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Brocade Communications Systems, Inc., A Delaware Corporation, and v. A10 Networks

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION


March 23, 2011

BROCADE COMMUNICATIONS SYSTEMS, INC., A DELAWARE CORPORATION, AND
FOUNDRY NETWORKS, LLC, A DELAWARE LIMITED LIABILITY COMPANY,
PLAINTIFFS,
v.
A10 NETWORKS, INC., A CALIFORNIA
CORPORATION, LEE CHEN, AN INDIVIDUAL,
RAJKUMAR JALAN, AN INDIVIDUAL, RON SZETO, AN INDIVIDUAL, LIANG HAN, AN INDIVIDUAL, STEVEN HWANG, AN INDIVIDUAL, AND DAVID CHEUNG, AN INDIVIDUAL,
DEFENDANTS.

The opinion of the court was delivered by: Lucy H. Koh United States District Judge

United States District Court For the Northern District of California

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS

Defendants A10 Networks, Inc., Lee Chen, Rajkumar Jalan, Ron Szeto, and Steven Hwang (together, A10) move to dismiss various claims pursuant to Federal Rule of Civil Procedure 22 12(b)(6). For the reasons set forth below, this Motion is GRANTED in part and DENIED in part.

I. Introduction and Background 24

On August 4, 2010, plaintiffs Brocade Communications Systems, Inc., and Foundry Networks, LLC (Foundry) (together, Brocade) filed a complaint asserting patent infringement, 26 trade secret misappropriation, breach of contract, interference with prospective economic 27 advantage, interference with contract, and unfair competition against Defendants A10 Networks 28 and individuals Lee Chen, Rajkumar Jalan, Ron Szeto, and David Cheung. See Dkt. No. 1 (Compl.). On October 11, 2010, all the defendants other than Mr. Cheung filed a Motion to 2 Dismiss most of Brocade's claims pursuant to Federal Rule of Civil Procedure 12(b)(6). On 3 Lian Han and Steven Hwang. See Dkt. No. 37. The FAC asserts additional patent infringement 5 claims, as well as adding copyright infringement, breach of fiduciary duty, and breach of duty of 6 loyalty claims. 7

October 29, 2010, Brocade filed a First Amended Complaint (FAC), naming additional defendants 4

a. Allegations Regarding Brocade's Products and Business

The FAC alleges that Foundry was acquired by Brocade in December, 2008. FAC ¶ 3.

Prior to this, Brocade alleges that Foundry established itself as the industry leader in application 10 delivery systems. These systems help to optimize Internet performance. FAC ¶¶ 14,15. Foundry 11 sold application delivery systems as part of its ServerIron and ADX product lines. FAC ¶ 14.

Brocade alleges that Foundry obtained ten U.S. patents on its application delivery system 13 technology. FAC ¶ 16. Foundry developed software for use in its products. FAC ¶ 17. Brocade 14 alleges that Foundry invested millions in development of its Server Iron and ADX products.

FAC 15

Brocade alleges three categories of alleged trade secrets: technical, marketing, and 17 employee-related information. Brocade identifies its confidential technical information as "the 18 design and technology best suited for the products, software code . . . performance capabilities, 19 constraints and challenges for the product, as well as potential product development plans. FAC 20

¶ 19. Brocade identifies its confidential marketing information as information regarding its 21 products, including customer needs and terms of agreements with customers. FAC ¶ 20. Finally, 22

Brocade identifies its confidential employee-related information as "the skill levels, experience, 23 specialties, performance attributes, compensation levels, and attitudes" of employees. FAC ¶ 21. 24

Brocade alleges that it took precautions to protect this information. Employees were required to 25 sign employment contracts by which they agreed not to disclose proprietary information, including 26 company development plans and marketing information. FAC ¶ 48. 27 28

