Reveal Energy Services Inc. et al v. Dawson et al

RESPONSE to 214 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

S.D. Tex.December 22, 2017

1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION REVEAL ENERGY SERVICES INC. and STATOIL GULF SERVICES LLC, Plaintiffs, v. MATTHEW A. DAWSON, JIN Z. DAWSON, and AXIOM GENESIS INC., Defendants. § § § § § § § § § § § § CIVIL ACTION NO. 4:17-CV-00459 JURY DEMAND PLAINTIFF REVEAL’S RESPONSE TO DEFENDANTS DR. DAWSON’S AND AXIOM’S MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM Plaintiff Reveal Energy Services Inc. (“Reveal”) files this Response to Defendants Matthew Dawson’s (“Dr. Dawson”) and Axiom Genesis, Inc.’s (“Axiom” and collectively, “Defendants”) Motion to Dismiss for Failure to State a Claim (Dkt. 214). I. INTRODUCTION Defendants moved to dismiss Reveal’s claims against them for tortious interference with contractual relationships, tortious interference with prospective business relations, violation of the Lanham Act, and common law unfair competition. First, Defendants grossly misconstrue the applicable pleading standards for these claims, and in some instances, simply fail to cite any legal authority. Then, Defendants attempt to manufacture dismissal arguments by pointing to one or two paragraphs in the Amended Complaint for each claim and concluding that those allegations fail to allege facts supporting the elements of the claim. But Defendants’ arguments wholly ignore the complete factual allegations plainly set out in the Amended Complaint. Because Reveal alleges facts sufficient to state plausible claims against Dr. Dawson and Axiom for tortious interference with contractual and prospective business relations, violation of the Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 1 of 17 2 Lanham Act, and common law unfair competition, their motion to dismiss should be denied. II. ARGUMENT & AUTHORITIES A. Plaintiffs’ allegations satisfy the Rule 12(b)(6) standard. To avoid dismissal under Rule 12(b)(6), the claimant’s factual allegations “must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007); see also Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007). A claimant’s obligation “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. A complaint must contain sufficient factual matter to state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Determining the plausibility of a claim is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679. In considering a motion to dismiss, the court must construe the complaint liberally and accept all of the claimant’s factual allegations in the complaint as true. See In re Katrina Canal Breaches Litig., 495 F.3 d 191, 205 (5th Cir. 2009). B. Defendants’ motion to dismiss Reveal’s claim for tortious interference with contractual relations against Dr. Dawson and Axiom should be denied. The elements of tortious interference with an existing contract are: (1) an existing contract subject to interference; (2) a willful and intentional act of interference with the contract; (3) that proximately caused the plaintiff's injury; and (4) caused actual damages or loss. Prudential Ins. Co. of Am. v. Fin. Review Servs., Inc., 29 S.W.3d 74, 77 (Tex. 2000) (reversing trial court’s directed verdict on tortious interference). Defendants contend that Reveal fails to allege sufficient facts to support any of the four elements. Dkt. 214 ¶ 5. In support, Defendants point to only one paragraph—¶ 65—in the Amended Complaint. Dkt. 214 ¶ 6. Further, Defendants grossly misconstrue the pleading requirement, for which Defendants do not cite a Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 2 of 17 3 single case. To satisfy the first element, Reveal need only allege that it has existing relationships or contracts with customers for its product. See Wolf v. Cowgirl Tuff Co., 2016 WL 4597638, at *3 (W.D. Tex. Sept. 2, 2016) (denying motion to dismiss tortious interference claim because allegations that the plaintiff had “a long-standing relationship with” a particular customer for “work assignments” were enough to reasonably infer the existence of contracts subject to interference); OrthoAccel Techs., Inc. v. Propel Orthodontics, LLC, 2017 WL 1213629, at *5 (E.D. Tex. April 3, 2017) (denying motion to dismiss tortious interference claim where plaintiff alleged