United States District Court, N.D. California
December 9, 2005.
MICREL INC., a California corporation, Plaintiff,
MONOLITHIC POWER SYSTEMS, INC., a Delaware corporation, MICHAEL R. HSING, JAMES C. MOYER, and DOES 1-20 inclusive, Defendants.
The opinion of the court was delivered by: JEFFREY WHITE, District Judge
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO
DISMISS STATE LAW CLAIMS IN SECOND AMENDED COMPLAINT
This matter comes before the Court upon consideration of the
motion to dismiss filed by defendants Monolithic Power Systems,
Inc. ("MPS"), Michael R. Hsing ("Hsing"), and James C. Moyer
("Moyer") (collectively "Defendants"). Having considered the
parties' pleadings, the relevant legal authority, and having had
the benefit of oral argument, the Court GRANTS IN PART AND DENIES
IN PART Defendants' motion.
II. PROCEDURAL BACKGROUND
On November 10, 2004, Micrel filed a complaint against MPS
alleging infringement of two of Micrel's patents. On November 29,
2004, Micrel filed a First Amended Complaint ("FAC"), again
alleging two counts of patent infringement, adding Hsing and
Moyer as defendants, and adding claims for misappropriation of
trade secrets pursuant to California's Uniform Trade Secrets Act,
Civil Code §§ 3426 et seq. (hereinafter "CUTSA"), common law misappropriation, breach of confidentiality agreements, and
violations of California Business and Professions Code Section
17200 ("Section 17200").
Defendants initially moved to dismiss each of the state law
causes of action in the FAC on the ground that each of those
claims was barred by the applicable statutes of limitations. The
Court granted Defendants' motion on this ground, but provided
Micrel leave to amend to allege facts demonstrating that the
discovery rule applied.
Micrel filed a Second Amended Complaint ("SAC") on May 2, 2005
and Defendants now move again to dismiss Micrel's state law
claims based on statute of limitations grounds.
III. FACTUAL BACKGROUND
In the SAC, as in the FAC, Micrel alleges that Moyer was a
design engineer and Hsing was a process development engineer at
Micrel. (SAC ¶¶ 18, 30.) While working at Micrel, Hsing and Moyer
co-invented a structure that was patented in United States Patent
No. 5,571,046 (the "'046 Patent"). (Id., ¶¶ 23, 33.) Hsing also
co-invented a process that is the subject of United States Patent
No. 5,556,796 (the "'796 Patent"). (Id., ¶ 24.)
When Hsing and Moyer joined Micrel, both signed proprietary
invention and confidentiality agreements with Micrel, stating
that each agreed to preserve Micrel's trade secrets and research
during and after employment with Micrel. (Id., ¶¶ 21-22,
31-32.) Upon leaving Micrel, both Hsing and Moyer signed
termination certificates stating that each agreed to continue to
comply with the confidentiality agreements and preserve Micrel's
trade secrets, confidential data, and research. (Id., ¶¶ 25-26,
Micrel alleges that Moyer and Hsing left Micrel under false
pretenses in 1997 and formed MPS. (Id., ¶¶ 18-19, 28-29, 35,
39-40.) While at Micrel, Moyer researched electro-luminescent
lamp drivers ("ELLDs"). (Id., ¶¶ 45-47.) Moyer shared the
information on ELLDs with MPS, helping to develop MPS's line of
cold cathode fluorescent lamp ("CCFL") driver devices. (Id., ¶¶
48-50.) Moyer's work on ELLDs is incorporated in the invention
claimed in United States Patent No. 6,114,814 (the "'814
Patent"). (Id., ¶ 50.) Both ELLDs and CCFLs are DC to AC
inverters that perform similar functions in providing
backlighting for portable displays. (Id., ¶ 49.) Hsing worked on developing "spacers" for use with lateral
double diffused metal oxide semiconductor ("LDMOS") transistors
while at Micrel. (Id.) Micrel alleges that Hsing shared the
information he developed on spacers with MPS, and that the spacer
information was incorporated in the invention claimed in United
States Patent No. 6,252,278 (the "'278 Patent"). (Id., ¶¶
Micrel alleges that Moyer's daughter, Cynthia Moyer ("Ms.