b. Allegations Regarding A10's Products and Business

Brocade alleges that defendant Chen was a co-founder of Foundry, and served as its Vice President of Software Engineering until he left the company in 2004. FAC ¶ 24. Brocade alleges 4 that Chen supervised the development of the ServerIron products and Foundry's application 5 delivery systems. Id. Chen supervised the named inventors of the patents in suit and had access to 6 the technical, customer, and employee trade secrets alleged above. Id. Brocade alleges that while 7 still serving as a Foundry executive, Chen secretly began working on a new venture which would 8 ultimately become A10. FAC ¶ 26, 30. Brocade asserts that Chen used Foundry resources to 9 develop the new business. Brocade further asserts that Chen represented Foundry in negotiations 10 regarding the potential acquisition of Authenet, Inc. while simultaneously pursuing this opportunity 13 market as Foundry and to compete directly with Foundry" and that A10's products, such as the 14 A10 AX Series network devices, would "copy and compete directly with Foundry ServerIron 15 products" that Chen had helped develop while working at Foundry. FAC ¶ 31. Brocade goes on to 16 allege that Chen recruited a large number of employees from Foundry, and tried to avoid arousing 17 suspicions by requiring employees to resign from Foundry and wait a period of time before joining 18

Brocade alleges that both were heavily involved with development of ServerIron products, and that 20 each is a named inventor of one or more of the patents in suit. FAC ¶ 36. Brocade alleges that 21

Regarding defendant Han, Brocade states he is a software engineer who worked for Foundry from 2003-2005. FAC ¶ 38. Brocade alleges that Han began working for A10 while still 24 employed by Foundry, and passed technical information regarding the ServerIron and ADX 25 products to specific A10 personnel. Id. 26

Brocade alleges that Chen developed A10 to "operate in precisely the same specialized

A10. FAC ¶ 32. Some of these alleged recruits include defendants Jalan and Szeto. FAC ¶ 34. 19 Jalan and Szeto used Foundry's source code to develop the competing AX products. FAC ¶ 37. 22 Regarding defendant Hwang, Brocade asserts he is a hardware engineer and former Foundry employee. FAC ¶ 39. Brocade alleges that he began working for A10 while still 28 employed by Foundry, used Foundry resources in conducting business for A10, and passed 2 Foundry's technical information to specific A10 personnel. Id. 3

4 knowledge of its alleged trade secrets, and that A10 was funded in part by investments from 5 employees still working for Brocade. FAC ¶¶ 54-55. Finally, Brocade alleges that through its use 6 of Brocade's technical information and source code, A10 was able to launch its competing AX 7

Brocade alleges that A10 recruited many former Foundry employees with access to and

Series more quickly and cheaply than it could have done otherwise. FAC ¶¶ 57-60. Brocade 8 alleges that A10 also recruited marketing employees with access to the alleged marketing trade 9 secrets, and that these individuals used Brocade trade secret information in marketing A10's 10 products to Brocade's customers. FAC ¶ 61. Brocade alleges that these activities disrupted Dismiss, and A10*fn1 filed a Motion to Dismiss the FAC on November 12, 2010. See Dkt. No. 45. 14

28, 2011. See Dkt. No. 70. Pursuant to Civil Local Rule 7-1(b), the Court finds this matter 16 suitable for decision without oral argument. Therefore, the April 28, 2011 hearing on this Motion 17 is VACATED. However, the Case Management Conference set to follow the hearing will proceed 18 as scheduled. In advance of the Case Management Conference, the Court will set a schedule based 19 on the parties' Joint Case Management Statement, filed on February 11, 2011. 20

Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if 22 it fails to state a claim upon which relief can be granted. To survive a motion to dismiss, the 23 plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. 24 Corp. v. Twombly, 550 U.S. 544, 570 (2007). This "facial plausibility" standard requires the 25 plaintiff to allege facts that add up to "more than a sheer possibility that a defendant has acted 26 unlawfully." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). In deciding whether the plaintiff has 27 stated a claim, the Court must assume the plaintiff's allegations are true and draw all reasonable 28 ongoing and potential client relationships. FAC ¶ 62.

After the FAC was filed, moving defendants withdrew their then-pending Motion to

The hearing on this Motion was originally set for February 17, 2011, but was continued to April 15

II. Standard 21

inferences in the plaintiff's favor. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). 2

However, the court is not required to accept as true "allegations that are merely conclusory, 3 unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 4 F.3d 1049, 1055 (9th Cir. 2008). Leave to amend must be granted unless it is clear that the 5 complaint's deficiencies cannot be cured by amendment. Lucas v. Dep't. of Corr., 66 F.3d 245, 6

III. Application 8

10 alleging misappropriation of trade secrets. First, A10 argues that the FAC pleads facts so

