CTC Global Corporation v. Jason Huang et al

REPLY in support NOTICE OF MOTION AND MOTION for Summary Judgment as to All Causes of Action Contained in the Complaint 164

C.D. Cal.March 25, 2019

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT Active\91527353.v1-3/25/19 JOHN J. SHAEFFER (SBN 138331) JShaeffer@FoxRothschild.com JEFFREY H. GRANT (SBN 218974) JGrant@FoxRothschild.com CHARLIE NELSON KEEVER (SBN 322664) CNelsonKeever@foxrothschild.com FOX ROTHSCHILD LLP Constellation Place 10250 Constellation Blvd, Suite 900 Los Angeles, CA 90067 Telephone: (310) 598-4150 Facsimile: (310) 556-9828 Attorneys for Defendants JASON HUANG, an individual; RULONG CHEN, an individual; JIANPING HUANG a/k/a JAMES HUANG, an individual UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CTC GLOBAL CORPORATION, a Delaware corporation, Plaintiff, v. JASON HUANG, an individual; RULONG CHEN, an individual; JIANPING HUANG a/k/a JAMES HUANG, an individual; and DOES 1-15, inclusive, Defendant. Case No. 8:17-CV-02202-AG (KESx) Judge Andrew J. Guilford REPLY OF DEFENDANTS JASON HUANG, RULONG CHEN, AND JIANPING HUANG A/K/A JAMES HUANG TO THEIR MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, FOR PARTIAL SUMMARY JUDGMENT JASON HUANG, an individual, Counterclaimant, v. CTC GLOBAL CORPORATION, a Delaware Corporation, Counterdefendant. Complaint Filed: December 18, 2017 Date: April 15, 2019 Time: 10:00 a.m. Place: Courtroom 10-D Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 1 of 20 Page ID #:17525 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT i TABLE OF CONTENTS I. Introduction ...................................................................................................... 1 II. Background ...................................................................................................... 1 III. Discussion ........................................................................................................ 4 A. CTC Cannot Establish a Genuine Issue of Material Fact with Respect to Its Trade Secrets Claim ....................................................... 4 1. A Jury Need Not Hear CTC’s Claim for Misappropriation of CTC’s Manufacturing Specifications, including Its Resin System ......................................................................................... 5 2. CTC Fails to Identify any Trade Secret with Respect to Pretensioning, Encapsulation or Messenger Wire. ..................... 6 3. The Entire CCP Program was Publicly Available ...................... 7 4. CTC Cannot Establish that Its Distribution List is a Trade Secret ........................................................................................... 7 B. CTC Cannot Establish a Genuine Issue of Material Fact with Respect to Its Breach of Fiduciary Duty and Loyalty Claim ................ 7 1. CUTSA Supercedes Most of CTC’s Breach of Duty Claims ..... 8 2. CTC Remaining Breach of Duty Claims .................................. 10 a. Jason’s Dealing with Xinbo do not Amount to a Breach of Duty as a Matter of Law ................................ 10 b. Jason did not Breach any Duty with respect to CTC’s Investigation. .................................................................. 11 C. CTC has no Breach of Contract Claim as Pled ................................... 12 D. There is No Reason for CTC’s Inventorship Claim to Procede .......... 12 E. CTC has no Admissible Theory of Recovery ..................................... 14 IV. Conclusion ..................................................................................................... 15 Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 2 of 20 Page ID #:17526 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ii DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT TABLE OF AUTHORITIES Page(s) Cases . K.C. Multimedia, Inc. v. Bank of Amer. Tech. & Operations, Inc., 171 Cal.App. 4th 939 (2009) ............................................................................................ 8 AccuImage Diagnostics Corp v. Terarecon, Inc., 260 F.Supp.2d 941 (N.D. Cal. 2003). .............................................................................................................. 8 Agency Solutions. Com, LLC v. TriZetto Group, Inc., 819 F.Supp.2d 1001 (E.D. Cal. 2011) ....................................................................................................... 5 Agency Solutions.Com, LLC ................................................................................................ 5 Ajaxo, Inc. v. E*Trade Fin.l Corp.,187 Cal.App.4th 1295 (2010) .................................... 14 Ali v. Fasteners for Retail, 544 F. Supp. 2d 1064 (C. D. Cal. 2008) ................................... 9 American Paper & Packaging Products, Inc. v. Kirgan, 183 Cal.App.3d at 1318 (1986) ............................................................................................... 7 Angelica Textile Servs. Inc. v. Park, 220 Cal. App. 4th 495 (2013) .................................... 9 Babcock Power, Inc. v. Kapsalis, 2017 WL 1206012 (W.D. Kty. 2017) ................................................................................................................................. 5 Banawis-Olila v. World Courier Ground, Inc., 2016 WL 6563354 (N.D. Cal. 2016) ......................................................................................................... 9, 11 Bancroft-Whitney Co. v. Glen, 64 Cal.2d 327 (1966) ....................................................... 10 Barker v. Insight Global, LLC, 2017 WL 10504692 (N.D. Cal. 2017) ............................... 8 Becton, Dickinson and Company v. Cytek Biosciences Inc., 2018 WL 2298500 (N.D. Cal. 2018) ................................................................................................ 