Moyer"), brought Micrel's confidential information home with her
during the last six months of her employment with Micrel. (Id.,
¶¶ 54, 58.) During the time that Ms. Moyer brought confidential
information home with her, Moyer was already working at MPS.
(Id., ¶ 59.) Ms. Moyer left Micrel to work at MPS in January
1999. (Id., ¶ 60.) Moyer and MPS gained knowledge of Micrel's
development efforts through the proprietary information that Ms.
Moyer worked on at home. (Id., ¶ 61.)
Micrel alleges it first learned of the '814 and '278 Patents on
or about May 13, 2003, when a Micrel employee, Martin Garnett,
was deposed in the case O2 Micro Int'l Ltd. v. Monolithic Power
System Inc., No. CV-00-4071 and CV-01-3995 (the "O2 Micro
Action"). (Id., ¶¶ 62-64.) In the O2 Micro Action, MPS asserts
that O2 Micro Int'l Ltd. ("O2 Micro") infringed the '814 Patent.
(Id., ¶ 62.) Micrel is not a party to the O2 Micro Action.
In February 2004, O2 Micro indicated that Moyer may have
conceived of the inventions claimed in the '814 Patent while
working at Micrel. (Id.) O2 Micro repeated this suggestion to
Micrel in August 2004 and requested a license under Micrel's
rights in the '814 Patent. (Id.) Based on O2 Micro's
suggestions, Micrel began to review Moyer's files, files that had
been placed in storage when Moyer left Micrel in 1997. (Id., ¶
Micrel alleges it did not learn of the alleged
misappropriations by Defendants until late October or early
November 2004, when Micrel discovered documents that indicated
that Moyer conceived the inventions contained within the '814
Patent while working at Micrel. (Id., ¶¶ 1, 67.) Micrel alleges
that after it discovered Moyer's alleged misappropriation, Micrel
uncovered additional misappropriations of trade secrets and
confidential information by Defendants. (Id., ¶ 68.) IV. ANALYSIS
A. Legal Standards Applicable to Motions to Dismiss.
A motion to dismiss is proper under Rule 12(b)(6) where the
pleadings fail to state a claim upon which relief can be granted.
Fed.R.Civ.P. 12(b)(6). A motion to dismiss should not be
granted unless it appears beyond a doubt that a plaintiff can
show no set of facts supporting his or her claim. Conley v.
Gibson, 355 U.S. 41, 45-46 (1957); see also De La Cruz v.
Tormey, 582 F.2d 45, 48 (9th Cir. 1978). The complaint is
construed in the light most favorable to the non-moving party and
all material allegations in the complaint are taken to be true.
Sanders v. Kennedy, 794 F.2d 478, 481 (9th Cir. 1986).
B. The Discovery Rule
Defendants argue that Micrel's state law claims are barred
because the applicable statutes of limitations have run and that
Micrel has not plead sufficient facts to invoke the discovery
rule. Based on Micrel's allegations that Hsing and Moyer
disclosed and misappropriated Micrel's trade secrets and
confidential information relating to, inter alia, ELLDs and
spacers on LDMOS structures, Micrel asserts state law claims for
misappropriation of trade secrets under the CUTSA, common law
misappropriation, breach of confidentiality agreements, and
violations of Section 17200. The statutes of limitations of
Micrel's state law claims range from between two and four years.
See Cal. Civ. Code § 3426.6 (CUTSA claim must be brought within
three years); Cal. Code Civ. P. § 339; Monolith Portland Midwest
Co. v. Kaiser Alum. & Chem. Corp., 407 F.2d 288 (9th Cir. 1969)
(common law misappropriation claims must be brought within two
years); Cal. Code Civ. P. § 337 (claims based on written contract
must be brought within four years); Cal. Bus. & Prof. Code §
17208 (Section 17200 claims must be brought within four years).