248 (9th Cir. 1995). 7

a. Twelfth Claim for Trade Secret Misappropriation

A10 advances several arguments in support of its Motion to Dismiss Brocade's claims inconsistent with those stated in the original Complaint that the court should strike them as "sham." 12

See Mot. at 5-6. Second, in a related argument, A10 urges that the trade secret claims are time-13 barred based on the allegations of the original Complaint, and that the Court should disregard any 14 contrary allegations in the FAC and dismiss the trade secret claims as untimely. See Mot. at 6-10. 15

Third and finally, A10 argues that Brocade has alleged insufficient facts to state a claim for trade 16 secret misappropriation and that the claims should be dismissed on this ground. See Mot. at 14-16. 17

21 three years. Cal. Civ. Code § 3426.6. The period begins to run "after the misappropriation is 22 discovered or by the exercise of reasonable diligence should have been discovered." Id. In support 23 of its first argument, A10 urges the Court to find that Brocade should have discovered its trade 24 secret claims more than three years before filing its first complaint, and therefore that the claims 25 are time-barred. In support of this argument, A10 states that the original Complaint "painted a 26 picture in which Foundry's co-founder, Mr. Chen, started a competing company while still working 27 for Foundry in 2004, left Foundry later that year and wrongfully started recruiting for Foundry 28

The Court addresses these arguments in turn.

b. Motion to Strike Amended Pleadings and Dismiss Trade Secret Claim as Time-Barred

The statute of limitations for a trade secret misappropriation claim under California law is

Foundry [sic] engineers to join his new company . . . the OC does not even hint that Foundry was unaware of any of this while it was happening. The FAC attempts to paint a very different picture, 2 in which Foundry was actually completely in the dark until just quite recently." Mot. at 6. 3

Essentially, A10 asks the Court to assume that Brocade's silence about when it learned of the trade 4 secret misappropriation in the original Complaint should be taken as an admission that it knew 5 about its potential cause of action as of 2004, when Mr. Chen left Foundry, and that the statute of 6 limitations should begin running at that time. However, after a careful comparison of the 7

Brocade's present contention that it did not learn about the alleged trade secret theft until late 2009 9 or early 2010. A10 complains that "Plaintiffs' FAC omits what they supposedly did know and 10 when they learned it. . . ." Mot. at 9. However, the FAC adequately alleges reasons why the trade 11 secret misappropriation claim (and overed earlier: the defendants'

the other claims) were not disc

12 alleged concealment of their activities. A claim cannot be dismissed on statute of limitations 13 grounds unless it is clear from the face of the complaint that the statute has run and that no tolling 14 is possible. Conerly v. Westinghouse Electric Corp., 623 F.2d 117, 119 (9th Cir. 1980). 15

16 to the Ninth Circuit's holding in Conerly. Moreover, none of the authority cited by A10 supports 17 such actions. First, as Brocade points out in its Opposition, the Ninth Circuit has held that even 18 inconsistent pleadings may not be stricken unless the Court finds that they were made in bad faith. 19

Rules of Civil Procedure to prevent a party from filing successive pleadings that make inconsistent 21 or even contradictory allegations. Unless there is a showing that the party acted in bad faith-a 22 showing that can only be made after the party is given an opportunity to respond under the 23 procedures of Rule 11-inconsistent allegations are simply not a basis for striking the pleading."). 24

Even assuming that A10 intended to argue that the allegations in the FAC were made in bad faith, 25 it has not sufficiently supported this argument. 26

Complaint and the FAC, the Court can find no facts in the Complaint that are inconsistent with 8 Striking portions of the FAC and assuming facts not alleged in either complaint is contrary

PAE Gov't Servs. v. MPRI, Inc., 514 F.3d 856, 860 (9th Cir. 2007) ("there is nothing in the Federal 20

A10's cited authority is also distinguishable. For example, in Stearns v. Select Comfort Retail Corp., _ F. Supp. 2d _, No. 08-2746 JF (PVT), 2010 WQL 2898284 at *13 (N.D. Cal. July 28 15, 1996), the court struck a new allegation that directly contradicted previous allegations, but refused to strike new allegations that were not contradicted by previous pleadings. Although A10 2 cites some authority finding that new contentions need not be directly contradictory in order to be 3 stricken as sham pleadings, as A10 concedes, these cases hold that the new allegations must be at 4 least inconsistent with the previous pleadings if the court wishes to ignore them. See, e.g., Lockton 5