8 Bowser, Inc. v. Filters, Inc., 398 F.2d 7 (9th Cir. 1968) ...................................................... 6 Brocade Communications Systems, Inc. v. A10 Networks, Inc., 873 F.Supp.2d 1192 (N.D. Cal. 2012) ..................................................................................... 5 Bunnell v. Motion Picture Ass'n of America, 567 F.Supp.2d 1148 (C.D. Cal. 2007) ............................................................................................................... 4 Burroughs Wellcome Co. v. Barr Labs., Inc., 40 F.3d 1223 (Fed. Cir. 1994) ............................................................................................................................... 13 Copart, Inc. v. Sparta Consulting, Inc., 339 F.Supp. 959 (E.D. Cal. 2018) ............................................................................................................................... 15 Courtesy Temporary Service, Inc. v. Camacho, 222. Cal.App.3d 1278 (1990) ................................................................................................................................ 7 Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 3 of 20 Page ID #:17527 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 iii DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT Deerpoint Group, Inc. v. Agrigenix, 345 F.Supp.3d 1207 (E.D. Cal. 2018) ................................................................................................................................. 4 Deloitte & Touche LLP v. Carlson, 2011 WL 2923865 (N.D. Ill 2011) ........................... 12 Diamond Power Int'l v. Davidson, 540 F.Supp.2d 1322 (N.D.Cal.2007) ............................................................................................................... 10 E.D.C. Techs., Inc. v. Seidel, 216 F. Supp. 3d 1012 (N.D. Cal. 2016) .............................. 11 General Elec. Co. v. Wilkins, 750 F.3d 1324 (Fed. Cir. 2014) .......................................... 14 Global Medical Solutions, Ltd v. Simon, 2013 WL 12065418 (C.D. Cal. 2013) ................................................................................................................. 11, 15 Integral Development Corporation v. Tolat, 675 Fed.Appx. 700 (9th Cir. 2017) .................................................................................................................. 4, 8, 9 Integral Sys., Inc. v. Peoplesoft Techs. Inc., 71991 WL 498874 (N.D. Cal. 1991) ......................................................................................................................... 5 Invitrogen Corp. v. Clontech Labs., Inc., 429 F.3d 1052 (Fed. Cir. 2005). .............................................................................................................................. 13 JustMed, Inc. v. Byce, 600 F.3d 1118 (9th Cir. 2010) ......................................................... 5 Language Line Services, Inc. v. Language Services, 944 F.Supp.2d 775 (N.D. Cal. 2013) ........................................................................................................ 5 Mattel, Inc. v. MGA Entm't, Inc., 782 F.Supp.2d 911 (C.D.Cal.2011) ............................... 9 Nartron Corp. v. Schukra U.S.A. Inc., 558 F.3d 1352 (Fed. Cir. 2009) ............................ 13 O2 Micro Intern. Ltd. v. Monolithic Power Systems, 399 F.Supp.2d 1064 (N.D. Cal. 2005) .................................................................................................... 14 PQ Labs, Inc. v. Yang Qi, 2014 WL 4954161 (N.D. Cal. Sep. 30, 2014) ............................................................................................................................... 14 Roadrunner Transportation Servs., Inc. v. Tarwater, 2013 WL 12171729 (C.D. Cal. Aug. 9, 2013) ............................................................................... 14 Scott v. IBM Corp., 196 F.R.D. 233 (D. N. J. 2000) ........................................................... 4 Service Employees Internat. Union, Local 250 v. Colcord, 160 Cal.App.4th 362 (2008) .................................................................................................. 15 Stearnman v. Centex Homes, 78 Cal.App.4th 611 (2000) ................................................. 15 SunPower Corp. v. SolarCity Corp., 2012 WL 6160472 (N.D. Cal. Dec. 11, 2012) .................................................................................................................. 8 Uniram Technology, Inc. v. Taiwan Semiconductor Manufacturing Co., 617 F. Supp. 2d 938 (N.D. Cal. 2007) ...................................................................... 6 Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 4 of 20 Page ID #:17528 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 iv DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101 (9th Cir. 2001) ............................................................................................................................... 12 Statutes Fed. R. Civ. Proc. 37(c)(1) ................................................................................................. 