it had “existing contracts with customers for the purchase of Propel’s VPro5.”). The allegations in the Amended Complaint allege facts to support the first element of Reveal’s claim for tortious interference with an existing contract: • “At the time Dr. Dawson left Reveal in January 2017, Reveal had valid contracts with its existing customers.” Dkt. 176 ¶ 172 (emphasis added). • “Dr. Dawson falsely asserted to Altira and several of Reveal’s potential customers that he is the owner of the intellectual property for IMAGE Frac™ because he owns the secret patent applications.” Dkt. 176 ¶ 61 (emphasis added). • “By February 1, 2017, one of Reveal’s long-standing customers contacted Reveal’s CEO to inform him that Dr. Dawson had started another company purporting to offer the same services as Reveal based, in part, on Axiom’s access to Jin Dawson’s 1/24/16 patent application. The customer also expressed concern that Axiom’s product was based upon the customer’s confidential data.” Dkt. 176 ¶ 65 (emphasis added).1 To satisfy the second element, Reveal must only allege that Defendants carried out the act with the desire to interfere with the contract. See Wolf, 2016 WL 4597638, at *4 (sending cease and desist letter with knowledge of the customer’s relationship with plaintiff satisfied the second element); OrthoAccel Techs., Inc., 2017 WL 1213629, at *5 (sending cease and desist 1 Defendants are well aware that Reveal considers the identity of its customers to be confidential. However, the identities of the customers with which Defendants interfered were disclosed in discovery and at the preliminary injunction hearing. Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 3 of 17 4 letters to plaintiffs’ customers satisfied the second element). The Amended Complaint alleges facts to support the second element of Reveal’s claim for tortious interference with an existing contract: • “Dr. Dawson falsely asserted to Altira and several of Reveal’s potential customers that he is the owner of the intellectual property for IMAGE Frac™ because he owns the secret patent applications.” Dkt. 176 ¶ 61 (emphasis added). • “By February 1, 2017, one of Reveal’s long-standing customers contacted Reveal’s CEO to inform him that Dr. Dawson had started another company purporting to offer the same services as Reveal based, in part, on Axiom’s access to Jin Dawson’s 1/24/16 patent application. The customer also expressed concern that Axiom’s product was based upon the customer’s confidential data.” Dkt. 176 ¶ 65 (emphasis added). • “In similar communications from other prospective customers, it became clear that Dr. Dawson was misrepresenting the status and ownership of the IMAGE Frac™ technology and related patents, sparking an investigation into Defendants’ possible theft of trade secrets.” Dkt. 176 ¶ 66 (emphasis added). • Dr. Dawson and Axiom willfully and intentionally intended to and did interfere with, damage, disrupt and usurp ongoing contractual relationships that Reveal has with its customers and with Statoil. Dkt. 176 ¶ 173 (emphasis added). The last two elements—proximate cause and damages—are satisfied by showing the defendant encouraged a customer to sever its ties with the plaintiff. See Wolf, 2016 WL 4597638, at *5. The Amended Complaint also alleges facts to support proximate cause and damages: • “Dr. Dawson falsely asserted to Altira and several of Reveal’s potential customers that he is the owner of the intellectual property for IMAGE Frac™ because he owns the secret patent applications.” Dkt. 176 ¶ 61 (emphasis added). • “By February 1, 2017, one of Reveal’s long-standing customers contacted Reveal’s CEO to inform him that Dr. Dawson had started another company purporting to offer the same services as Reveal based, in part, on Axiom’s access to Jin Dawson’s 1/24/16 patent application. The customer also expressed concern that Axiom’s product was based upon the customer’s confidential data.” Dkt. 176 ¶ 65 (emphasis added). • “In similar communications from other prospective customers, it became clear that Dr. Dawson was misrepresenting the status and ownership of the IMAGE Frac™ Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 4 of 17 5 technology and related patents, sparking an investigation into Defendants’ possible theft of trade secrets.” Dkt. 176 ¶ 66 (emphasis added). • “As a result of Defendants’ wanton, willful and malicious acts of tortious interference with Reveal’s customers, Reveal has suffered irreparable harm warranting the issuance of a permanent injunction against Defendants….” Dkt. 176 ¶ 174 (emphasis added). Defendants contend that Reveal has not pleaded damages to support tortious interference because Reveal has not identified a customer it lost to Axiom. Dkt. 214 ¶ 6. Not surprisingly, Defendants do not cite any authority for that position. Indeed, Defendants’ argument ignores the other measures of damages available for tortious interference with contractual relations. For example, damages for tortious interference can be based on diminution in value of plaintiff’s business. Anthony Pools, Inc. v. Charles & David, Inc., 797 S.W.2d 666, 675 (Tex. App.— Houston [14th Dist.] 1990, writ denied). Other economic damages are also recoverable for tortious interference. See Sandare Chemical Co., Inc. v. WAKO Intern., Inc., 820 S.W.2d 21, 24 (Tex. App.—Fort Worth 1991, no writ) (defendant’s profits and plaintiff’s inability to pursue its plans to manufacture and market test supported tortious interference judgment); Hackney v. First State Bank, 866 S.W.2d 59, 62 (Tex. App.—Texarkana 1993, no writ) (damages based on plaintiff’s loss of line of credit). Further, “[plaintiff], of course, need not wait for the threatened harm to occur before seeking judicial assistance. Indeed, the purpose of the injunctive relief is to prevent wrongs reasonably apprehended in the future.” Am. Para Prof’l Sys., Inc. v. LabOne, Inc., 175 F. Supp. 2d 450, 457 (E.D.N.Y. 2001) (denying 12(b)(6) motion and allowing tortious interference claim to proceed) (citation and internal quotation marks omitted).2 Reveal’s Amended Complaint plainly alleges that Dr. Dawson and Axiom interfered with 2 Shortly after filing suit, Reveal obtained a TRO enjoining Defendants from, among other things, claiming ownership in IMAGE Frac™ technology. Thus, the injunctive relief may have prevented Reveal from losing customers. Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 5 of 17 6 Reveal’s relationship with at least one existing customer by representing that Axiom owned Reveal’s technology by virtue of its secret patent applications, encouraging that customer to sever its ties with Reveal. Because Reveal’s allegations are more than sufficient to assert that Defendants tortiously interfered with Reveal’s contractual relationships, Defendants’ motion to dismiss should be denied. C. Defendants’ motion to dismiss Reveal’s claim for tortious interference with prospective business relations against Dr. Dawson and Axiom should be denied. The elements of tortious interference with prospective business relations are: (1) there was a reasonable probability that the plaintiff would have entered into a business relationship with a third party; (2) the defendant either acted with a conscious desire to prevent the relationship from occurring or knew the interference was certain or substantially certain to occur as a result of the conduct; (3) the defendant's conduct was independently tortious or unlawful; (4) the interference proximately caused the plaintiff injury; and (5) the plaintiff suffered actual damage or loss as a result. Coinmach Corp. v. Aspenwood Apartment Corp., 417 S.W.3d 909, 923 (Tex. 2013) (holding that lessee who remained in possession after termination of lease could be liable to apartment owner for tortious interference with prospective business relations). Defendants challenge the sufficiency of Reveal’s allegations of the first, fourth, and fifth elements. Dkt. 214 ¶ 8. Again, Defendants grossly misconstrue the totality of the allegations in the Amended Complaint. Indeed, Defendants’ argument only addresses paragraphs 177-181, which set out the elements. Further, Defendants cite no legal authority. The Amended Complaint alleges facts supporting the first element by asserting that Dr. Dawson and Axiom tortiously interfered with its potential customers by meeting with Reveal’s high-priority targets, many of whom Dr. Dawson met with on behalf of Reveal before leaving: • “What is more, merely one day after forming Axiom (and two days after leaving Reveal), Dr. Dawson already had scheduled meetings with fifteen (15) prospective Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 6 of 17 7 customers, all of which were Reveal’s existing and most-highly-sought-after prospective customers, to sell his purportedly “new” technology.” Dkt. 176 ¶ 4 (emphasis added).3 • “Dr. Dawson was so brazen that he used presentations to those customers—and the very contacts he made at Reveal—containing significant elements and verbiage that were identical to presentations he used for Reveal. On more than one occasion, Dr. Dawson went so far as to schedule meetings with prospective customers on behalf of Reveal, and then kept those same meetings on behalf of Axiom, after his resignation from Reveal.” Dkt. 176 ¶ 4 (emphasis added). • “By February 2, 2017, Dr. Dawson already visited nine prospective customers, and, according to him, had verbal commitments from seven companies to deploy the Axiom technology—all of which were on Reveal’s confidential customer list.” Dkt. 176 ¶ 57 (emphasis added). • Reveal has a reasonable probability of entering into a business relationship with high- priority target customers. Dkt. 176 ¶ 177 (emphasis added). The Amended Complaint also alleges facts to support the fourth and fifth elements by asserting that Defendants misrepresented that Axiom owned Reveal’s technology and used presentations containing Reveal’s confidential information, resulting in commitments from those prospective customers to use Axiom’s product: • “Dr. Dawson was so brazen that he used presentations to those customers—and the very contacts he made at Reveal—containing significant elements and verbiage that were identical to presentations he used for Reveal. On more than one occasion, Dr. Dawson went so far as to schedule meetings with prospective customers on behalf of Reveal, and then kept those same meetings on behalf of Axiom, after his resignation from Reveal.” Dkt. 176 ¶ 4 (emphasis added). • “By February 2, 2017, Dr. Dawson already visited nine prospective customers, and, according to him, had verbal commitments from seven companies to deploy the Axiom technology—all of which were on Reveal’s confidential customer list.” Dkt. 176 ¶ 57 (emphasis added). • “Dr. Dawson, Jon Dawson, and Griffin collaborated to prepare numerous presentations for potential investors and customers that incorporated and were derived from Plaintiffs’ confidential information and trade secrets. Indeed, these presentations included many of the same graphics and information that appeared in Reveal’s investor 3 The confidential identity of these 15 prospective customers was disclosed in discovery and at the preliminary injunction hearing. Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 7 of 17 8 and customer presentations. The presentations also attributed Reveal’s validation studies to Axiom.” Dkt. 176 ¶ 62 (emphasis added). Defendants contend that Reveal has not alleged proximate cause or damages because the Amended Complaint does not identify which relationship was lost or how much it was worth. Dkt. 214 ¶ 11. Again, Defendants cite no authority for their position because such allegations are not required to state a plausible claim for tortious interference prospective business relations. “[T]ortious interference with a business relationship … clearly embraces all intentional invasions of contractual relations regardless of whether a breach of contract is actually induced.” Champion v. Wright, 740 S.W.2d 848, 851 (Tex. App.—San Antonio 1987, writ denied). For example, in Star Tobacco, the court denied the motion to dismiss the defendants’ counter-claim because they alleged that “Plaintiff spread false rumors to Defendants’ potential clients with the intent of ‘killing’ Defendants’ business,” which caused Defendants damage. Star Tobacco Inc. v. Darilek, 298 F.Supp.2d 436, 449 (E.D. Tex. 2003); see also Wolf, 2016 WL 4597638, at *7 (allegations that defendant sent cease and desist letters to a party with which plaintiff had a preexisting business relationship was sufficient to state a claim for tortious interference with prospective contractual relations). Reveal has clearly alleged that Defendants falsely represented that Axiom owned Reveal’s technology by virtue of the secret patent applications and used Reveal’s confidential information in Axiom’s presentations to potential customers, causing seven of Reveal’s