FAC's allegations are consistent with those of the Complaint, and that there is no reason to suspect 7 that the amendments were made in bad faith (pursuant to PAE). Therefore, there is no basis to 8 strike new allegations in the FAC.*fn2

9

10 discovered or by the exercise of reasonable diligence should have been discovered." Cal. Civ. v. O'Rourke, 184 Cal. App. 4th 1051, 1061 (2010). As stated above, the Court finds that the 6

The statute of limitations on trade secret claims begins to run "after the misappropriation is

Code § 3426.6. In the FAC, Brocade alleges that it did not discover the possibility of the alleged misappropriations until late 2009 or 2010. FAC ¶ 23. A10 argues that, regardless of these 13 allegations, Brocade should have discovered its claim sooner, and the claim should be barred on 14 this ground. See Mot. at 9-10. It appears that the factual record must be developed before the 15

Court can determine whether Brocade's claims are time-barred. For the most part, A10's cited 16 authority finds that trade secret claims are time-barred at the summary judgment phase, not at the 17 pleadings phase. Intermedics, Inc. v. Ventritex, Inc., 822 F.Supp. 634, 636-37 (N.D. Cal. 1993); 18

Sept. 20, 2007). Both Intermedics and Memry were decided at the summary judgment phase. The 20 courts in both cases found that the statute of limitations began to run because the plaintiffs had 21 actual notice of trade secret misappropriation. As the court noted in Intermedics, such a 22 determination is often case-specific and fact-intensive. See Intermedics, 822 F.Supp. at 636. The 23

Memry Corp. v. Ky. Oil Tech., N.V., No. C-04-03843 RMW, 2007 WL 2746736, *7 (N.D. Cal. 19

Union High Sch. Dist. No. 205, 343 F.3d 1036, 1040 (9th Cir. 2003) (internal citations omitted). The responding party must then rebut this evidence. A10 did not move to dismiss pursuant to Rule 26 one case A10 cites which found a trade secret claim time-barred at the pleadings phase involved 2 allegations showing that the plaintiff was present at the meeting where his alleged secrets were 3 disclosed, and on this basis, the court concluded that he was at least on inquiry notice as of this 4 date. Portney v. CIBA Vision Corp., No. SACV 07-0854 AG, 2008 WL 5505518 at *9-10 (C.D. 5 Cal. Dec. 24, 2008). But Brocade makes no similar admission in either the original Complaint or 6 the FAC. Therefore, the Motion to Strike new pleadings, and the Motion to Dismiss the trade 7 secret misappropriation claims as time-barred, are DENIED. The statute of limitations defense 8 may be raised again at the summary judgment phase.*fn3

c. Motion to Dismiss Trade Secret Claim for Insufficient Pleading

A10 argues that Brocade has alleged "virtually no facts supporting the alleged misappropriation of Foundry trade secrets." See Mot. at 14. A10 submits that the FAC fails to allege sufficient facts to make the trade secret misappropriation claim "plausible on its face," and 13 therefore must be dismissed pursuant to Iqbal. The Court disagrees. 14

15 existence of a trade secret, and (2) misappropriation of the trade secret. See Cal. Civ. Code § 16 2003). As outlined in the Introduction, Brocade has alleged that it has trade secrets, including the 18 design of its ServerIron and ADX products, related software including source code, customer 19 information, and employee information. FAC ¶¶ 18-22. Brocade alleges that it has made efforts to 20 maintain the secrecy of this information, including by requiring employees to sign confidentiality 21 agreements. FAC ¶¶ 22; 47-51. Brocade further alleges that individual defendants, including Jalan 22 and Szeto, made copies of certain Brocade trade secrets (such as the ServerIron and ADX source 23 code). FAC ¶59. Brocade asserts that A10 used its knowledge of its trade secrets, including the 24

A claim for trade secret misappropriation under California law requires pleading (1) the

3426.1; Accuimage Diagnostics Corp. v. Terarecon, Inc., 260 F. Supp. 2d 941, 950 (N.D. Cal. 17