12 Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 5 of 20 Page ID #:17529 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT 1 I. INTRODUCTION While quite the clutter, once unpacked, the opposition (“OB”) filed by Plaintiff CTC Global Corporation (“CTC”) to Defendants’ motion for summary judgment fails to identify a genuine issue as to any material fact that would necessitate a jury trial. First, CTC fails to identify with specificity any alleged trade secret other than its resin system, its distribution list, and its CCP program. Its program, however, was not protected. There is nothing protectable about its distribution list. Finally, CTC cannot establish a material dispute with respect to any illicit use or disclosure of its resin system. Second, most of the alleged breaches of fiduciary duty are superseded by the California Uniform Trade Secrets Act (“CUTSA”). Jason Huang’s (“Jason”) failure to inform CTC that he was recruited by another company, offered stock, and paid for some consulting work unrelated to CTC’s business are not breaches of fiduciary duty. Finally, no admissible evidence suggests that Jason competed with CTC while in its employ. Third, CTC is not a party to the only contract pled in its breach of contract claim. Fourth, Jason’s request that his brother investigate incorporating fiber optics into a conductor – something already well-known in the art – and providing administrative support does not make Jason an inventor of U.S. Patent No. 9,633,766 (“the ‘766 patent”), and CTC offers nothing to corroborate anyone’s contribution. II. BACKGROUND Conductors transmit electricity from power plants and then distribute it locally within a community. CTC manufactures a carbon composite strength core for conductors consistent with U.S. Patent No. 7,368,162 (“the ‘162 patent”), which it sells to partners who strand the cores with conductive metal. [Dkt.185-1, SS3] Jason joined CTC Cable Corporation (“CTC Cable”) and signed a confidential information and invention assignment agreement. [Ex. 11]1 At this time, he disclosed to CTC Cable his preexisting idea to add fiber optics to conductors to make a smart 1 References to Exhibits 1-78 are to the Appendix in support of this motion [Dkt.168]. Exhibits greater than 78 are attached the declaration of John Shaeffer (“Shaeffer Dec.”). Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 6 of 20 Page ID #:17530 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT conductor. [Ex.14 at 179:7-15] CTC hired Jason in 2011, when it acquired certain assets of CTC Cable, but did not have him sign any agreement. In 2013 and into 2014, CTC suffered financial difficulties. [Dkt.185-3 at 15:23- 16:1; Ex.79 33:5-34:7] Without research funding, Jason asked his brother, James Huang (“James”) to investigate how to incorporate optical fiber into conductors to detect fractures in the strength core. [Ex. 14, 178:16-182:18, 190:23-191:8] When James suggested looping the fiber, Jason responded that the optical fiber would still break and asked James to pursue a solution. [Ex. 14, 185:16-186:25; Ex. 15, 30:24-31:10] During this same time, Jason was approached by Tianjin XinBo Power Composite Insulator Manufacture Co., Ltd. (“Xinbo”) with questions about insulators and coatings.2 [Dkt.185-3 at 3-6] CTC was not in that business. [Dkt.185-3 at 14:13-17] Thankful for the help, Xinbo paid Jason between $10-20,000, which he used to offset his unreimbursed expenses related to CTC’s China JV. [Dkt.185-3 at 3-6] Xinbo also attempted to recruit Jason, offering him shares of stock. [Dkt.185-3 at 8-12, 20-22] Jason did not accept. [Dkt.185-3 at 20-22] His sister-in-law, however, purchased shares. [Dkt.185-3 at 20-22] Jason never told CTC about his consulting work for Xinbo, that it had recruited him, or offered him shares in its company. James eventually returned to Jason with an idea to strengthen conductor cores. James suggested encapsulating the core with molten aluminum while the core was under tension. [Ex. 15, 36:25-38:7] Rather than encouraging James, Jason questioned the idea’s practicality and originality. [Ex. 14, 202:8-204:4] Satisfied with its novelty, James sought to put his idea into practice and contacted AiBang Machinery & Science Technology Co., Ltd (“AB”), a Chinese manufacture of encapsulation machines. [Ex. 15, 23:22-24:7, 25:8-13, 49:16-50:7; Ex. 16; Ex. 14, 214:25-216:1] AB suggested that James’ invention might have application as a messenger wire. [Dkt.185-1 at 230, SS68] AB later suggested James work with Xinbo, 2 Jason Huang’s undergraduate studies focused on electric insulators, including the use of composite to make such insulators. [Dkt.185-3 at 4] Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 7 of 20 Page ID #:17531 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT who had recently purchased a conforming machine from AB to allow it to strand conductors. [Ex. 15, 77:2-80:2; Ex. 16] Xinbo purchased composite core from CTC to test the invention. [Ex. 17, Ex. 8, 58:8-13, 60:14-22] Once reduced to practice, James pursued a patent. Jason helped translate James’ application. [Ex. 14, 157:6-159:18, 172:12-173:6] After James filed his provisional application in September 2014, Jason discussed his brother’s invention with CTC’s Chairman, who offered that CTC might be interested in a license. [Ex. 14, 254:1-255:11] A CTC employee discovered James’ patent when it published, and CTC’s CEO, J.D. Sitton, investigated whether CTC contributed to it. [Ex. 18; Ex. 8, 193:9- 22; Ex. 5, 136:3-23, 138:11-139:7] Jason explained to Sitton and CTC’s counsel his role. [Id.] CTC’s counsel concluded that CTC would not prevail on an inventorship claim. [Id.] Following this investigation, a conflict renewed between Jason and Sitton when testing failed to validate certain performance representation CTC had made for years. [Ex.33] Jason wanted the representation revised downward, and Sitton did not. Later that same month, CTC’s COO, Marv Sepe, produced a memo indicating that its JV partner also wanted Jason out and recounted allegation as support. [Ex. 35; Ex. 8, 182:14-185:4] Sitton suspended Jason and his wife based on these allegations and took possession of Jason’s phone and laptop. [Ex. 36; Ex. 5, 161:22-163:20] Sitton also withheld a reimbursement check until Jason turned over a personal IPad. [Dkt.180-3 at 77-78, AF82-83] Jason withheld his password to his phone and IPad until he received some assurance