Generally, a plaintiff must bring a cause of action within the
applicable limitations period. Fox v. Ethicon Endo-Surgery,
Inc., 35 Cal. 4th 797, 807 (2005); Norgart v. Upjohn Co.,
21 Cal. 4th 383, 397 (1999). The discovery rule is an exception to
the general rule. The discovery rule "postpones accrual of a
cause of action until the plaintiff discovers, or has reason to
discover, the cause of action." Fox, 35 Cal. 4th at 807. "A
plaintiff has reason to discover a cause of action when he or she `has reason at least to suspect a
factual basis for its elements.'" Id., citing Norgart,
21 Cal. 4th at 398.
Under the discovery rule, accrual of a cause of action is
delayed only "until the plaintiff has, or should have, inquiry
notice of the cause of action." Id. Where the discovery rule
applies, the statute of limitations for the cause of action is
"tolled until such time as a reasonable investigation would have
revealed its factual basis." Id. at 803. Where a plaintiff
relies on the discovery rule, the plaintiff "must specifically
plead facts to show (1) the time and manner of discovery and
(2) the inability to have made earlier discovery despite
reasonable diligence." Id. at 808, citing McKelvey v. Boeing
North American, Inc., 74 Cal. App. 4th 151, 160 (1999) (emphasis
in original). Under the discovery rule, "[s]ubjective suspicion
is not required. If a person becomes aware of facts which would
make a reasonably prudent person suspicious, he or she has a duty
to investigate further and is charged with knowledge of matters
which would have been revealed by such an investigation."
Mangini v. Aerojet-General Corp., 230 Cal. App. 3d 1125 (1991).
Pursuant to the discovery rule Micrel's state law claims would
begin accruing either when Micrel actually discovered or had
reason to discover the factual basis of its claims. O2 Micro
deposed Micrel's employee, Martin Garnett, on May 13, 2003. (SAC
¶ 63.) Micrel alleges it first learned of the '814 and '278
Patents at this deposition. After O2 Micro suggested that Moyer
conceived of the inventions claimed in the '814 Patent while he
was still working at Micrel, Micrel conducted an investigation.
According to Micrel, it did not discover the alleged
misappropriations relating to the '814 Patent until October or
November of 2004. Micrel then conducted further investigations
and discovered additional misappropriations by Defendants. (SAC
¶¶ 64-68.) Thus, Micrel alleges that it did not obtain actual
notice of any of its state law claims until October 2004 at the
earliest, which is well within the statute of limitations period
for all of its state law claims. For purposes of the motion to
dismiss, the Court must assume Micrel's allegations regarding
when it obtained actual notice are true. Thus, the issue becomes,
whether Micrel could have discovered the factual bases for its
claims sooner by exercising reasonable diligence. The issue of when a plaintiff has knowledge of facts which
should have put it on notice of its claims is a question of fact
which ordinarily may not be resolved on a motion to dismiss.
Acebey v. Shearson Lehman Brothers, Inc., 1994 WL 374298, at
*7, Fed. Sec. L. Rep. P. 98, 301 (C.D. Cal. June 4, 1994) ("It
will be a rare case where the complaint alone contains sufficient
allegations to resolve the issue of constructive notice as a
matter of law."). Here, Micrel alleges that Moyer and Hsing both
left under false pretenses. Moyer said he was leaving because he
wanted to retire and Hsing said he was leaving to attend graduate
school. Micrel later discovered that they both left Micrel in
order to work at MPS. (SAC ¶¶ 29, 40.) Although Micrel may have
had information that Moyer and Hsing were not entirely honest
when they left, there are reasons other than hiding
misappropriations why employees may not want to disclose to their
employers that they are leaving to go work for a competitor.
Standing alone, the alleged fact that Moyer and Hsing left under
false pretenses is insufficient to give Micrel reason to suspect
them of misappropriating trade secrets and confidential
Micrel further alleges that Ms. Moyer had access to and took
home Micrel's confidential information during July or August of
1998 through January of 1999, her last six months of working at
Micrel. After she left Micrel, Ms. Moyer immediately starting
working at MPS. Micrel alleges upon information and belief that
Ms. Moyer shared Micrel's confidential information with Moyer.
(SAC ¶¶ 54-61.) Micrel clarified at the hearing on the motion to
dismiss that Micrel did not come to this conclusion until late in
2004, and has still not confirmed any misconduct by Ms. Moyer.
The mere fact that Ms. Moyer had access to Micrel's confidential
information and then went to work for at MPS is insufficient to
put Micrel on inquiry notice of its state law claims.