ServerIron and ADX products design and related software, to provide a "jump start" on developing 25 competing products. FAC ¶¶ 35, 37, 59. Brocade alleges that A10 then recruited "vital sales 2 personnel" from Brocade in order to gain access to confidential sales and marketing information to 3 use in marketing its competing products. FAC ¶ 61. 4

5 that it is "equally plausible that A10 brought its accused AX Series to market through completely 6 proper means" misapprehends the relative burdens at this point in the litigation. The Court is not 7 weighing the relative probability that the facts alleged are true. See Al-Kidd v. Ashcroft, 580 F.3d 8

Brocade's allegations are sufficient to state a claim "plausible on its face." A10's argument 949, 977 (9th Cir. 2009) (holding that Iqbal does not impose a probability requirement). Instead, it 9 is determining whether or not Brocade has alleged facts sufficient to "provide the grounds of [its] 10 entitlement to relief." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (U.S. 2007) (internal citations 11

As Brocade notes, another court in this district has reached a similar conclusion about a 13 similar trade secret misappropriation claim. See DocMagic Inc. v. EllieMae Inc., _ F. Supp. 3d. _, 14 No. C 09-04017 MHP, 2010 U.S. Dist. LEXIS 108628 at *50-53 (N.D. Cal. Oct. 12, 2010) (finding 15 trade secret misappropriation claim sufficiently alleged when plaintiff alleged that defendant used 16 its customer information to launch a competing product). This conclusion is also in accord with 17 decisions by other district courts in the Ninth Circuit. See W.L. Gore & Assocs. v. GI Dynamics 18

2010) (finding trade secret misappropriation claim adequately pled under the Uniform Trade 20

Secrets Act and in light of Iqbal where the plaintiff alleged "research, development, and market 21 opportunities" and "product design . . . patent portfolio, and future plans" as its trade secrets, and 22 alleged that defendant had used these materials to launch a competing product with similar features 23 to plaintiff's product and to file patent applications); DLC Dermacare LLC v. Castillo, No. CV-10-24

333-PHX-DGC, 2010 U.S. Dist. LEXIS 132403 at *12-*14 (D. Ariz. Dec. 14, 2010) (same; 25 finding adequately-pled claim based on plaintiff's allegation that its "operation of DermaCare 26 facilities, including manuals, training materials, and marketing information" were trade secrets, and 27 that the defendant had used these manuals in operating competing facilities). 28

and quotation omitted). It conclude 12

s that Brocade has done so.

Inc., No. CV-10-8088-PHX-GMS, 2010 U.S. Dist. LEXIS 133309 at *25-27 (D. Ariz. Dec. 15, 19

2 pleadings made "on information and belief." However, as the authority cited by A10 itself holds, 3 pleading in this manner is acceptable for information that is not presumptively in the knowledge of 4 the pleading party. Hutchens v. Alameda County Soc. Servs. Agency, No. C-06-06870 SBA, 2008 5

Finally, A10 argues that Brocade's pleadings are insufficient because many of them rely on

U.S. Dist. LEXIS 69429 at *11-14 (N.D. Cal. Sept. 9, 2008) (finding that failure to plead 6 information presumptively in the plaintiffs' possession "failed to put defendant on notice as to what 7 it should defend against."). In the instant case, to use one example, information about whether and 8 how former Foundry and Brocade employees allegedly copied Brocade source code and used it to 9 create a competing product is presumptively in the possession of A10, not Brocade. Therefore, 10

12 misappropriation. Therefore, the Motion to Dismiss Brocade's twelfth claim for trade secret 13 misappropriation is DENIED. 14

16 parties to sustain its claims for indirect patent infringement, and has not sufficiently alleged intent 17 to induce infringement to sustain its claims for induced patent infringement. See Mot. at 11-13. 18

Indirect patent infringement requires an allegation of direct infringement by another. Dynacore 19

Holdings Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1274 (Fed. Cir. 2004). Inducement of 20 infringement requires an allegation of indirect infringement, with the additional element that the 21 defendant "possessed the requisite knowledge or intent to be held vicariously liable." Dynacore 22

Regarding indirect infringement, A10 argues that the FAC does not sufficiently allege

24 infringement by others. Brocade responds that the FAC sufficiently alleges infringement by A10's 25 customers and manufacturers, by alleging that "A10 (and/or third parties acting on A10's behalf) 26 manufactures, imports, sells and/or offers to sell products, including its AX Series products, that 27 infringe the Patents-in-suit," and that A10 then sells these products to its customers. FAC ¶¶ 61, 28

A10 has not identified any basis for the Court to disregard these pleadings.