most- highly-sought-after prospective customers to commit to using Axiom’s product. Dkt. 176 ¶¶ 4, 57, 62. Thus, Defendants’ motion to dismiss Reveal’s claim for tortious interference with prospective business relations should be denied. D. Defendants’ motion to dismiss Reveal’s claim for violation of the Lanham Act against Dr. Dawson and Axiom should be denied. The elements of a claim for false advertising under the Lanham Act are: (1) a false or Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 8 of 17 9 misleading statement of fact about a product; (2) such statement either deceived, or had the capacity to deceive a substantial segment of potential consumers; (3) the deception is material, in that it is likely to influence the consumer’s purchasing decision; (4) the product is in interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the statement at issue. Pizza Hut, Inc. v. Papa John’s Int’l, Inc., 227 F.3d 489, 495 (5th Cir. 2000). Initially, Defendants argue that “Reveal fails to allege sufficient facts to support the second element” because Reveal has not alleged sufficient facts to support its claim that Defendants’ “[false or misleading statement] either deceived, or had the capacity to deceive a substantial segment of potential customers.” Dkt. 214 ¶ 13. Defendants’ challenge to Reveal’s factual allegations supporting the second element of its Lanham Act claim lacks merit. In support of Reveal’s allegation that Defendants made statements that either deceived, or had the capacity to deceive a substantial segment of potential customers (Element 2), the Amended Complaint alleges: • “On January 5, 2017, Dr. Dawson contacted several prospective customers who expressed an interest in IMAGE Frac™. Similarly, he had follow-up communications with prospective customers in early January 2017—all while still employed by Statoil and seconded to Reveal, but knowing he would have no continuing involvement in either company.” Dkt. 176 ¶ 54 (emphasis added). • “In addition to his pre-resignation efforts to use Reveal’s customer lists to Axiom’s benefit, Dr. Dawson engaged in targeted marketing and misinformation campaign designed to parlay Reveal’s achievements into Axiom’s monetary gain.” Dkt. 176 ¶ 55 (emphasis added). • “By January 18, 2017, just two days after the effective date of his resignation from Statoil and Reveal, Dr. Dawson had scheduled 15 meetings with prospective customers—all of which were on Reveal’s confidential customer list.” Dkt. 176 ¶ 56 (emphasis added). • “By February 2, 2017, Dr. Dawson already visited nine prospective customers, and, according to him, had verbal commitments from seven companies to deploy the Axiom technology—all of which were on Reveal’s confidential customer list.” Dkt. 176 ¶ 57 (emphasis added). Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 9 of 17 10 • “By February 1, 2017, one of Reveal’s long-standing customers contacted Reveal’s CEO to inform him that Dr. Dawson had started another company purporting to offer the same services as Reveal based, in part, on Axiom’s access to Jin Dawson’s 1/24/16 patent application.” Dkt. 176 ¶ 65 (emphasis added). • “In similar communications from other prospective customers, it became clear that Dr. Dawson was misrepresenting the status and ownership of the IMAGE Frac™ technology and related patents….” Dkt. 176 ¶ 66 (emphasis added). • “Reveal…brought this action…to prevent further confusion in the marketplace regarding the ownership of IMAGE Frac™ and related technology….” Dkt. 176 ¶ 5 (emphasis added). • “Axiom and Dr. Dawson’s false and misleading representations regarding the ownership of IMAGE Frac™ are literally false and likely to cause confusion, to cause mistake, and to deceive as to the affiliations, connection, or association between Axiom’s products and services and Reveal’s IMAGE Frac™ technology.” Dkt. 176 ¶ 184 (emphasis added). Defendants’ next argue that “Reveal fails to allege that Dr. Dawson’s [sic] made any claims about a product or service.” Dkt. 214 ¶ 15 (emphasis in original). That argument—like Defendants’ others—willfully ignores most of the Amended Complaint. Defendants falsely state that only two paragraphs in the Amended Complaint (i.e., ¶¶ 60-61) “tend to support its Lanham Act claims.” Dkt. 214 ¶ 14. But Defendants ignore paragraph 183 of the