiff FormFactor, Inc. ("FormFactor") designs, manufactures, sells, and supports high-performance "advanced wafer probe card assemblies," which are used to test semiconductor wafers before the wafers are cut up onto individual "chips."
Wafer probe card products can be one of three types - DRAM (dynamic random access memory), SoC (system on a chip) non-memory, or Flash memory. FormFactor's business is primarily focused on DRAM, with 70% of its revenue derived from DRAM-
related products. FormFactor also has significant business in Flash memory products (approximately 15% of its revenue). A number of companies compete in the market for wafer probe card products. For example, defendant Micro-Probe Incorporated ("Micro-Probe") also develops, manufactures, and supports wafer probe card products. However, Micro-Probe's business is focused solely on the non-memory SoC market.
In the present action, FormFactor asserts that Micro-Probe has been hiring current and former FormFactor employees, including engineers and marketing executives, for the express purpose of having them disclose FormFactor's confidential technical and marketing information. Among the former FormFactor employees hired by Micro-Probe is defendant David Browne ("Browne").
Browne joined FormFactor in 2000, eventually becoming Vice President of DRAM Business Management. From 2000 until 2004, Browne managed FormFactor's account for Intel. In 2004, FormFactor hired another employee, Timothy Lillie, to manage that account. Mr. Lillie testified that starting around the end of 2004, he was solely responsible for managing the Intel account at FormFactor, and that Browne no longer worked on it.
During the time he was employed at FormFactor, it was Browne's practice to work at times from his home, particularly when necessary to conduct business late at night (local time) with FormFactor's contacts in Asia. Colleen Cremarius, a Human Resources Business Partner at FormFactor, testified in her deposition that she was not aware that Browne had a home office, but that FormFactor did not have a policy that either allowed or precluded employees from working at home. She stated that "[i]t's usually something that's worked out with their manager if they chose to work during the day during working hours[,]" and that "[i]f they chose to do that evening or early morning, they do that because it's part of their job responsibility."
Browne testified that FormFactor provided him with home office equipment, including a home docking station, a laptop computer, an external hard drive, and thumb drives. He also had full remote access to FormFactor's server and to his FormFactor e-mail account through a VPN (private network) connection. Browne testified that FormFactor allowed him
to use his personal e-mail account and personal home computer to complete tasks relating to FormFactor's business, particularly when he was unable to log into the FormFactor system. It was Browne's usual practice to periodically back up all his FormFactor files on external drives. He testified that during his employment at FormFactor, he was permitted to access and copy all the files found on his FormFactor laptop and external hard drive.
Ms. Cremerius testified that if a FormFactor employee was doing FormFactor work from home, the employee could log onto FormFactor's data through the VPN on his/her own personal computer. She was unaware of any policy prior to the date of Browne's resignation from FormFactor that required employees to delete anything from their personal computers which might have been there because they worked at home through the FormFactor VPN. She was also unaware of any policy that precluded employees from backing up FormFactor data onto thumb drives, although she did not know whether FormFactor provided employees with thumb drives.
Finally, Ms. Cremerius testified that she was unaware of any policy that required FormFactor employees to advise FormFactor if/when they began searching for employment with another company, or that required employees who were considering leaving FormFactor to stop accessing the FormFactor computer system or to stop working from home or backing up data.
At some point in the fall of 2009, Browne began communicating with Micro-Probe regarding the possibility of employment at that company. The last time Browne backed up FormFactor files on his hard drive was on January 1, 2010, which was during the period that he was negotiating with Micro-Probe regarding employment. According to FormFactor, many of the files that Browne copied on January 1, 2010 contained trade secrets that are at issue in this case.
On February 10, 2010, Micro-Probe made Brown a written offer of employment, to commence on March 8, 2010. Browne provided written acceptance of the offer on February 12, 2010. The written acceptance also included an agreement that he would not use his former employer's proprietary or confidential information. That same day, Browne
gave notice of his resignation to his manager at FormFactor, and, following an exit interview lasting approximately 15 to 20 minutes, was escorted off the premises. He was not allowed to take any materials, even his personal belongings (which were later mailed to him). He turned over his laptop computer and security badge.
Ms. Cremerius testified that the exit interview was conducted that same day because Browne was leaving to work with a competitor. She testified that Browne's personnel file did not contain an Employment Confidentiality and Invention Assignment Agreement, or any non-disclosure or non-solicitation agreement, and that she was not aware of his having ever signed any such agreements. (Browne himself testified that he did not recall ever having signed an agreement not to use confidential information while at FormFactor, or having signed a non-disclosure or non-solicitation agreement.)
Ms. Cremerius further testified that Browne was not asked during the exit interview whether he possessed any FormFactor materials at his home, or whether there were any such materials on any devices at his home, and that she did not discuss confidential information with Browne during the exit interview. Indeed, there is no evidence that anyone at FormFactor inquired about the status of the FormFactor files on Browne's home computer system, or requested that he return any such materials at the time he was leaving the company. Two weeks after Browne left FormFactor, the company sent him a letter reminding him of his obligation not to use FormFactor's confidential information at Micro-Probe. The letter did not inquire about any materials Browne might have at his home office.
On March 8, 2010, Browne commenced his employment at Micro-Probe, as Vice-President of Sales and Business Development for SoC. FormFactor claims that Browne was hired for "what he knew," and that he conspired with Micro-Probe to steal FormFactor's confidential and proprietary information while he was employed at FormFactor, and that he took that information with him when he moved to Micro-Probe.