The Court concludes that Brocade has adequately pled a claim for trade secret

d. First through Tenth Claims for Indirect and Induced Patent Infringement

A10 next argues that Brocade has not sufficiently alleged direct infringement by third Holdings, 363 F.3d at 1273 (internal citations omitted). 23

63. Brocade states that A10's customers "clearly have a motivation to operate Defendants' devices 10 in an infringing manner." Opp'n at 12. As the Federal Circuit noted in Dynacore, a plaintiff can 2 base its assertions of direct infringement on infringement by customers of the accused product. 3

Dynacore Holdings, 363 F.3d at 1274. Thus, Brocade has adequately alleged that A10's AX Series 4 products are accused of infringing the patents-in-suit, that any manufacturer, importer or seller in 5 the supply chain for this product indirectly infringes the patents, and that any customer who 6 purchases the AX Series products and uses them as intended infringes the patents. The Court finds 7 that these allegations are sufficient to provide the grounds for Brocade's entitlement to relief. 8

9 sufficient. In order to prove its allegations of induced infringement, Brocade will have to show that 10

1424, 2010 U.S. App. LEXIS 22660 at *37 (Fed. Cir. Nov. 1, 2010). However, this proof is not 13 required at the pleadings stage. At this point, Brocade need only sufficiently allege its claims so 14 that A10 knows against what it is defending. Brocade has alleged that Jalan and Chen had intimate 15 knowledge of the patents in suit and set about designing the accused AX series products "with full 16 knowledge" of these patents. SAC ¶ 37. The Court finds that these allegations are sufficient to 17 make Brocade's claims of induced infringement plausible. Particularly because "[d]eterminations 18 of knowledge or of intent [such as the intent to induce infringement] relevant to patent law issues 19 pose challenging factual determinations," the Court finds that the question of whether A10 or any 20 individual defendant possessed the requisite intent to induce infringement cannot be resolved 21 without development of the factual record. Dynacore Holdings, 363 F.3d at 1274. 22

23 patent infringement is DENIED. 24

26 infringement. See Mot. at 13-14. A claim for copyright infringement requires a plaintiff to assert 27

(1) ownership in a valid copyright and (2) copying of original elements of the copyrighted work. 28

Likewise, the Court finds that Brocade's allegations regarding induced infringement are

A10 and the individual defendants "knowingly induced infringement and possessed specific intent

to encourage another's infringement." AstraZeneca LP v. Apotex, Inc., Nos. 2009-1381, 2009-12

Accordingly, the Motion to Dismiss claims ten through twelve for indirect and induced

e. Eleventh claim for Copyright Infringement

A10 argues that Brocade has alleged insufficient facts to state a claim for copyright

Feist Publs. Inc. v. Rural Telephone Serv. Co., Inc., 499 U.S. 340, 361 (1991). "Copying" may be shown by proving access to the copyrighted work and substantial similarity between the works. 2

Cir. 1977). A10 does not appear to dispute that Brocade has sufficiently alleged the first element. 4

In the FAC, Brocade alleges that its BigIron software and ServerIron software are copyrightable, 5 and that it has applied to register the copyrights for the software with the U.S. Copyright Office. 6

Opp'n at 15, n.5. Thus, Brocade has sufficiently alleged ownership in a valid copyright. 8

9 that the "only allegations of wrongdoing" are "conclusory allegations" which are insufficient under 10

5 (M.D. Fla. Aug. 31, 2010) (dismissing claims based on alleged copying of ideas rather than 14 protectable expression); Roberts v. Keith, 04 CV 10079, 2009 WL 3572962 (S.D. N.Y., Oct. 23, 15

2009) (dismissing claims failing to allege domestic infringement); Inst. for Dev. of Earth 16

2850230, *3 (S.D.N.Y. Aug. 28, 2009) (dismissing claims for statutory damages and attorney's 18 fees because plaintiff failed to allege facts supporting post-registration infringement of written 19 materials after being granted leave to amend). The one case in which software copying was 20 alleged dismissed those claims with leave to amend. Tegg Corp. v. Beckstrom Elec. Co., No. 08-21