Amended Complaint and the numerous paragraphs—both before and after paragraphs 60 and 61—which make clear Reveal’s claims are about the “Axiom technology,” “Axiom software” and “services.” See, e.g., Dkt. 176 ¶¶ 57, 59, 63-64, 183. For example, in support of Reveal’s allegation that Defendants made statements about a product or service (Element 1), the Amended Complaint alleges: • “Dr. Dawson now claims that he and his family members invented, developed, and marketed a competing technology to IMAGE Frac™, one that Dr. Dawson represented would outperform IMAGE Frac™ at a lower cost….” Dkt. 176 ¶ 4 (emphasis added). • “By February 2, 2017, Dr. Dawson already visited nine prospective customers, and, according to him, had verbal commitments from seven companies to deploy the Axiom technology—all of which were on Reveal’s confidential customer list.” Dkt. 176, ¶ 57 (emphasis added). • Dr. Dawson was introduced as a moderator who “started an exciting start up called Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 10 of 17 11 Axiom which helps operators map hydraulic fractures and understands stress shadows with minimal impact to operations and minimal cost.” Dkt. 176 ¶ 59 (emphasis added). • “Dr. Dawson, Jon Dawson, and Griffin also collaborated to build Axiom software that is similar to IMAGE Frac™. This Axiom software was derived from the IMAGE Frac™ code, which Dr. Dawson transferred to at least one of his personal devices before resigning. Jon Dawson created Axiom’s software using third-party well data provided to him by Dr. Dawson.” Dkt. 176 ¶ 63 (emphasis added). • “News of Dr. Dawson and Axiom’s aggressive marketing of allegedly competing technology based on IMAGE Frac™ spread within the industry.” Dkt. 176 ¶ 64 (emphasis added). • “By February 1, 2017, one of Reveal’s long-standing customers contacted Reveal’s CEO to inform him that Dr. Dawson had started another company purporting to offer the same services as Reveal based, in part, on Axiom’s access to Jin Dawson’s 1/24/16 patent application.” Dkt. 176 ¶ 65 (emphasis added). • “In similar communications from other prospective customers, it became clear that Dr. Dawson was misrepresenting the status and ownership of the IMAGE Frac™ technology and related patents….” Dkt. 176 ¶ 4 (emphasis added). • “Axiom and Dr. Dawson have, in connection with the offering of proppant mapping services and hydraulic fracture geometry technology in interstate commerce, falsely stated to investors and prospective customers that Axiom is the owner of Image Frac™ technology, as improved by Reveal, because of the secret patent applications.” Dkt. 176 ¶ 183 (emphasis added). • “Axiom and Dr. Dawson further made their false and misleading representations regarding the ownership of IMAGE Frac™ in commercial advertising and promotion of goods and services, and such advertising and promotion mispresented the nature, characteristics, qualities and origins of Axiom’s available products and services.” Dkt. 176 ¶ 185 (emphasis added). These allegations clearly identify Axiom’s “technology,” “software,” and “services” that form the basis of Reveal’s Lanham Act claim. The well-pled facts in the Amended Complaint belie Defendants’ assertion that “Reveal simply alleges that Dr. Dawson stated that Axiom—a company—has ownership of Jin Dawson’s patent.” Dkt. 214 ¶ 15. These allegations also support that Dr. Dawson and Axiom’s statements had the capacity to deceive several of Reveal’s prospective customers, resulting in their decision to verbally Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 11 of 17 12 commit to purchasing Axiom’s technology. Defendants’ argument that a Lanham Act violation requires advertisements reach the public at large (Dkt. 214 ¶ 16) misapprehends the law. There is no basis for Defendants’ suggestion that, in order to state a claim for false advertising, Plaintiffs must allege that Defendants disseminated their falsehoods via “general advertisements that reached the public at large.” Mot. ¶ 16 (citing Pizza Hut, 227 F.3d at 491-92). Rather, courts look to whether the false statements reached the “appropriate class of potential consumers.” Kinetic Concepts, Inc. v. Bluesky Med. Grp. Inc., 2005 WL 3068223, at *5 (W.D. Tex. Nov. 1, 2005) (finding that the “appropriate class” was “physicians and nurses who