ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS
Re: Dkt. No. 114
EDWARD J. DAVILA, District Judge.
This is a case about data centers, "which are the buildings that house the vast arrays of computer servers that form the backbone of the internet and the high-technology economy." Second Am. Compl. ("SAC'), Dkt. No. 107, at ¶ 1. Plaintiffs BladeRoom Group Limited ("BRG") and Bripco (UK) Limited ("Bripco")
Federal jurisdiction arises pursuant to 28 U.S.C. §§ 1331 and 1332. Presently before the court is Facebook's Motion to Dismiss the SAC under Federal Rule of Civil Procedure 12(b)(6). Dkt. No. 114. Plaintiffs have filed written opposition to this motion. Having carefully considered the parties' arguments, the court concludes that most but not all of the SAC withstands a Rule 12(b)(6) review. Thus, Facebook's motion will be granted in part and denied in part for the reasons explained below.
A. Plaintiffs and the BladeRoom Technology
Plaintiffs developed and perfected a method for manufacturing and installing a type of pre-fabricated data center known as a "BladeRoom."
Though some of the techniques used to build a BladeRoom are publicly disclosed, Plaintiffs keep others as confidential trade secrets and limit the release of this information in several ways.
Bripco is the legal owner, and BRG is the licensee, of all right, title and interest in the trade secrets and other confidential information developed by BRG, including the BladeRoom technology.
B. BRG Discusses BladeRoom Technology with Emerson and Facebook
In August 2011, BRG entered into [REDACTED\]
BRG also began discussing the BladeRoom technology with Facebook in October, 2011.
BRG alleges that soon after the March, 2012, meeting in England, one of the attending Facebook representatives met with an Emerson Network Power executive [REDACTED\] [REDACTED\].
On May 29th and May 30, 2012, BRG attended a meeting with Facebook at its data center campus in Prineville, Oregon, and was told the purpose of the meeting was to "survey and physically see the functionality of a Facebook data center and meet Facebook's lead architect and engineers."
BRG's previously discussed in-depth workshop with Facebook occurred in England between June 19th and June 21, 2012, during which BRG revealed additional confidential information.
But despite BRG's efforts, representatives from Facebook and Emerson did engage in a "pre-arranged, clandestine meeting" in London on June 21, 2012, and "compared notes" on what each had learned from their meetings with BRG.
C. Facebook and Emerson Allegedly Misappropriate the BladeRoom Technology
Facebook never placed an order for BladeRooms.
D. Facebook's Disclosure of BRG Confidential Information
BRG alleges that after Emerson's announcement, Facebook began revealing BRG's confidential information through its initiative called the "OpenCompute Project," the goal of which "is to give the public `full access to the specifications' used by Facebook in its data centers in order to `spark a collaborative dialogue" about how to improve its approach to data centers."
E. The Instant Action
Plaintiffs initiated this action on March 23, 2015, and the court granted in part and denied in part Facebook's motion to dismiss the original complaint. Dkt. No. 59. Plaintiffs then filed an amended complaint and, later, the SAC. Dkt. Nos. 62, 107. This motion followed.
II. LEGAL STANDARD
Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim with sufficient specificity to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests."
When deciding whether to grant a motion to dismiss, the court must generally accept as true all "well-pleaded factual allegations."
Also, the court usually does not consider any material beyond the pleadings for a Rule 12(b)(6) analysis.
Facebook moves to dismiss all the claims asserted in the SAC. Each is discussed below.
A. Misappropriation of Trade Secrets
The California Uniform Trade Secrets Act ("CUTSA"), codified at California Civil Code § 3426 et seq., "creates a statutory cause of action for the misappropriation of a trade secret."
To state a claim under CUTSA, a plaintiff must demonstrate: "(1) the plaintiff owned a trade secret, (2) the defendant acquired, disclosed, or used the plaintiff's trade secret through improper means, and (3) the defendant's actions damaged the plaintiff."
i. Ownership of Trade Secrets
Facebook argues that neither BRG nor Bripco can maintain a claim for misappropriation of trade secrets for different reasons. As to BRG, Facebook contends its status as a licensee does not satisfy the ownership element of the claim. As to Bripco, Facebook argues the SAC does not describe how it was damaged by the alleged misappropriation. These arguments are unconvincing.
In arguing that misappropriation claims are properly limited only to owners and not licensees, Facebook focuses primarily on authority that simply echoes the claim's elements. For example, Facebook relies on the district court's opinion in
This issue has been addressed by courts outside this circuit, however. They have "generally come to the same conclusion: a party has standing to bring a trade secrets claim if it has possession of the trade secret."
The logic underlying these out-of-circuit opinions is persuasive and equally applicable here. Since CUTSA defines a trade secret as information 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," the better focus for determining whether a party can assert a misappropriation claim is on that party's possession of secret knowledge, rather than on the party's status as a true "owner."