On March 30, 2010, approximately six weeks after Browne left FormFactor and three weeks after he started his new job at Micro-Probe, he received a letter from outside
counsel for FormFactor, inquiring about the status of the FormFactor files at his home. At that time, he was not represented by counsel. He attempted to delete the FormFactor files he had previously downloaded, and which remained on his home computer. He then retained counsel, and his counsel took the data storage devices with him.
Both Micro-Probe and FormFactor hired computer forensics examiners to image the drives. On May 12, 2010, counsel provided the home computer, external hard drive, and thumb drives to FormFactor's independent forensic analyst for imaging. Browne's counsel subsequently turned over all the FormFactor data storage devices previously in Browne's possession to another forensic computer consultant, James Vaughan, for forensic imaging. After FormFactor served its March 23, 2012 trade secret List, Vaughan compared the file names on the List with the file names on the data storage devices, and established that Browne had never emailed any file on the List to anyone at Micro-Probe, and that no document on the current List resides on any Micro-Probe server or data storage device.
The only exception is a "scorecard" - a generic type of spreadsheet that many companies in the semiconductor industry use to "score" competitors - that appears on a FormFactor thumbdrive was brought to Micro-Probe by Browne. The concept of using a scorecard did not originate at FormFactor, and there is no evidence that Browne learned to use scorecards at FormFactor or indeed that he had used scorecards in his previous employment. The particular scorecard at issue was a template DRAM summary of probe card industry companies as of 2008. However, there is no evidence that Micro-Probe has ever used the scorecard, or that it even contained any information that could have assisted Micro-Probe, much less that any use caused damage to FormFactor.
The case was originally filed in July 2010. In February 2011, FormFactor filed the second amended complaint ("SAC"), alleging ten causes of action - seven claims for patent infringement asserted against Micro-Probe; and state law claims for trade secret misappropriation and conspiracy to misappropriate trade secrets, against Micro-Probe and Browne; breach of confidence, against Browne, and conspiracy to breach confidence, against Micro-Probe and Browne; and unfair competition under California Business &
Professions Code § 17200, against Micro-Probe.
On April 28, 2011, the court bifurcated the patent claims and the state law claims. The state law claims are to be resolved in Phase 1 of the case, and the patent claims are to be resolved in Phase 2. Each side now seeks summary judgment as to the three state-law claims.
A. Legal Standard
A party may move for summary judgment on a "claim or defense" or "part of . . . a claim or defense." Fed. R. Civ. P. 56(a). Summary judgment is appropriate when there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Id.
A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion, and of identifying those portions of the pleadings and discovery responses that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Material facts are those that might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is "genuine" if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. Id.
Where the moving party will have the burden of proof at trial, it must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. Soremekun v.Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). On an issue where the nonmoving party will bear the burden of proof at trial, the moving party may carry its initial burden of production by submitting admissible "evidence negating an essential element of the nonmoving party's case," or by showing, "after suitable discovery," that the "nonmoving party does not have enough evidence of an essential element of its claim or defense to carry its ultimate burden of persuasion at trial." Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1105-06 (9th Cir. 2000); see also Celotex, 477 U.S. at 324-25 (moving party can prevail merely by pointing out to the district court that there is
an absence of evidence to support the nonmoving party's case).
When the moving party has carried its burden, the nonmoving party must respond with specific facts, supported by admissible evidence, showing a genuine issue for trial. Fed. R. Civ. P. 56(c), (e). But allegedly disputed facts must be material - the existence of only "some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment." Anderson, 477 U.S. at 247-48.
When deciding a summary judgment motion, a court must view the evidence in the light most favorable to the nonmoving party and draw all justifiable inferences in its favor. Id. at 255; Hunt v. City of Los Angeles, 638 F.3d 703, 709 (9th Cir. 2011). In adjudicating cross-motions for summary judgment, the Ninth Circuit "evaluate[s] each motion separately, giving the nonmoving party in each instance the benefit of all reasonable inferences." ACLU of Nevada v. City of Las Vegas, 466 F.3d 784, 790-91 (9th Cir. 2006) (citations omitted).
B. The Parties' Motions
1. Trade secret misappropriation
A plaintiff asserting a trade secret misappropriation claim under the California Uniform Trade Secrets Act ("CUTSA"), Cal. Civ. Code § 3426.1, et seq., bears the burden of proving each element of the claim as to each claimed trade secret. See O2 Micro Int'l Ltd. v. Monolithic Power Sys., Inc., 399 F.Supp. 2d 1064, 1072-75 (N.D. Cal. 2005). To prevail on a misappropriation claim under the CUTSA, the plaintiff must establish that it owns a clearly identified trade secret; that the defendant acquired, disclosed, or used the plaintiff's trade secret through improper means; and that the misappropriation caused damage to the plaintiff. Sargent Fletcher, Inc. v. Able Corp., 110 Cal. App. 4th 1658, 1665 (2003), cited in KLA-Tencor Corp. v. Murphy, 717 F.Supp. 2d 895, 906 (N.D. Cal. 2010).
FormFactor contends that it has provided evidence sufficient to establish the existence of trade secrets and the fact of misappropriation, and that the court can summarily adjudicate those "issues" without reaching the elements of causation and damages. Defendants assert that FormFactor has failed to provide evidence sufficient to
establish any element of the claim of trade secret misappropriation.
a. Existence of trade secrets
Under the CUTSA, a "trade secret" is defined as "information, including a formula, pattern, compilation, program, device, method, technique, or process" that "[d]erives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use." Cal. Civ. Code § 3426.1(d).