proscribe the treatment regimes”). See also Healthpoint Ltd. v. Ethex Corp., 2004 WL 2359420, at *18-19 (W.D. Tex. July 14, 2004) (customer deception evaluated by surveying “pharmacists that currently dispense to long-term care facilities”); Suntree Techs., Inc. v. Ecosense Int'l, Inc., 693 F.3d 1338, 1349 (11th Cir. 2012) (relevant inquiry is whether falsehood would deceive the “relevant purchasing public”). Here, Plaintiffs allege that, immediately after resigning from Reveal, Dr. Dawson directed his allegedly false statements toward industry groups, see Dkt. 176 ¶ 59-60, and specifically targeted fifteen of Plaintiffs’ “existing and most-highly-sought-after prospective customers.” Id. ¶ 4; see also id. ¶¶ 56-57 (describing Dr. Dawson’s efforts on behalf of Axiom to meet with numerous businesses “on Reveal’s confidential customer list”), ¶¶ 61-62, 65-66 (describing additional falsehoods made in meetings with and presentations to potential customers). Because Reveal has pled facts to support a plausible claim under the Lanham Act, Defendants’ motion to dismiss should be denied. E. Defendants’ motion to dismiss Reveal’s claim for common law unfair competition against Dr. Dawson and Axiom should be denied. Defendants’ arguments for dismissing Reveal’s common law unfair competition claim Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 12 of 17 13 (count XIV) are incomplete and without merit. Relying on an incomplete analysis of Engenium Solutions, Inc. v. Symphonic Techs., Inc., Defendants erroneously state that “Texas law does not recognize a claim for unfair competition” and “Reveal cannot seek judgment on it.4” Dkt. 214 at 7. (citing Engenium Solutions, Inc. v. Symphonic Techs., Inc., 924 F. Supp.2d 757, 792 (S.D. Tex. 2013)). But as in Engenium Solutions, “Defendants’ argument [here] is premised on its misunderstanding of the difference between the general area of law referred to as unfair competition, and the specific causes of action subsumed within it.” Id. Texas law recognizes a cause of action for unfair competition by misappropriation, see, e.g., Dresser-Rand Co. v. Virtual Automation Inc. 361 F.3d 831, 839 (5th Cir. 2004), and Reveal has properly pled it in this case. Indeed, “Texas misappropriation law is ‘specially designed to protect the labor—the so-called “sweat equity”—that goes into creating a work.’” Id. (quoting Alcatel USA, Inc., v. DGI Techs., Inc., 166 F.3d 772, 778 (5th Cir. 1999)). “The elements of a cause of action for unfair competition by misappropriation in Texas are: ‘(i) the creation of plaintiff’s product through extensive time, labor, skill and money, (ii) the defendant's use of that product in competition with the plaintiff, thereby gaining a special advantage in that competition (i.e., a “free ride”) because defendant is burdened with little or none of the expense incurred by the plaintiff, and (iii) commercial damage to the plaintiff.’” Id. (quoting United States Sporting Prods., Inc. v. Johnny Stewart Game Calls, Inc., 865 S.W.2d 214, 218 (Tex. App. — Waco 1993, writ denied)). A claim for unfair competition by misappropriation and use does not require proof of secrecy. Thomason v. Collins & Aikman Floorcoverings, Inc., 2004 WL 624926, at *4 (Tex. App.—San Antonio 2004, pet. denied). Moreover, the complaint need to 4Engenium Solutions states that “unfair competition is not an independent tort at all, and Defendants cannot request summary judgment on it.” 924 F. Supp. 2d at 292. Defendants take this quote out of context and rely on it as the sole basis to dismiss Reveal’s common law unfair competition claim. Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 13 of 17 14 specifically explain the underlying cause of action that supports its allegation of unfair competition if it can be gleaned from the complaint. See Engenium Solutions, 924 F. Supp.2d at 792. Reveal properly pleads common law unfair competition by misappropriation. First, Paragraph 68 states “Reveal [has] expended significant financial and other resources to develop and commercialize IMAGE Frac™ and he related confidential information and trade secrets.” This allegation alone meets the pleading requirements for the first element of a cause of action for unfair competition by misappropriation (i.e., the creation of plaintiff’s product through extensive