that his personal data would be segregated. [Dkt.180-3 at 81-82, AF86] After extensive forensic work, CTC cannot identify any data deleted from any company device other than the removal of the WeChat app from the IPhone. [Dkt.180-3 at 86, AF95] Irrespective of the absence of this app, CTC recovered more than 28,000 WeChat from other devices through September of 2016. [Dkt.180-3 at 86, AF96] Jason first learned of the allegations against him from CTC’s counsel. He challenged their veracity and questioned whether CTC was retaliating against him Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 8 of 20 Page ID #:17532 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT because of his conflict with Sitton over CTC’s inability to substantiate some of its performance representation. [Ex.33] Jason and his wife were finally terminated on February 6, 2017. CTC did not bring suit against them and James until December 2017. III. DISCUSSION The parties generally agree on the legal standard governing this motion along with the elements of the various causes of action. Defendants, however, disagree that this motion can be denied based on allegations of spoliation alone. Unlike the case CTC relies upon, there is no evidence here that Defendants spoliated any specific evidence that could support its claims. Compare Scott v. IBM Corp., 196 F.R.D. 233, 249 (D. N. J. 2000) (consensus that because most relevant evidence to discrimination claim destroyed, jury should hear case). A. CTC Cannot Establish a Genuine Issue of Material Fact with Respect to Its Trade Secrets Claim The parties agree that the trade secret protection afforded under the California and federal statutory schemes – CUTSA and DTSA – are so similar that the Court can decide them together. Deerpoint Group, Inc. v. Agrigenix, 345 F.Supp.3d 1207, 1228 (E.D. Cal. 2018). CTC has the burden to specifically identify its trade secrets and differentiate them from what is publicly known. Bunnell v. Motion Picture Ass'n of America, 567 F.Supp.2d 1148, 1155 (C.D. Cal. 2007) (“The trade secret's subject matter must be described 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.’” (quoting Imax Corp. v. Cinema Technologies, Inc., 152 F.3d 1161, 1164-1165 (9th Cir. 1998). CTC concedes that Jason’s and Rulong Chen’s knowledge of CTC’s trade secrets do not constitute a misappropriation. [SS4] Also, CTC’s inability to discover information to support this claim does not warrant a jury trial. Compare Integral Development Corporation v. Tolat, 675 Fed.Appx. 700, 703 (9th Cir. 2017) (hiding evidence that improperly took source code); Brocade Communications Systems, Inc. v. A10 Networks, Inc., 873 F.Supp.2d 1192, 1216 (N.D. Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 9 of 20 Page ID #:17533 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT Cal. 2012) (“The forensic report … states that over 54,000 source code files were deleted from defendant’s computer shortly before his departure”). 1. A Jury Need Not Hear CTC’s Claim for Misappropriation of CTC’s Manufacturing Specifications, including Its Resin System CTC does not try to identify with specificity any trade secret relating to its manufacturing other than the brand name of the two components of its resin system and how they are mixed. OB at 14:4-8; Agency Solutions. Com, LLC v. TriZetto Group, Inc., 819 F.Supp.2d 1001, 1017 (E.D. Cal. 2011) (“A district court can … reject a claim that information is a trade secret sua sponte if the information is not identified by the claimant with sufficient particularity to allow the court to determine what the information is.”). CTC first attempted to sidestep its obligation to prove misappropriation by arguing Defendants’ retention of a copy of the formula alone is sufficient. OB at 16:1-16. Neither case it cites, however, stands for this proposition. Babcock Power, Inc. v. Kapsalis, 2017 WL 1206012, *15 (W.D. Kty. 2017) (competitor took and used strategic information); Language Line Services, Inc. v. Language Services, 944 F.Supp.2d 775, 782 (N.D. Cal. 2013) (accessed information not entitled to access). Moreover, CTC simply ignores the controlling case law on this point. JustMed, Inc. v. Byce, 600 F.3d 1118, 1131 (9th Cir. 2010) (former employee’s possession of source code was not an actionable misappropriation). CTC next argues that Jason had contact with persons interested in a competing resin system. This, however, is not enough. Agency Solutions.Com, LLC., 819 F.Supp.2d at 1027 (“the court cannot presume the transfer of trade secret information occurs simply because [defendant] possesses it and [defendant’s] actual or potential customers do not”). CTC must identify a product made that bears “a substantial identity with [its] secrets,” which it cannot. Integral Sys., Inc. v. Peoplesoft Techs. Inc., 71991 WL 498874, *13 (N.D. Cal. 1991); Agency Solutions.Com. 819 F.Supp.2d at 1030 (plaintiff failed to show how definite pieces of its knowledge recognizably show up in, or are ‘embodied in’ [an accused product’”). Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 10 of 20 Page ID #:17534 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT Moreover, the “evidence” CTC cites cannot withstand any scrutiny. Only hearsay suggests Jason disclosed the formula to Xinming Gong. [Dkt.185-1 at 82 and 95, SS23- 24] Gong’s denial under oath is the only evidence on this point.3 [Dkt.185-2 at 77, SS21] Even if, as CTC contends, Xinbo wants to make composite core, CTC cannot show it has made core substantially similar to CTC’s. CTC finally cites to Chen’s testimony about a WeChat with Jason where Jason recounted that Gong informed Yi Ding that small size core can be used to distribute electricity.4 This does not even suggest that Yi Ding has manufactured core substantially similar to that made by CTC. 2. CTC Fails to Identify any Trade Secret with Respect to Pretensioning, Encapsulation, or Messenger Wire. “CTC agrees that pretensioning and encapsulating carbon core were known in the industry.” OB at 19:11-12. While CTC argues it worked in these areas with partners, it does not identify any trade secret it owns resulting therefrom. Bowser, Inc. v. Filters, Inc., 398 F.2d 7, 10 (9th Cir. 1968) (“California precedents clearly demonstrate that the ideas, formulae, designs, knowledge or skill asserted as constituting plaintiffs' trade secrets must have originated with the plaintiffs”). CTC argues instead that Jason must have disclosed something to James because James lacked experience. Nothing suggests that such an argument is sufficient for this case to proceed to a jury. OB at 20:12-21:4 (citing, e.g., Uniram Technology, Inc. v. Taiwan Semiconductor Manufacturing Co., 617 F. Supp. 2d 938, 946 (N.D. Cal. 2007) (“whether [defendant’s] products are ‘substantially derived’ (from [plaintiff’s] trade secrets is a question of fact” where evidence showed defendants “work[ed] jointly” to develop product mirroring plaintiff’s technology). CTC does not mention messenger wire in its misappropriation discussion. James learned his invention could work as messenger wire from AB [Dkt.185-1 at 230, SS68], 3 CTC also references a WeChat communication between Jason and his nephew concerning a bad batch of resin, forwarding a suggestion from CTC’s chemist on how to make the bad batch work. Nothing about this suggests a disclosure of the resin formula. 4 At this time, virtually all of CTC composite core sales were for power transmission rather than distribution. [Ex.80 at 191:6-12] Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 11 of 20 Page ID #:17535 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT and CTC admits that the‘766 patent implements a solution to a problem associated with messenger wires distinct from anything CTC did [Dkt.185-1 at 223, SS66]. 3. The Entire CCP Program was Publicly Available Again the fact that Chen may have retained an old Excel version of the CCP program cannot constitute a misappropriation. She coded her own version of the program in C+ while working with CTC. [Dkt. 164-4 at ¶4] From this experience, she can easily identify the industry-accepted mathematical formulas (algorithms) that the program implements, and, contrary to CTC’s contention, identified that they are contained in the version she downloaded from CTC’s website. [Dkt. 164-4 at ¶5] 4. CTC Cannot Establish that Its Distribution List is a Trade Secret CTC does not dispute that its 11,000 person distribution list consists simply of persons who signed up for its mailing list or that the witness it designated on misappropriation testified that he did not believe it was a trade secret. [Dkt.185-1 at 234, SS76]. Instead, CTC relies on the speculative testimony of a technical employee that he understands that the company’s work in Bangladesh originated from someone who had signed up for its mailing list. OB at 22:13-28. CTC, however, ignores the case law it cites that “‘a customer list procured by substantial, time effort and is expense is a protectable trade secret.’” OB at 22:2-26 (quoting Courtesy Temporary Service, Inc. v. Camacho, 222 Cal.App.3d 1278, 1287 (1990) (“a customer list procured by substantial time, effort, and expense is a protectable trade secret”); American Paper & Packaging Products, Inc. v. Kirgan, 183 Cal.App.3d at 1318, 1326 (1986) (rejecting trade secret status of customer list where “[t]he compilation process [was] neither sophisticated nor difficult nor time consuming”). CTC does not even suggest that it invested anything meaningful to develop this list. B. CTC Cannot Establish a Genuine Issue of Material Fact with Respect to Its Breach of Fiduciary Duty and Loyalty Claim Apparently cognizant its misappropriation claim cannot survive, CTC focuses its opposition on its breach of fiduciary duty and loyalty claims. The parties agree that the Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 12 of 20 Page ID #:17536 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT elements of these claims are sufficiently similar that the Court need not consider them separately, and they generally agree on the necessary elements.5 1. CUTSA Supercedes Most of CTC’s Breach of Duty Claims The parties, however, disagree on the scope by which CUTSA supersedes these claims, with CTC advocating the Court adopt the minority narrow view. The parties agree that to the extent these claims are “based upon the same nucleus of facts as trade secret misappropriation” they are superseded. K.C. Multimedia, Inc. v. Bank of Amer. Tech. & Operations, Inc., 171 Cal.App. 4th 939, 962 (2009); OB at 3:25-4:2 (citing Integral Dev. Corp. v. Tolat, 675 F. App’x 700, 704 (9th Cir. 2017). Defendants agree that, where a fiduciary permitted a misappropriation to occur, but did not personally engage in any act of misappropriation, the claim is not superseded. AccuImage Diagnostics Corp v. Terarecon, Inc., 260 F.Supp.2d 941, 955 (N.D. Cal. 2003). The parties, however, disagree as to whether a claim is superseded if the misappropriated information “does not satisfy the definition of trade secret under CUTSA.” SunPower Corp. v. SolarCity Corp., 2012 WL 6160472, *12 (N.D. Cal. Dec. 11, 2012) (holding that common law claims premised on “the wrongful taking and use of confidential business and proprietary information, regardless of whether such information constitutes trade secrets, are superceded by the CUTSA”); Becton, Dickinson and Company v. Cytek Biosciences Inc., 2018 WL 2298500, *4 (N.D. Cal. 2018) (“‘[T]he nucleus of facts test … focus[es] … on whether there is a material distinction