FormFactor argues that its trade secrets - which it claims consist of all the FormFactor files or documents that Browne downloaded or backed up on his computer while employed at FormFactor - meet the requirements of the CUTSA, in that they are "information" and have independent "economic value," and were the subject of reasonable efforts to maintain their secrecy. Defendants assert, however, that FormFactor has failed to identify its trade secrets with sufficient particularity, and has not shown that the alleged trade secrets derive independent economic value from not being generally known to the public, or that they are the subject of reasonable efforts to maintain their secrecy.
A plaintiff seeking relief for misappropriation of trade secrets "must identify the trade secrets and carry the burden of showing that they exist." MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 522 (9th Cir. 1993); see also Agency Solutions.com, LLC v. The TriZetto Group, Inc., 819 F.Supp. 2d 1001, 1015 (E.D. Cal. 2011) (to identify the trade secret with particularity, the plaintiff must first "clearly identify what the 'thing' is that is alleged to be a trade secret," and second, must "be able to clearly articulate why that 'thing' belongs in the legal category of trade secret"). During the course of the litigation, the trade secrets that form the basis of a claim of misappropriation must be identified "with sufficient particularity to separate [the alleged trade secrets] from matters of general knowledge in the trade or of special knowledge of those persons . . . skilled in the trade." Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161, 1164-65 (9th Cir. 1998); see also Cal. Civ. P. Code § 2019(d) (a party alleging misappropriation of trade secrets "shall identify the trade secrets with reasonable particularity").
FormFactor initially provided defendants with a 635-page list of alleged trade secrets (including more than 13,000 files) in spreadsheet format, on October 20, 2010. According to defendants, this list included every file ever placed on Browne's home office external hard drive - FormFactor documents, photographs of Browne's family, Browne's music files, and various industry publications. FormFactor subsequently provided defendants with a narrower list, which included more than 6,100 separate files or documents. Most recently, on March 23, 2012, after being ordered to do so by the court, FormFactor provided a further revised 499-page list of trade secrets ("the List") in spreadsheet format, which included approximately 4,500 files.
None of these lists sufficiently identifies the trade secrets with particularity, in part because of the very size of the lists, and in part because many of the entries consist of a mere listing of names of computer files. Even Benjamin Eldridge, FormFactor's Chief Technology Officer and Rule 30(b)(6) corporate designee, was unable in his deposition to explain from looking at various entries on the List exactly what trade secret was being claimed. Rather, he testified that for any entry on the List, he would need to look at the underlying document in order to be able to explain what the trade secret information was. Moreover, at the hearing on the present motions, the court attempted to elicit from FormFactor's counsel a description of any specific trade secret derived from the List, but was unsuccessful. See May 9, 2012 Hearing Transcript ("Tr.") at 24-27.
FormFactor's position, as presented by the argument of counsel at the hearing, is that a plaintiff alleging trade secret misappropriation can satisfy its burden of identifying the trade secrets at issue with particularity by providing a lengthy list of file names or items and a declaration by a representative of the plaintiff certifying that all items on the lengthy list are intended by the plaintiff to be confidential. At that point, it becomes the court's task "to make a determination as to whether a given piece of confidential information constitutes a trade secret." Tr. at 5. Then, if the court decides that the confidential information included on the lengthy list "constitutes a trade secret, . . .the sole remedy is the Uniform Trade Secret[s] Act." Id. If, however, "the matter does not qualify as a trade secret, you can
recover for theft under various common law theories." Id. Put another way, "[e]ither it is a trade secret and we get summary judgment on the trade secret claim or it's not a trade secret, it is merely confidential and we get summary judgment on the breach of confidence claim." Tr. at 7.
This proposed formulation of the standard is incomplete, however because it omits the requirement that the plaintiff identify each particular trade secret (not just a file that might contain a trade secret), and the requirement that the plaintiff describe the subject matter of the trade secret "with sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons . . . skilled in the trade." Imax, 152 F.3d at 1165; see also Agency Solutions.Com, 819 F.Supp. 2d at 1017-18. Here, neither the List nor the testimony of FormFactor's witnesses provides the requisite showing to clearly identify what each individual thing is that is alleged to be a trade secret.
Nor has FormFactor established that any specific trade secret has independent economic value. To establish independent value, a plaintiff must show that the trade secret is "sufficiently valuable and secret to afford an actual or potential economic advantage over others" who do not possess the information. Yield Dynamics, Inc. v. TEA Sys. Corp., 154 Cal. App. 4th 547, 564 (2007); see also Religious Tech. Center v. Netcom On-line Commc'n Servs., Inc., 923 F.Supp. 1231, 1252-53 (N.D. Cal. 1995).
Here, FormFactor provides evidence of the amount it spends on research and development ("R&D"), arguing that because it spends $50 million a year on R&D ($300 million since the inception of the company), its trade secrets necessarily have independent economic value. However, FormFactor has not established that there is any connection between the value of the alleged trade secrets at issue (the files deleted from Browne's hard drive) and the R&D spending. Nor can FormFactor establish independent economic value of the "scorecard" (the only alleged trade secret that Micro-Probe has been shown to have possessed), because FormFactor has not shown that this "scorecard" format is not in the public domain.