time, labor, skill and money). To support this allegation, the Amended Complaint includes sufficient facts that explain “Statoil’s Invention of IMAGE Frac™,” (e.g., paragraphs 21-26) and the “Spin-out and Licensing of IMAGE Frac™ to Reveal” (e.g., paragraphs 32-34). Second, paragraph 43 alleges Dr. Dawson engaged in a “deliberate scheme to monetize Reveal’s technology and trade secrets for his own benefit.” Dkt. 176 ¶ 43. Paragraphs 3 and 4, for example, explain the details of this “deliberate scheme” and how it enabled Dr. Dawson to “launch[] Axiom one day after he left Reveal.” Dkt. 176 ¶¶ 3 & 4. Paragraph 4 further alleges that “Reveal was not built in a day, but Dr. Dawson would have the world believe Axiom was.” Dkt. 176 ¶ 4. As a result, the Amended Complaint sufficiently pleads the second element of a cause of action for unfair competition by misappropriation: the defendant’s use of that product in competition with the plaintiff, thereby gaining a special advantage in that competition (i.e., a “free ride”) because defendant is burdened with little or none of the expense incurred by the plaintiff. Third, the Amended Complaint properly pleads commercial damage to Reveal. Paragraph 191 alleges that the “illegal and tortious acts” described in detail throughout the Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 14 of 17 15 Amended Complaint “[have] interfered and will interfere with Reveal’s ability to conduct business.” This allegation is supported, for example, by (1) that Reveal’s potential customers met with Axiom notwithstanding the fact that Dr. Dawson arranged those meetings while still employed by Statoil and seconded to Reveal, but knowing he would have no continuing involvement in either company and (2) some of those potential customers verbally committed to purchasing Axiom’s products and services. See, e.g., Dkt. 176, ¶¶ 54-57, 65-66, 184. Because the Amended Complaint (i) explains the significant investment in IMAGE Frac™, (ii) describes how Dr. Dawson was able to “free ride” off of Reveal to start Axiom one day after leaving Reveal, and (iii) Dr. Dawson’s illegal acts have and will interfere with Reveal’s ability to conduct business, the Amended Complaint properly pleads a cause of action for unfair competition by misappropriation. F. Alternatively, Reveal should be permitted an opportunity to replead. In the event that the Court believes any of Defendants’ arguments have merit, the Court should permit Reveal an opportunity to replead and allege more detailed facts supporting its claims. See Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002) (“[D]istrict courts often afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the defects are incurable of the plaintiffs advise the court that they are unwilling or unable to amend in a manner that will avoid dismissal.”) III. CONCLUSION The Court should deny Defendants Dr. Dawson’s and Axiom’s motion to dismiss Plaintiffs’ claims against them for failure to state a claim. Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 15 of 17 16 Respectfully submitted, /s/ Edward F. Fernandes Edward F. Fernandes Attorney-in-charge Texas State Bar No. 06932700 Southern District Bar No. 2638 Email: efernandes@hunton.com Hunton & Williams LLP Bank of America Center, Suite 4545 700 Louisiana Street Houston, TX 77002 Telephone: (713) 229-5700 Facsimile: (713) 229-5750 Charles D. Ossola Admitted pro hac vice Email: cossola@hunton.com Daniel G. Vivarelli, Jr. Admitted pro hac vice Email: dvivarelli@hunton.com Hunton & Williams LLP 2200 Pennsylvania Ave NW Washington, DC 20037 Telephone: (202) 955-1500 Facsimile: (202) 778-2201 Ryan A. Shores Admitted pro hac vice Email: ryan.shores@shearman.com Shearman & Sterling LLP 401 9th St NW #800 Washington, DC 20004 Phone: (202) 508-8000 Facsimile: (202) 508-8100 ATTORNEYS FOR PLAINTIFF REVEAL Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 16 of 17 17 CERTIFICATE OF SERVICE The forgoing was electronically filed with the Clerk of the Court via the Case Management / Electronic Case Filing (“CM/ECF”) system on December 22, 2017, and was thereby automatically and electronically served on counsel of record for all parties on that date. /s/ Edward F. Fernandes 81188.000038 EMF_US 67575025v3 Case 4:17-cv-00459 Document 232 Filed in TXSD on 12/22/17 Page 17 of 17