Another alleged fact which MPS argues should have put Micrel on
notice is that since MPS formed in 1997, thirteen of Micrel's
former employers have resigned from Micrel to work at MPS.
However, Micrel clarified in its SAC that, until recently, the
movement of employees from Micrel to MPS was consistent with
trends in the semiconductor manufacturing industry in Silicon
Valley. (SAC ¶ 69.) Two employees left in January 1999, three
left in the summer of 2000, and only one left between August 2000
and April 2004. Then, between April and October of 2004, seven engineers suddenly left Micrel for MPS. (Id.)
Again, the Court must assume Micrel's allegations regarding the
trend in the semiconductor manufacturing industry are true for
purposes of this motion. Thus, as long as the number of employees
leaving Micrel for MPS was consistent with the trend in the
industry, such facts would not put Micrel on inquiry notice of
its state law claims.
Finally, the Court must address the issuance of the '814 and
'278 Patents. The "issuance of a patent and recordation in the
Patent Office constitute notice to the world of its existence."
Wine Ry. Appliance Co. v. Enterprise Ry. Equipment Co.,
297 U.S. 387, 393 (1936). The '814 Patent was issued on September 5,
2000 and the '278 Patent was issued on June 26, 2001. (Docket No.
16, Exs A, B.) However, the fact that knowledge of the existence
of the '814 and '278 Patents may be imputed to Micrel as of
September 2000 and June 2001, respectively, does not necessarily
establish as a matter of law that Micrel should have known about
the alleged misappropriations by these dates. See General
Bedding Corp. v. Echevarria, 947 F.2d 1395 (9th Cir. 1991). "The
issuance of a patent gives a plaintiff constructive notice of its
claims if the patent reveals information sufficient to alert a
reasonable person of the need to inquire further." International
Business Machines Corp. v. Zachariades, 1993 WL 443409, *2 (N.D.
Cal. Oct. 27, 1993), aff'd in part and rev'd in part,
70 F.3d 1278 (9th Cir. 1995) (citing Echevarria, 947 F.2d at 1398);
see also Hartley Pen Co. v. Lindy Pen Co., 16 F.R.D. 141, 157
(S.D. Cal. 1954) (charging party with presumptive notice of the
issuance of a patent sufficient to start accrual of statute of
In Echevarria, the plaintiff, General Bedding, manufactured
and sold air mattresses between 1974 and 1978. In 1978, the
company authorized its employee, Fred Brandau, to investigate the
uses of polyvinyl tubes in waterbeds. Brandau worked with Angel
Echevarria, whose company supplied mattress covers to General
Bedding. In March of 1998, Echevarria applied for a patent for a
waterbed design using tubes. The patent was issued to Echevarria
in 1980. In April of 1998, unbeknownst to General Bedding,
Brandau and Echevarria entered into a written agreement to give
Brandau one-half interest in the invention and the profits
derived from it. Echevarria, 947 F.2d at 1396. General Bedding
alleged that while Brandau reported back to it that the waterbeds with tubes were not commercially
feasible, he secretly agreed with Echevarria that Echevarria
should design the patent and that the two of them would split the
profits. In 1988, General Bedding filed claims against Brandau
and Echevarria for, inter alia, design misappropriation,
conversion, and unfair competition. Id.
Brandau and Echevarria moved for summary judgment, arguing that
General Bedding's claims were barred by the statute of
limitations. The court held that the issuance of the patent was
insufficient to demonstrate as a matter of law that General
Bedding had constructive knowledge of its claims. Id. at 1398.
The court found it significant that Brandau's name was not on the
patent and that Brandau was alleged to be involved in the fraud.
Moreover, it was not necessarily unusual for Echevarria to have
patented such a design. Thus, the court could not conclude, as a
matter of law, that a reasonable person would have necessarily
investigated when confronted with Echevarria's patent. Id.
In International Business Machines, while an employee at IBM,
Dr. Anagnostis E. Zachariades performed work on ultra-high
molecular weight polyethylene ("UPE"). Zachariades had agreed in
his employment agreement not disclose or appropriate confidential
information relating to his work and agreed to assign to IBM all
inventions or ideas he conceived of while working there.