Finally, FormFactor has not established that its alleged trade secrets have not been
publicly disclosed, and cannot do so. Public disclosure is "fatal to the existence of a trade secret." Apple, Inc. v. Psystar Corp., 2012 WL 10852 at *1 (N.D. Cal. Jan. 3, 2012). That is, "information that is public knowledge or that is generally known in an industry cannot be a trade secret." Ruckeshaus v. Monsanto Co., 467 U.S. 986, 1002 (1984). For example, information that is available to the public in the form of publications does not qualify for trade secret protection. See Computer Economics, Inc. v. Gartner Group, Inc., 1999 WL 33178020 at *6 (S.D. Cal. Dec. 14, 1999).
Information is protectable as a trade secret where the owner has made "reasonable efforts under the circumstances to maintain its secrecy." Cal. Civ. Code § 3426.1(d)(2). "Reasonable efforts" may include advising employees of the existence of a trade secret, limiting access to the trade secrets on a "need to know basis," requiring employees to sign confidentiality agreements, and keeping secret documents sequestered under lock and key. See Art of Living Foundation v. Does, 2012 WL 1565281 at *21 (N.D. Cal. May 1, 2012) (citing cases); see also SkinMedica, Inc. v. Histogen Inc., 2012 WL 1409560 at *12 (S.D. Cal. Apr. 23, 2012).
Here, there is no evidence that FormFactor made reasonable efforts to protect the secrecy of any particular trade secret. As for any trade secrets disclosed to Browne, the evidence shows that FormFactor did not enter into a written agreement with Browne to protect its trade secrets, that it allowed him to retain his contact information when he left FormFactor, that it allowed/authorized Browne and other employees to work from home (including using personal email to conduct FormFactor business, and to back up FormFactor data onto external hard drives), and that it did not request that Browne return any FormFactor data when he tendered his resignation and left the company.
As for FormFactor's efforts to protect its trade secrets generally, while FormFactor's Rule 30(b)(6) witness, Mr. Eldridge, testified that "[p]retty much everything we do [at FormFactor] is marked "Confidential[;]" that all items marked "Confidential" at FormFactor are considered to be trade secrets; and that FormFactor employees are told that materials marked "Confidential" are to be considered trade secrets, he also testified that he did not
know whether particular items on the List that were marked "Confidential" had ever been disclosed or placed in the public domain.
Moreover, notwithstanding that the discovery magistrate ordered FormFactor to conduct an internal investigation to determine which of its listed trade secrets had never been disclosed publicly, and to be prepared to testify about public disclosure for each listed trade secret at the court-ordered Rule 30(b)(6) deposition, Mr. Eldridge testified in response to inquiries regarding numerous entries in the List that he had in fact not conducted such an internal investigation. Nor was he able to provide a specific response when asked how particular "Confidential" documents were maintained at FormFactor, apart from stating that "I would assume it's kept on our servers[,]" which "are obviously not open to the public" and that "[t]here's employee training that takes place around the handling of confidential information."
The court discounts Mr. Eldridge's testimony in his sworn declaration submitted in support of FormFactor's motion, to the extent that it contradicts his prior deposition testimony. For example, Mr. Eldridge states in his declaration that "[having looked at the List and having reviewed the hundreds of documents in preparation for my deposition, it is my view that the documents on the List have not been released to the public[,]" and also states that the reason he testified in his deposition that he had conducted no investigation to determine whether any particular document was in the public domain was because "it was not necessary" for him to make an investigation in view of his "knowledge of the documents on the [L]ist and the process for releasing them."
The general rule is that a party cannot create a genuine issue of fact by providing a declaration that contradicts earlier deposition testimony. See Van Asdale v. International Game Tech., 577 F.3d 989, 998 (9th Cir. 2009) (citing Kennedy v. Allied Mut. Ins. Co., 952 F.2d 262, 266 (9th Cir. 1991)). Here, Mr. Eldridge was examined at length in his deposition on the subject of public disclosure, and he unambiguously and repeatedly testified that he did not know whether particular documents or files on the List had been publicly disclosed, and that he had not engaged in any internal investigation for the purpose of determining
whether any particular documents had been disclosed. Thus, Mr. Eldridge's assertion in his declaration that he knew that none of the documents or files had been disclosed directly contradicts his testimony at deposition that he did not know whether documents or files had been disclosed, and to that extent, the declaration falls within the sham affidavit rule. See Van Asdale, 577 F.3d at 998.
The CUTSA defines "misappropriation" of a trade secret in two ways. It is the "[a]cquisition of a trade secret of another who knows or has reason to know that the trade secret was acquired by improper means," which may include theft, bribery, misrepresentation, breach or inducement of breach of a duty to maintain secrecy, or espionage through electronic or other means; or it is the "[d]isclosure or use of a trade secret of another without express or implied consent" by a person who used improper means to acquire knowledge of the trade secret, or who knew at the time of disclosure or use that his knowledge of the trade secret was obtained through a person who had utilized improper means to obtain it, or acquired it under circumstances giving rise to a duty to maintain its secrecy, or who derived it from a person who owed a duty to the person seeking relief to maintain its secrecy. See Cal. Civ. Code § 3426.1(a), (b). Here, FormFactor alleges both improper acquisition of the files, and improper use of the information.