Here, though Plaintiffs allege that Bripco owns the trade secrets and BRG is a licensee, they also allege that Plaintiffs' licensing arrangement obligates BRG to maintain the confidentiality of the secrets. SAC, at ¶ 30. In addition, Plaintiffs have allegedly employed several mechanisms to limit the public disclosure of confidential information.
Facebook argues Bripco's misappropriation claim must be dismissed because the damages allegations are inadequately pled under Rule 8. Specifically, Facebook takes seemingly contradictory positions that, on the one hand, "the SAC contains no factual allegations as to how [Bripco] . . . was damaged," and on the other, that the allegation describing how Bripco was harmed is too conclusory. This argument fails.
A claim is plausible on its face "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."
"In all cases, evaluating a complaint's plausibility is a `context-specific' endeavor that requires courts to `draw on . . . judicial experience and common sense.'"
Looking to the SAC, Facebook's first position that the pleading lacks any allegations of Bripco's damages is unsupportable because it does, in fact, contain such an allegation. And its second position fares no better, because Plaintiffs allege in the SAC that Facebook "damaged the market for [Bripco's] licensing of its trade secret to others." SAC, at ¶ 137. That allegation is sufficient under Rule 8 because it is more than just a recitation of the damages element; to the contrary, the allegation notifies Facebook of a particular form of damages at issue in this action that can be explored through discovery. Moreover, this allegation, if assumed true, suggests Bripco's entitlement to relief because it satisfies the third element of a misappropriation claim. Though Facebook would like more detail about how its purported conduct harmed Bripco's licensing market, those specifics are not required at the pleading stage.
In sum, Bripco's damages allegations are not so implausible or speculative so as to render them inadequate under Rule 8.
Turning to the second element of a misappropriation claim, Facebook argues the SAC's allegations show that Plaintiffs failed to undertake reasonable efforts to maintain the secrecy of the BladeRoom technology because they disclosed it to third-party architects and contractors at the meeting in Prineville, Oregon in May, 2012. In response, Plaintiffs emphasize the SAC's allegation that those third parties were [REDACTED\] of Facebook and [REDACTED\] SAC, at ¶ 57. They also argue that a decision on the reasonableness of Plaintiffs' efforts to maintain the secrecy of their trade secret information is a fact that question that cannot be decided on a motion to dismiss.
It is true that "[s]ecrecy is an essential characteristic of information that is protectable as a trade secret."
But at the same time, CUTSA's definition of what can constitute a "trade secret" does not require that confidential information be kept completely clandestine or mandate the use of non-disclosure agreements in all instances. In fact, CUTSA does not dictate a particular level of secrecy needed to maintain the character of information as a trade secret. Instead, CUTSA requires efforts at secrecy that are "reasonable under the circumstances." Cal. Civ. Code § 3426.1(d). Moreover, it includes the acquisition of information by misrepresentation as a type of "improper means" that can constitute misappropriation. Cal. Civ. Code § 3426.1(a).
In light of how these key terms are defined, Plaintiffs' argument is the more persuasive — at least for this motion. Construing the SAC in Plaintiffs favor, they contend that Facebook essentially enticed BRG to disclose confidential information to Facebook and third parties in May, 2012, by misrepresenting the true purpose of the meeting. To that end, Plaintiffs allege that Facebook told BRG that it would be asked to submit a bid for an expansion of the Prineville data center, while in actuality Facebook had already agreed that its own contractors would submit a substantially lower bid for the same work. SAC, at ¶¶ 57, 58. The allegations also suggest that BRG believed the third parties attending the meeting were [REDACTED\] [REDACTED\], and it did not employ additional confidentiality measures for that reason.
Furthermore, Facebook's assertion that the misappropriation claim is "defective" because the SAC "does not distinguish the information that was disclosed from any protectable trade secrets" is misplaced and the case it relies on,
Accordingly, the trade secret misappropriation claim is not subject to dismissal because of allegations describing the disclosure of confidential information to third parties.
iii. Inadequate Allegations of Misappropriation
In its final challenge to the misappropriation claim, Facebook argues it must be dismissed because Plaintiffs have not articulated what trade secrets allegedly provided to Facebook were actually misappropriated. As the court understands it, Facebook advocates for a level of pleading requiring the plaintiff to specifically identify in a complaint the mechanism of misappropriation for each and every asserted trade secret. The court disagrees that Rule 8 requires that type of detail.
Here, the SAC contains enough factual information to provide Facebook with "fair notice" of how and when it allegedly misappropriated all of the trade secrets described in that pleading, such that additional allegations on that topic are not mandated by Rule 8. The current allegations adequately inform Facebook of what is asserted against it for the purpose of proceeding with discovery.
Since all of its arguments are unsuccessful, Facebook's motion to dismiss the misappropriation of trade secrets claim will be denied.
B. Lanham Act
Plaintiffs allege that Facebook violated § 43(a) of the Lanham Act by falsely claiming that it and its contractors performed the architectural, engineering, and design services that led to the RDDC. Facebook moves to dismiss this claim on two grounds. First, it argues that § 43(a) does not prohibit the copying of ideas. Second, it argues the SAC is devoid of facts alleging a commercial use. Facebook is correct on both points.