International Business Machines, 1993 WL 443409, at * 1. While
he was still working for IBM, Zachariades applied for and was
issued a patent for an invention relating to UPE materials. Five
years after the patent was issued, IBM sued Zachariades for
breach of fiduciary duty, fraudulent concealment, and
misrepresentation. The court granted the defendants' motion for
summary judgment on the grounds that IBM's claims were
time-barred because the issuance of the patent put IBM on
constructive notice. The court reasoned that Zachariades' patent
on UPE materials should have aroused IBM's suspicions because the
patent covered a subject area on which Zachariades worked while
at IBM and was within the scope of IBM's business interests.
Id. at *2.
The Court finds that the facts here are more analogous to those
in Echevarria than in International Business Machines. While
the '814 Patent named Micrel's former employees as the inventors
and was assigned to MPS, a known competitor, Micrel argues that
it had no reason to suspect a connection between the subject of the '814 Patent
and Micrel's products. (Opp. at 5.) The '814 Patent was for CCFL
drivers, while Micrel's inventions are ELLDs. Micrel argues that
although the two products perform similar functions, they are not
the same product and thus, issuance of the patent was
insufficient to put Micrel on notice of the claims against
Defendants. (Id.) Defendants counter that Micrel's argument
that the two products are different is factually unsupported and
contradicts Micrel's allegations that the two products perform
similar functions. (Reply at 4.) Whether CCFLs and ELLDs are
sufficiently similar that the issuance of a patent relating to
CCFL drivers would put Micrel on notice of its claims is a
question of fact that the Court cannot resolve on a motion to
In contrast, the '278 Patent states that the invention at issue
is a modification of a prior art structure of the '046 Patent,
which was issued to Micrel. (Docket No. 16, Ex. B ('278 Patent)
at 2:37-38 ("This prior art structure of the '046 Patent has been
modified in this present invention.").) The '278 Patent was
assigned to MPS and identified Hsing as the inventor. Id.
Moreover, the '278 Patent states that the application for the
patent was filed on May 18, 1998, less than nine months after
Hsing left Micrel. (Id.) When the '278 Patent was issued on
June 26, 2001, Micrel was given constructive notice of these
facts. Wine Ry. Appliance, 297 U.S. at 393. The relatively
short time period in between Hsing leaving Micrel and filing the
application for the '278 Patent, in conjunction with the fact
that the '278 Patent specifically states that it is a
modification of Micrel's prior invention, should have put a
reasonable person on notice that Hsing may have developed or
conceived of the invention covered by the '278 Patent while he
was still working at Micrel. When the '278 Patent is considered
along with the fact that Micrel knew that Hsing left under false
pretenses to form MPS, a competing company, and that Moyer also
left Micrel under false pretenses to work for MPS, the Court
concludes that Micrel was on notice of its claims by no later
than June 26, 2001.
Therefore, the statutes of limitations on Micrel's claims began
to run on June 26, 2001. Micrel did not file this action until
November 10, 2004, more than three years later. Accordingly,
Micrel's common law misappropriation claim and CUTSA claim are
barred by their respective two and three year statutes of
limitations. On the other hand, the Court cannot conclude at this procedural stage that Micrel's claims for breach
of confidentiality agreements and violations of Section 17200,
both of which have four year statutes of limitations, are
time-barred. Accordingly, the Court grants Defendants' motion to
dismiss with respect to Micrel's common law misappropriation
claim and CUTSA claim, but denies Defendants' motion with respect
to Micrel's claims for breach of confidentiality agreements and
violations of Section 17200.
The Court denies Micrel's request for further leave to amend to
more fully explain why the events alleged in its complaint could
not have put it on notice of its claims sooner. Because the Court
concludes that the issuance of the '278 Patent gave Micrel notice
as matter of law, further allegations regarding the details of
what Micrel actually knew would be futile.
For the foregoing reasons, Defendants' motion to dismiss
pursuant to Rule 12(b)(6) is GRANTED IN PART and DENIED IN PART.
The Court GRANTS Defendants' motion as to Micrel's CUTSA and
common law misappropriation claims and DENIES Defendants' motion
as to Micrel's claims for breach of confidentiality agreements
and for violations of Section 17200. The Court DENIES Micrel's
request for further leave to amend the dismissed state law
IT IS SO ORDERED.
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