FormFactor bases its claim primarily on the following: (1) the fact that Browne copied FormFactor files onto his home computer, particularly during the period when he was negotiating with Micro-Probe regarding the possibility of employment; (2) a statement by Browne in his responses to FormFactor's Requests for Admissions that he "used" information at Micro-Probe that he had learned at FormFactor (among other places), and testimony by Browne that his job at Micro-Probe was "the same" as his job at FormFactor; and (3) statements in Micro-Probe-created documents that FormFactor was "standing in the way" of Micro-Probe's success, and had to be "displaced," and that Micro-Probe's goal
was to "learn as much as we can" about FormFactor and to "[a]lways win Intel."1
FormFactor claims that the only reasonable inference to be drawn from this evidence is that Micro-Probe wanted FormFactor's trade secrets, and also wanted to hire Browne because of his knowledge of FormFactor's business and confidential information. The court finds, however, that FormFactor has not established that any trade secrets were misappropriated, or, more to the point, has provided no evidence showing either improper acquisition or that defendants ever used specified trade secrets or disclosed specified trade secrets to anyone.
First, with regard to the alleged improper copying, the mere possession of trade secrets does not constitute misappropriation. Wyatt Tech. Corp. v. Malvern Instruments, Inc., 2009 WL 2365647 at *19 (C.D. Cal. July 29, 2009); AccuImage Diagnostics Corp. v. Terarecon, Inc., 260 F.Supp. 2d 941, 951 n.5 (N.D. Cal. 2003) (citing Gibson-Homans Co. v. Wall-Tite, Inc., 1992 WL 512411 (C.D. Cal. Oct. 27, 1992)). Here, the evidence shows that FormFactor provided Browne with equipment for his home office, and allowed him to work from his personal computer and through his personal email account. It is also undisputed that during the time of his employment at FormFactor, Browne was allowed to access, use, copy, and back up FormFactor data to an external hard drive. As noted above, Ms. Cremerius testified that there was no policy at FormFactor for or against employees working from home, or for or against the backing up and downloading of
There is no evidence that Browne and FormFactor ever entered into a written employment agreement, a non-disclosure agreement, a non-compete agreement, or a non-solicitation agreement. Browne did sign an agreement while at FormFactor, providing in part that after his employment had terminated, he would not "claim[ ], construe[ ], or present[ ] as property" any "work product created on the job using FormFactor information or property." However, this is not, as FormFactor asserts, an agreement that Browne would not retain any FormFactor documents after terminating his employment - just that he would not claim ownership of such documents. Moreover, since he was authorized to download/back up files onto his personal computer, any copying of documents while he was employed by FormFactor could not have been a breach of this agreement.
The last back-up Browne did was on January 1, 2010, at which time he was still employed at FormFactor. When he resigned, and was asked to leave the same day, no one inquired regarding any backed-up files he might have on his home computer. It was not until over a month later that FormFactor's counsel contacted Browne regarding the backed up files. However, FormFactor provides no evidence showing any actual use or disclosure of this downloaded material by either Browne or Micro-Probe.
The statement in Ms. Cremerius' later-filed declaration, that had FormFactor known that Browne was downloading FormFactor data at the same time that he was negotiating with Micro-Probe regarding future employment, it would not have allowed Browne to copy the files, is insufficient to create a triable issue with regard to whether Browne engaged in improper copying, in view of the fact that Browne's downloading of files was not unauthorized, and the fact (also according to Ms. Cremerius) that employees were under no obligation to advise FormFactor if/when they began searching for employment with another company, or to stop accessing the FormFactor computer system or to stop working from home or backing up data if they were considering leaving FormFactor.
As for improper use, "[e]mploying the confidential information in manufacturing, production, research, or development, marketing goods that embody the trade secret, or
soliciting customers through the use of the trade secret" all constitute "use" under the CUTSA. Agency Solutions.Com, 819 F.Supp. 2d at 1028 (citation and quotation omitted). FormFactor has provided no evidence showing any improper "use" by defendants of any specific trade secret included on the List. Nor has FormFactor shown that defendants ever disclosed any specific trade secrets to anyone.
Browne admitted that he brought third-party-domain materials and his Outlook contacts list to Micro-Probe, but those materials are not on FormFactor's List of trade secrets, and thus are not part of the claims at issue. The only document that Browne brought to Micro-Probe that is on Form-Factor's trade secret List is the template DRAM summary of probe card industry companies as of 2008 (the "scorecard"), but there is no evidence that the scorecard is a trade secret or that defendants actually used the scorecard.
Mr. Eldridge, FormFactor's corporate designee, testified that FormFactor had no evidence of any actual use or disclosure other than Browne's purported admission in response to FormFactor's interrogatories and requests for admission. However, the referenced interrogatory responses and responses to requests for admission indicate only that Browne backed up or copied FormFactor files during his employment with FormFactor (which he was authorized to do). On the other hand, evidence (including forensic evidence) demonstrates that Micro-Probe employees did not have access to the files listed in FormFactor's trade secret List, and that none of those files were placed on Micro-Probe's servers or data storage devices or transmitted through emails.