between the wrongdoing alleged in a CUTSA claim and that alleged in the non-CUTSA claim.’” (quoting SunPower Corp. 2012 WL 6160472, at *12)); Barker v. Insight Global, LLC, 2017 WL 10504692, *4 (N.D. Cal. 2017) (citing cases). CTC clings to an unreported Ninth Circuit decision that ignores in toto courts consistent interpretation of this California law and reversed a grant of summary judgment 5 Contrary to CTC’s contention, Defendants have addressed CTC’s claim that Chen aided in Jason’s breach by arguing that Chen cannot be liable for aiding and abetting if CTC cannot state a breach of duty claim against Jason as a matter of law. [Dkt.167-1, 22:2-4] Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 13 of 20 Page ID #:17537 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT because the “confidential information [shared] with a competitor” may not “qualify as a trade secret.” Tolat, 675 F. App’x at 704 (9th Cir. 2017). Tolat, relies solely on a California Court of Appeals’ decision concluding that a fiduciary duty claim based on a breach of a non-compete agreement was not displaced by CUTSA. Angelica Textile Servs. Inc. v. Park, 220 Cal. App. 4th 495, 507 (2013). The only other cases CTC cites either punted on the issue at the pleading stage6 or refused to find a claim clearly unrelated to any trade secret claim superceded.7 Here, four of the six breaches CTC alleges directly implicate whether Jason disclosed CTC’s proprietary information – including information that it asserts as its trade secrets – to his brother that resulted in the ‘766 patent.8 Proof that its claims rest on its “confidential” information is demonstrated by the fact that nothing suggests Jason would breach a duty to CTC if his brother’s invention related to a novel toothpick. Obviously, Jason could help his brother with a toothpick invention on his own time and would be under no obligation to disclose it to CTC. CTC proffers no reason why this Court should depart from the policy that motivated the vast majority court to adopt the broader formulation of supersession. Basically, a party should not be permitted to avoid the careful balance struck by CUTSA between competition and intellectual property protection simply by choosing not to plead or pursue an element required for a misappropriation claim. Mattel, Inc. v. MGA Entm't, Inc., 782 F.Supp.2d 911, 986 (C.D.Cal.2011) ( “Allowing civil plaintiffs to nevertheless proceed with such claims on the basis of the theft of confidential information that doesn't 6 Ali v. Fasteners for Retail, 544 F. Supp. 2d 1064, 1070 (C. D. Cal. 2008) (“a CUTSA Preemption finding is premature, at this time”). 7 Banawis-Olila v. World Courier Ground, Inc., 2016 WL 6563354, *3 (N.D. Cal. 2016) (“Quite simply, none of these alleged breaches is ‘based upon’ the misuse of WCG's trade secrets or other confidential information.”). 8 The four cited reasons for Jason breach are (1) shared confidential information and an idea about using fiber optics with ACCC™ with his brother, James; (2) encouraged James to pursue pretensioning and encapsulating CTC’s product; (3) assisted his brother with the ‘766 Patent application; (4) failed to timely disclose the existence of the ‘766 Patent and/or his participation in its creation.” OB at 4:13-17. Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 14 of 20 Page ID #:17538 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT meet the statutory definition of a trade secret undermines the California Court of Appeal by ‘alternatively plead[ing] claims with less burdensome requirements of proof.’” (quoting Diamond Power Int'l v. Davidson, 540 F.Supp.2d 1322, 1345 (N.D.Cal.2007)). 2. CTC Remaining Breach of Duty Claims Other than claims relating to the ‘766 patent, CTC proffers two other theories of breach of duty: (1) “assisting in the creation of, and receiv[ing] (through his sister-in-law) an equity interest in a competing business (Xinbo); and (2) destroy[ing] electronic information, [Jason’s] WeChats, that would have evidence one or more of his breaches or competitive activity.” OB at 4:17-20. Defendants will take each in order. a. Jason’s Dealing with Xinbo do not Amount to a Breach of Duty as a Matter of Law Despite CTC’s argument to the contrary, pursuit of employment with a competitor and failure to disclose the effort to an existing employer is not a breach of duty without more. Bancroft-Whitney Co. v. Glen, 64 Cal.2d 327, 347 (1966) (“There is no requirement that an officer disclose his preparations to compete with the corporation in every case, and failure to disclose such acts will render the officer liable for a breach of his fiduciary duties only where particular circumstances render nondisclosure harmful to the corporation.”). Thus, Jason’s failure to disclose to CTC his discussions with Xinbo about possible employment and Xinbo’s offer to provide him stock options cannot constitute a breach of fiduciary duty as a matter of law. While Jason’s sister-in-law acquired stock in Xinbo, there is no admissible evidence to support anything other than that his sister-in-law purchased the shares for herself and with her own money.9 Apparently aware of this limitation, CTC argues that Jason helped set up Xinbo, but cites no admissible evidence to support this contention. At best, CTC has evidence that Jason received a consulting fee from Xinbo for advice relating to electrical insulators 9 Defendants made Jason’s sister-in-law available for deposition in Hong Kong when this issue for arose. CTC chose not to take the deposition. Shaeffer Dec. ¶ 21. Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 15 of 20 Page ID #:17539 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT – a market where CTC does not compete. CTC cites nothing suggesting that his receipt of this consulting fee – for an unrelated product – constitutes a breach of any duty. While it is true that Jason and his brother are currently working to exploit the ‘766 patent, which directly relates to the conductor business, CTC has no evidence that Jason contemplated establishing a competitive business prior to being terminated by CTC, distinguishing the cases CTC relies upon. Global Medical Solutions, Ltd v. Simon, 2013 WL 12065418, *22-23 (C.D. Cal. 2013) (denying summary judgment because COO and President shared research and opinions about available new markets with a competitor while employed); E.D.C. Techs., Inc. v. Seidel, 216 F. Supp. 3d 1012, 1017 (N.D. Cal. 2016) (finding allegations that employee developed competing business while still employed sufficient for claim). Obviously, once Jason left CTC, he no longer owed it a fiduciary duty. b. Jason did not Breach any Duty with respect to CTC’s Investigation. The case law CTC cites to support that it can survive summary judgment with respect to Jason’s conduct during CTC’s investigation proves the contrary. CTC has no evidence whatsoever that Jason lied during the course of any CTC investigation. Compare Banawis-Olila, 2016 WL 6563354, *3 (denying motion to dismiss based on allegation defendant “made misrepresentations during the investigation into the missing package”). Similarly, while Jason delayed turning over the passwords until he received assurances that his personal data would be segregated, this is hardly a case where during that delay he retained corporate hardware and knowingly deleted incriminating information. Compare Global Medical Solutions, Ltd, 2013 WL 12065418, *23 (denying summary judgment because “[i]t is undisputed … that plaintiffs asked Simon to return the items prior to the effective date of his resignation” he waited “one to two months after plaintiffs requested” to return them, and during the interim, “he deleted many items from the laptop, which prevented plaintiffs from accessing the deleted business information”). While it is true that Chen reset their personal IPad before turning it over to CTC in order Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 16 of 20 Page ID #:17540 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT to remove her parents’ personal data, and when CTC received Jason’s phone the WeChat app was gone, CTC has no evidence to suggest that Defendants did these things to subvert CTC’s investigation. Deloitte & Touche LLP v. Carlson, 2011 WL 2923865, *4 (N.D. Ill 2011) (denying motion to dismiss where pleading alleged hard drive destroyed to hide evidence of soliciting customers to new employer). C. CTC has no Breach of Contract Claim as Pled CTC concedes it pled that Jason breached his contract with CTC Cable only, and CTC is not a party to that contract. [Dkt.185-1 at 254-57, SS 84-87] There is no material issue of disputed fact with respect to the breach of contract claim pled. D. There is No Reason for CTC’s Inventorship Claim to Procede CTC has all but abandoned its inventorship claim, which previously focused on its employees’ work with pretensioning, encapsulation, and messenger wires. [SS 91-107] CTC now contends that Jason should be a named inventor because he asked his brother investigate using optical fiber to detect breaks in a core. Opp. at 8:19-10:14. CTC’s tactic constitutes impermissible sandbagging, as that theory was not properly disclosed in discovery responses seeking information relating to the same.10 Regardless, summary judgment is still proper even if the Court were to consider this new theory and evidence. This “contribution” falls well short of constituting clear and convincing evidence of inventorship necessary to raise a genuine issue for trial. CTC’s best evidence is testimony to the effect that Jason Huang considered combining fiber optics and composite cores to detect line breaks before he joined CTC Cable. [See Bentz Decl., Dkt. No. 185-3, Ex. B, at 28:3-222, 31:14-32:2; Dkt. No. 168-2, Goodman Decl., ¶ 7, Ex. F, at 17:7-11] This was a known problem and Jason’s idea was a known solution. Id. 10 CTC did not identify Jason’s “contribution” in its responses to Defendants’ relevant interrogatories. See CTC’s Second Supplemental Response to Huang’s First Set of Interrogatories, Response to Interrogatory Nos. 1-3, Ex. 84. The Court, therefore, can ignore this assertion and evidence regarding the same. “‘A party that without substantial justification fails to disclose information required by Rule 26(a) or 26(e)(1) … is not, unless such failure is harmless, permitted to use as evidence … on a motion … not so disclosed.’” Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001) (quoting Fed. R. Civ. Proc. 37(c)(1)). Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 17 of 20 Page ID #:17541 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT A person, like Jason, “who merely suggests an idea of a result to be accomplished, rather than means of accomplishing it, is not a joint inventor.” Nartron Corp. v. Schukra U.S.A. Inc., 558 F.3d 1352, 1359 (Fed. Cir. 2009). Jason’s alleged conception did not include “a definite and permanent idea of the complete and operative invention,” or “every feature of [the] claimed invention,” as is required for inventorship. See Burroughs Wellcome Co. v. Barr Labs., Inc., 40 F.3d 1223, 1228 (Fed. Cir. 1994). “An idea is definite and permanent when the inventor has a specific, settled idea, a particular solution to the problem at hand, not just a general goal or research plan he hopes to pursue.” Id. Thus, “[t]he conception analysis necessarily turns on the inventor's ability to describe his invention with particularity.” Id. Such particularity “requires both (1) the idea of the invention's structure and (2) possession of an operative method of making it.” Invitrogen Corp. v. Clontech Labs., Inc., 429 F.3d 1052, 1063 (Fed. Cir. 2005). The Federal Circuit decision in Narton is dispositive. In Narton, the alleged infringers asserted an inventorship claim, alleging someone other than the named inventors contributed to a dependent claim (claim 11). In that case, the patent was directed to lumbar support solutions for automobile seats. The alleged infringers asserted that the individual not named brought to the named inventors the concept of including an extender on the lumbar support adjustor, which was the subject of dependent claim 11. The District Court granted summary judgment in favor of the alleged infringers and the patentee appealed. The Federal Circuit reversed. The Federal Circuit noted that the concept of using an “extender” was known in the prior art and, therefore, the contribution could not constitute an invention. Narton, 558 F.3d at 1355 (“One who simply provides the inventor with well-known principles or explains the state of the art without ever having a firm and definite idea of the claimed contribution as a whole does not qualify as a joint inventor.” (quotations and citations omitted)). Further, the Federal Circuit held that the contribution was de minimus: [A] joint inventor must contribute in some significant manner to the conception or reduction to practice of the invention [and] make a contribution to the claimed invention that is not Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 18 of 20 Page ID #:17542 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT insufficient in quality, when that contribution is measured against the dimensions of the full invention. Id., at 1356. Here, just like in Narton, Jason’s “contribution” concerns information well within the prior art and, plainly not “significant.”11 Drawing all inferences in favor of CTC, this Court can decide now, rather than following a trial, that CTC’s inventorship claim fails as a matter of law. General Elec. Co. v. Wilkins, 750 F.3d 1324, 1329 (Fed. Cir. 2014) (“[i]nventorship is a question of law). E. CTC has no Admissible Theory of Recovery While CTC’s is correct that its expert proffers various theories of recovery, his failure to allocate any recovery among the asserted trade secrets dooms his opinion if the Court finds that CTC cannot proceed on even one. [Dkt.185-1 at 30, SS8] O2 Micro Intern. Ltd. v. Monolithic Power Systems, 399 F.Supp.2d 1064, 1076-77 (N.D. Cal. 2005) (since jury found misappropriation of only one of eleven trade secrets, the unallocated damage theory failed as a matter of law). Courts also do not award the value of trade secrets as unjust enrichment, absent their acquisition by improper means, which is not applicable here. Compare PQ Labs, Inc. v. Yang Qi, 2014 WL 4954161, *5 (N.D. Cal. Sep. 30, 2014) (holding “Defendants were unjustly enriched by $214,800 by their misappropriation . . . [that] spared them the expense of conducting their own research and development.”) with Ajaxo, Inc. v. E*Trade Fin.l Corp.,187 Cal.App.4th 1295, 1313 (2010) (“where a defendant has not realized a profit or other calculable benefit as a result of his or her misappropriation of a trade secret, unjust enrichment is not provable”). Similarly, while investigative costs have been awarded in conjunction with an award of attorneys’ fees upon a finding of willful infringement, such an award is not damages. Roadrunner Transportation Servs., Inc. v. Tarwater, 2013 WL 12171729, *4 (C.D. Cal. Aug. 9, 2013) (granting “investigative costs” for willful misappropriation and 11 See Exs. 85-97 (prior art patents disclosing use of optical fiber with conductors, including disclosing use as a sensor). Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 19 of 20 Page ID #:17543 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 DEFENDANTS’ REPLY IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT awarding compensatory damages for lost profits); cf Copart, Inc. v. Sparta Consulting, Inc., 339 F.Supp. 959, 1006 (E.D. Cal. 2018) (award of fees for willful infringement is not an element of damages); Stearnman v. Centex Homes, 78 Cal.App.4th 611, 623-24 (2000) (expert investigative fees recoverable as costs not damages). CTC is correct that courts have awarded the salary paid to an employee in egregious cases where the employee competed with his employer during his employment. Service Employees Internat. Union, Local 250 v. Colcord, 160 Cal.App.4th 362, 372 (2008) (recover salary during period plotted against employer); Global Medical Solutions, Ltd. v. Simon, 2013 WL 12065418, *20 (C.D. Cal. 2013) (can ask jury to award salary during period of breach). CTC has no such evidence here because even if CTC could make out some claim with respect to the ‘766 patent, it is undisputed that Jason voluntarily disclosed it to CTC’s chairman and that they discussed a license. There is simply no admissible evidence that Jason Huang impermissibly competed with CTC. Moreover, CTC’s expert has failed to limit any disgorgement of his salary to anything that could be related to the alleged misconduct. Finally, while a plaintiff can seek an award of a reasonable royalty for misappropriation of trade secrets when it is unable to proffer any other theory of damage or enrichment, CTC’s expert has not proffered such a measure here. IV. CONCLUSION For the foregoing reasons, Defendants respectfully requests that their motion for summary judgment be granted, or, in the alternative, partially granted. Dated: March 25, 2019 Respectfully Submitted, FOX ROTHSCHILD LLP By:/s/ John Shaeffer John J. Shaeffer Jeff Grant Charlie Nelson Keever Attorneys for Defendants Case 8:17-cv-02202-AG-KES Document 189 Filed 03/25/19 Page 20 of 20 Page ID #:17544