Section 43(a) of the Lanham Act imposes liability on "[a]ny person who, on or in connection with any goods or services . . . uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact," which is likely to confuse or deceive as to the origin of those goods and services. 15 U.S.C. § 1125(a). This language is broad enough to permit "reverse passing off" claims, where "[t]he producer misrepresents someone else's goods or services as his own."
First, the Supreme Court has held that the phrase "origin of goods" only "refers to the producer of the tangible goods that are offered for sale, and not to the author of any idea, concept, or communication embodied in those goods."
Second, the Lanham Act only applies in circumstances involving a "commercial transaction" in which "the trademark is being used to confuse potential consumers."
These limitations fatally undermine Plaintiffs' "reverse passing off" claim. Though they argue the claim is based on a misrepresentation about the origin of the services needed to create the BladeRoom technology rather than the technology itself, Plaintiffs fail to allege or convincingly argue exactly how Facebook is offering those services in a commercial transaction, such that there is opportunity for consumers to make "mistaken purchasing decisions" of those services.
Nor do the allegations describing how Facebook has publicly shared its designs assist in that regard.
Since the allegations of falsely-designated services do not support a "reverse passing off" theory, the only other allegations relevant to the claim are those stating that Facebook has falsely asserted the origin of the RDDC method. But those allegations, which are focused on misrepresentation in connection with an idea or concept rather than on a good or service, are equally insufficient under the holding of Dastar.
For these reasons, Plaintiffs have not stated a plausible claim for a violation of § 43(a) of the Lanham Act. Though the court doubts Plaintiffs can ever do so in light of the factual scenario described in the SAC, it will nonetheless dismiss the claim with leave to amend to allow them an opportunity to restate the claim if they believe they can.
C. Unfair Competition Law
The Unfair Competition Law ("UCL") prohibits business practices that are unlawful, unfair, or fraudulent. Cal. Bus. & Prof. Code § 17200. "Its purpose `is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services,'" and its language is framed broadly in service of that purpose.
Two of the UCL's three "prongs" are relevant to Plaintiffs' claim. The first is the "unlawful" prong, which "borrows violations of other laws and treats them as independently actionable."
Facebook moves to dismiss Plaintiffs' claim under the "unlawful" prong of the UCL because it relies on the allegations underlying the CUTSA and Lanham Act claims, which it argues also fail. Because Plaintiffs' CUTSA claim survives this motion, so does its UCL claim to the extent it is based on those same allegations.
As to the claim under the "unfair" prong, Facebook argues it is deficient because Plaintiffs do not allege they are consumers or competitors of Facebook in the area of data center technology. Though Facebook cites cases, including this court's prior dismissal order, that ostensibly support such a limitation on who can bring claim for "unfair" practices, further review of the relevant authority reveals that this type of categorical restriction is inappropriate given the UCL's comprehensive purpose. Notably, nothing in the UCL's text limits claims only to consumers or competitors, though both types of plaintiffs can certainly qualify under its language. See In re
Plaintiffs' claim under the "unfair" prong endures under this more liberal examination. Plaintiffs list in the SAC several practices that are plausibly unfair, including allegations that Facebook released information related to the BladeRoom technology through OpenCompute, which they also allege damaged their licensing markets and emboldened their competitors. The court finds these allegations sufficiently describe how Plaintiffs lost money as a result of Facebook's purportedly unfair business practices. And though Facebook suggests otherwise, this conduct describes much more than a breach of a contract.
In addition, the court rejects Facebook's argument that the UCL claim is preempted by CUTSA. This form of preemption applies to a claim "based on the same nucleus of facts as the misappropriation of trade secrets claim for relief."
D. Breach of Contract
Facebook moves to dismiss the breach of contract claim, at least as asserted by Bripco, because it was not a party to the non-disclosure agreement between BRG and Facebook. Though that is true, Bripco's breach of contract claim is not subject to dismissal for that reason because a "`contract made by an agent for an undisclosed principal is for most purposes the contract of the principal and it may sue . . . thereon,'" unless the principal is excluded by the terms of the agreement.
Here, the terms of the non-disclosure agreement do not exclude Bripco. Furthermore, the fact that Bripco licensed its trade secrets to BRG, who in turn revealed that information to Facebook under the alleged protections of a non-disclosure agreement, at least implies that BRG was acting in the capacity as Bripco's agent during the transaction.
Based on the foregoing, Facebook's Motion to Dismiss (Dkt. No. 114) is GRANTED IN PART and DENIED IN PART. The motion is GRANTED as to the third cause of action for violation of § 43(a) of the Lanham Act, which is DISMISSED WITH LEAVE TO AMEND. The motion is DENIED in all other aspects.
To be clear, Plaintiffs are permitted leave to amend only the claim for violation of the Lanham Act, and any amended complaint must be filed on or before
If no amended complaint is filed by February 28, 2017, Facebook shall file an Answer to the SAC on or before