With regard to FormFactor's assertion that improper "use" is established by Browne's response to FormFactor's Request for Admission No. 64, the court notes that RFA No. 64 asked Browne to admit that he had "used knowledge obtained from FormFactor in the performance of [his] duties at Micro-Probe." RFA No. 64 did not ask about Browne's use of any of FormFactor's trade secrets, or even any alleged confidential information. It simply asked about "knowledge obtained from FormFactor," which is such a broad and generalized subject as to be nearly meaningless. In response, Browne admitted
that he had "used knowledge obtained from FormFactor among others in the performance of his current duties at Micro-Probe." Because neither the question nor the response referenced trade secrets, the court finds that this "admission" does not establish improper use sufficient to support a claim of trade secret misappropriation.2
With regard to the claim that improper "use" is shown by Browne's testimony that his job at Micro-Probe was "the same" as his job at FormFactor, the court notes, as an initial matter, that while counsel for FormFactor referred during Browne's deposition to the jobs at the two companies being "the same," the court has not located any such testimony by Browne. It is true that Browne agreed that many of his tasks and responsibilities (listed on his resume) were the same as his tasks and responsibilities at Micro-Probe - e.g., helping launch new products, implementing product strategy, helping grow market share, building a team of business managers, managing a worldwide sales operation, and conducting worldwide sales training. However, there is no evidence that performing any of these tasks and responsibilities, which appear to be necessary components of any sales/marketing manager's job, necessarily involves the use of particular trade secrets.
Browne may have interacted with some of the same customers at both companies regarding wafer probe card products, but the evidence shows that FormFactor is involved in the market for DRAM and Flash memory products, while Micro-Probe's involvement is limited to the market for SoC products. More to the point, the evidence shows that FormFactor employed Browne as VP of DRAM business management, not SoC, and not for the entire probe card market, whereas at Micro-Probe, he is responsible for SoC sales, a different job for a different market, and involving marketing to different customers than the ones Browne marketed to when he worked at FormFactor.
FormFactor also claims that Micro-Probe somehow persuaded Intel to shift its business away from Micro-Probe, using the confidential information or trade secrets it had obtained from FormFactor through Browne. However, the evidence shows that FormFactor hired another employee in 2004 to take over all Intel responsibilities from Browne, and that Browne was not the Intel sales manager after about 2005. In addition, the evidence also shows that Micro-Probe began winning (and FormFactor began losing) Intel business in 2007, well before Browne's move to Micro-Probe. In 2008, Intel made a large investment in Micro-Probe's parent company and owns 25% of the undiluted stock. Also in 2008, FormFactor's annual revenue dropped 55% and it began conducting layoffs and executive changes. In addition, Browne has no direct role at Micro-Probe with respect to Intel business and the products he sells at Micro-Probe are different from those he marketed at FormFactor.
Thus, even if some tasks and responsibilities are "the same," and Browne "solicits" the same customers he previously solicited at Micro-Probe, such as Intel, the products are aimed at different markets. FormFactor cannot establish through this testimony that Browne improperly "used" its trade secrets.
In a similar vein, FormFactor asserts that Browne was hired by Micro-Probe so that he could use the knowledge he obtained from FormFactor, citing to the deposition testimony of Micro-Probe's CEO, Michael D. Slessor, Ph.D. In the cited testimony, Dr. Slessor was asked whether it was true that eight particular Micro-Probe employees, including Browne, were hired "because, in part, they worked at FormFactor." Dr. Slessor responded that they were hired "[b]ecause, in part, they had probe card experience . . . which certainly came when they were at FormFactor." This testimony does not support a claim that Browne was hired to work at Micro-Probe because of his knowledge of FormFactor's trade secrets - let alone that Browne "used" those trade secrets at FormFactor.
Finally, with regard to the theory espoused by FormFactor's expert Dr. Annette Ermshar, a clinical psychologist - that from "a neurological and physiological standpoint,
Mr. Browne cannot do anything but use [FormFactor's] information given the similarity of his job at [Micro-Probe] with his job at [FormFactor] and the length of time" - the court finds that testimony regarding Browne's memory and brain function is irrelevant to the issues in the present case, and thus unreliable under Federal Rule of Evidence 702.
Moreover, in arguing that Browne must have used the FormFactor trade secrets at Micro-Probe because his job duties at the two companies were "the same," FormFactor appears to be seeking to insert the "inevitable disclosure" doctrine into its motion without actually naming it. Under the doctrine of "inevitable disclosure," a plaintiff may prove a claim of trade secret misappropriation by demonstrating that a defendant's new employment will inevitably lead him to rely on the plaintiff's trade secrets. FLIR Sys., Inc. v. Parrish, 174 Cal. App. 4th 1270, 1277 (2009); Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443, 1458-64 (2002). However, California does not recognize the doctrine of inevitable disclosure. See FLIR, 174 Cal. App. 4th at 1279.
As for the statements in Micro-Probe-created documents that FormFactor was "standing in the way" of Micro-Probe's success, and had to be "displaced," and that Micro-Probe's goal was to "learn as much as we can" about FormFactor and to "[a]lways win Intel," the court finds that at most, such statements simply reflect the fact that these two companies are competitors, and as such, have an interest in increasing their market share, in hiring the best candidates, and in wanting to learn as much as possible about the competition. Absent some concrete evidence of actual unlawful use of FormFactor's trade secrets, none of these statements has any bearing on the resolution of the case.
c. Causation and damages
The final requirement to establish misappropriation of trade secrets is to show that the alleged misappropriation caused damage to the plaintiff. Silvaco Data Sys. v. Intel Corp., 184 Cal. App. 4th 210, 220 (2010), disapproved on other grounds by Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (2011); see also Science of Skincare, LLC v. Phytoceuticals, Inc., 2009 WL 2050042 at *5 (C.D. Cal. July 7, 2009).
FormFactor's position, as stated at the hearing, is that it need not show causation
and damage in order to obtain summary judgment as to liability. However, causation is plainly an element of the cause of action, and even if FormFactor had managed to establish the existence of trade secrets and improper disclosure or use, it could not prevail in the absence of a showing that it was harmed by defendants' use or disclosure of particular trade secrets. In this case, FormFactor having failed to adequately identify any trade secrets or to demonstrate misappropriation, no causal link to any alleged harm can be drawn.
FormFactor's corporate designee Ben Eldridge testified that because Micro-Probe is now the supplier to Intel, FormFactor has lost $40 million a year. Nevertheless, the evidence shows that FormFactor's business with Intel began to slow three years before any of the facts underlying the trade secret claim had occurred. Moreover, Mr. Eldridge provided no concrete evidence connecting the alleged misappropriation to the loss of Intel business. Rather, he simply stated that it must have been Browne's going to Micro-Probe that caused the loss of business, "because of the experience he brought with him when he went over there." He added, "I believe [Browne's] presence there [Micro-Probe] along with the other individuals that were hired, were crucial in convincing them [Intel] to continue to pursue Micro-Probe and - ultimately drop work with FormFactor's product."
2. Breach of confidence and unfair business practices
FormFactor contends that summary judgment is appropriate as to the cause of action for breach of confidence and conspiracy to breach confidence, and as to the cause of action for unfair business practices. Defendants assert that the claims for breach of confidence and unfair business practices are preempted by the CUTSA, because they are based on the same nucleus of operative facts as the trade secret misappropriation claim. Defendants also contend that these two causes of action fail on the merits.
The legislative purpose behind the enactment of the CUTSA was to formulate a consistent sent of rules to govern and define liability for conduct falling within its terms. See Cal. Civ. Code § 3426.8; Silvaco, 184 Cal. App. 4th at 239 n.22. Section 3426.7 describes the effect of the CUTSA on other statutes or remedies, providing that "[t]his title
does not affect (1) contractual remedies, whether or not based upon misappropriation of a trade secret, (2) other civil remedies that are not based on misappropriation of a trade secret, or (3) criminal remedies, whether or not based upon the misappropriation of a trade secret." Cal. Civ. Code § 3426.7(b).
California courts have held that this "savings clause" supersedes common law claims that are based on "the same nucleus of facts as the misappropriation of trade secrets claim for relief," and that there is no basis for allowing common law claims to go forward simply because "they seek 'something more' than trade secret relief.'" See K.C. Multimedia, Inc. v. Bank of America Tech. & Operations, Inc., 171 Cal. App. 4th 939, 957-58 & n.7 (2009); see also Monolithic Power Sys., Inc. v. O2 Micro Int'l Ltd., 2007 WL 801886 at *6 (N.D. Cal. Mar. 14, 2007).
That is, the CUTSA "provides the exclusive civil remedy for conduct falling within its terms, so as to supersede other civil remedies 'based upon misappropriation of a trade secret.'" Silvaco, 184 Cal. App. 4th at 236; see also K.C. Multimedia, 171 Cal. App. 4th at 954 (the language of § 3426.7 "implicitly preempts alternative civil remedies based on trade secret misappropriation"); id. at 957-59 & n.7 (a claim cannot simply depend on a "different theory of liability" to survive the CUTSA's preemptive effect).
There has been some dispute among courts with regard to whether the CUTSA's savings clause applies only to claims that allege misappropriation of trade secrets, or whether it also applies to other common law claims alleging misappropriation of confidential information that does not enjoy trade secret protection. See, e.g., Bryant v. Mattel, Inc., 2010 WL 3705668 at *21-22 (C.D. Cal. Aug. 2, 2010) (and cases cited therein). However, the California Court of Appeal in Silvaco concluded that any common law claim premised on the wrongful taking of information that does not qualify as a trade secret is also superseded, unless the plaintiff can identify some law that confers property rights protecting the information. Id., 184 Cal. App. 4th at 236-40; see also Mattel, Inc. v. MGA Entm't, Inc., 782 F.Supp. 2d 911, 985-87 (C.D. Cal. 2011) ("CUTSA supersedes claims based on the misappropriation of confidential information, whether or not that information meets the
statutory definition of a trade secret").3
Here, FormFactor asserts that both the breach of confidence claim and the unfair competition claim are based on acts that Micro-Probe took to build a business that competes unfairly with FormFactor's business, on Browne's having violated his duty to maintain as confidential those items that do not qualify for trade secret protection, and on Micro-Probe's having conspired with him to do so. According to FormFactor, these claims apply to any confidential information on the List that does not qualify for trade secret protection (although FormFactor does not specify the nature of the alleged confidential information).
FormFactor also argues that these two claims are not preempted by the CUTSA because the CUTSA preemption applies only to claims that are based on misappropriation of trade secrets, whereas in this case, the breach of confidence claim is based on misuse of FormFactor's confidential information that is not a trade secret, and the unfair competition claim is based on Micro-Probe's improper inducement of FormFactor employees to breach their obligations regardless of whether those employees stole trade secrets.
Nevertheless, with regard to the breach of confidence claim, FormFactor's position has consistently been that there is no distinction between the alleged trade secret information and the alleged confidential information. For example, FormFactor's corporate designee Ben Eldridge testified that FormFactor's "trade secret" information and its "confidential" information are the same, and asserted that "[s]ince I consider our confidential information to be trade secret, there would be no separate harm."
With regard to the unfair competition claim, FormFactor argues that in hiring Browne for information he could provide, and in hiring other FormFactor employees, Micro-Probe was able to acquire instant access to FormFactor's technology - information that would have taken it a considerable amount of time to develop on its own. FormFactor contends
that these actions violate § 17200, because they significantly harm or threaten competition.
The court finds that both claims are based on the same nucleus of operative facts as the trade secret misappropriation claim. With regard to the breach of confidence claim, CUTSA preempts other claims based on misappropriation of confidential information, regardless of whether the information ultimately meets the statutory definition of a trade secret. See Mattel, 782 F.Supp. 2d at 987-89; see also K.C. Multimedia, 171 Cal. App. 4th at 960.
The crux of the unfair competition claim, based on the allegation that Micro-Probe "hire[d] as many [FormFactor] employees as it could in order to obtain access to [FormFactor] engineering, technical, financial, and marketing information," is that Micro-Probe used FormFactor's human resources to develop and/or exploit FormFactor's trade secrets or confidential information. Thus, the unfair competition claim is inseparable from the nucleus of facts underlying its trade secret claim as pled, which means it is superseded by the CUTSA. See K.C. Multimedia, 171 Cal. App. 4th at 961-62.
As a separate basis for finding that defendants' motion must be granted as to the unfair competition claim, the court finds that any claim that Micro-Probe "poached" FormFactor's employees fails. Under Business & Professions § 16600, California public policy supports employee mobility, with the goal of ensuring that California employers will be able to compete effectively for the most talented and skilled employees in their industries.4 And in any event, there is no evidence of any agreement between FormFactor and Browne or FormFactor and Micro-Probe that would give rise to any contractual obligation for Micro-Probe to refrain from hiring former FormFactor employees.
Finally, with regard to the conspiracy allegations, civil conspiracy is not a separate and distinct cause of action under California law. Entertainment Res. Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211, 1228 (9th Cir. 1997). Rather, it is "a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration." Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 510-11 (1994).
To establish a conspiracy, the plaintiff must show the "formation and operation of the conspiracy and damage resulting to plaintiff from an act or acts done in furtherance of the common design." Mox, Inc. v. Woods, 202 Cal. 675, 677 (1927). However, in the absence of a viable underlying claim, FormFactor cannot establish a conspiracy. See Applied Equip., 7 Cal. 4th at 511 (conspiracy "must be activated" by "commission of an actual tort").
In accordance with the foregoing, FormFactor's motion for summary judgment is DENIED, and defendants' motion for summary judgment is GRANTED. As the court did not rely on any inadmissible evidence, the evidentiary objections are OVERRULED.
With regard to Phase 2 of this case, the court has scheduled a patent technology tutorial for October 12, 2012, to begin at 9:00 a.m.
IT IS SO ORDERED.
PHYLLIS J. HAMILTON
United States District Judge
1. The court accepts FormFactor's representations that these statements appear in the Micro-Probe documents, which were deposition exhibits in the case and which are attached as Exhibits 15-17, and 19 to the Declaration of Gina Bibby in support of FormFactor's motion. Nevertheless, it was not possible for the court to locate the cited references to review them in context because FormFactor failed to cite to specific pages of the exhibits, which were relatively lengthy. For example, the document that supposedly contains the phrase "[a]lways win Intel" is 25 pages long, and the document that supposedly states that Micro-Probe's business goal was to "learn as much as we can about FormFactor" is 48 pages long. It is not the court's task to "scour the record in search of a genuine issue of triable fact," Keenan v. Allan, 91 F.3d 1275, 1278 (9th Cir. 1996), and the court "need not examine the entire file for evidence establishing a genuine issue of fact, where the evidence is not set forth in the opposition papers with adequate references so that it could be conveniently found." Carmen v. San Francisco Unified Sch. Dist., 237 F.3d 1026, 1031 (9th Cir. 2001). In addition, while FormFactor identifies the documents as exhibits to the Browne deposition, it does not provide citations to the corroborating pages of the deposition, or any explanation as to what the documents are.
2. FormFactor also asserts that when Browne was asked in his deposition whether he had ever used any confidential information he learned at FormFactor to help bring in Intel or any other customer at Micro-Probe, he responded, "I don't recall," and then indicated in response to follow-up questions that he "could have." However, FormFactor failed to provide a citation to the relevant portions of the deposition transcript, and the court is not required to review the 281 pages of the transcript in order to locate this testimony. And in any event, even if accurately quoted, the testimony does not establish that defendants misappropriated FormFactor's trade secrets.
3. Although some courts use the word "preempt," the court in Silvaco indicated that the proper term is "supersede" or "displace." Id., 184 Cal. App. 4th at 232 n.14.
4. The general rule in California is that covenants not to compete are void. See City of Oakland v. Hassey, 163 Cal. App. 4th 1477, 1491 (2008) (citing Cal. Bus. & Prof. Code § 16600). However, broad covenants not to compete are not void if they are necessary to protect trade secrets. Comedy Club, Inc. v. Improv West Assocs., 553 F.3d 1277, 1290 (9th Cir. 2009) (citing Whyte, 101 Cal. App. 4th at 1443). In their opposition argument, defendants acknowledge that California courts recognize an exception to § 16600 relating to trade secrets or proprietary information, but argue that to the extent that FormFactor is attempting to invoke that exception, that would bring the unfair competition claim within the ambit of CUTSA preemption.