435, 2008 WL 2682602 at *7-*9 (W.D. Pa. July 1, 2008). Leave was given because the 22 complaint's allegations were confusing regarding what software components were protected or 23 protectable, which copyrights were owned by the plaintiffs, and what activities of defendants were 24 accused of infringing. Id. 25

Brocade alleges that A10 "used . . . Foundry's source code . . . in making and developing

26 the A10 products . . . " and that "the A10 AX Series products utilize software code copied from, or 27 substantially similar to, Plaintiffs' copyrighted software code." FAC ¶ 37, 57. Brocade further 28 alleges that A10 retains an unauthorized copy of the Foundry source code. FAC ¶ 59. Source code

Sid & Marty Krofft Television Productions, Inc. v. McDonald's Corp., 562 F.2d 1157, 1162 (9th 3

FAC ¶ 17. In its opposition brief, Brocade states that these copyright registrations have issued. 7

A10 asserts that Brocade has not met its burden regarding the second element. It argues

Iqbal. Mot. at 13. In support of this argument, A10 cites a number of cases, all from outside the

Ninth Circuit. As Brocade notes in its opposition, most of these cases are factually dissimilar to the present case. See, e.g., Dodd v. Woods, No. 8:09-C-1872-T-27AEP, 2010 WL 3747007, at *2-13

Awareness v. People for Ethical Treatment of Animals, No. 08 Civ. 6195 (PKC), 2009 WL 17

is often not publicly available. As a result, it can be difficult or impossible for a plaintiff to 2 examine accused source code before some discovery has occurred. See Miller v. Facebook, Inc., 3

No. C 10-00264 WHA, 2010 U.S. Dist. LEXIS 75204 at *3-*5 (N.D. Cal. July 23, 2010) (finding 4 direct copyright infringement sufficiently pled based on defendant's access to the code, and 5 allegations that the accused game mimicked the "look and feel" of the original game.) The Court 6 finds that Brocade has alleged facts sufficient to make its copyright claim "plausible" rather than 7 merely "possible," and therefore has met its pleadings-phase burden under Iqbal. If discovery 8 reveals that Brocade's allegations, many of which are made on information and belief, are 9 incorrect, A10 may move for summary judgment on the copyright infringement claim. 10

11

Accordingly, the Motion to Dismiss Brocade's eleventh claim for copyright infringement is DENIED. 12

15 alleged insufficient facts to state a breach of contract claim. A breach of contract claim requires 16 allegations of (1) a contract; (2) plaintiff's performance or excuse for failure to perform; and (3) 17 defendant's breach and resulting damage to plaintiff. Marolda v. Symantec Corp., 672 F. Supp. 2d 18

992, 1005-6 (N.D. Cal. 2009). A10 does not dispute that Brocade has alleged that all of its 19 employees signed employment contracts. Brocade appended the contracts to the FAC. See FAC 20

Court disagrees. As outlined in the Introduction and Background section, Brocade alleges 22 numerous specific acts by A10 and the individual defendants which, when taken as true, breach 23 different provisions of the employment contract. 24

25 contract are legally insufficient. For example, A10 complains that Brocade has not sufficiently 26 alleged that the defendants breached the provision prohibiting them from using and disclosing 27 proprietary information, but as the Court has already found that Brocade has sufficiently alleged 28 misappropriation of trade secrets, this argument fails. Likewise, A10 argues that Brocade has not

f. Thirteenth Claim for Breach of Contract

i. Failure to plead sufficient facts

As with all of the other claims it addresses in its Motion, A10 argues that Brocade has

¶¶ 47-51. Instead, A10 argues that Brocade's allegations of breach are legally insufficient. The 21

The Court is not persuaded by A10's assertion that Brocade's allegations of breach of

sufficiently alleged a breach of the contract provision requiring assignment of inventions. This 2 provision provides that employees will "assign to the Company all . . . right, title and interest in 3 and to any and all Inventions (and all Proprietary Rights with respect thereto) . . . made or 4 conceived or reduced to practice . . . during the period of my employment with the Company." 5

FAC ¶ 49. Brocade alleges that the individual defendants used proprietary Brocade information in 6 developing products for A10, and that some of this activity occurred while defendants were still 7 employed by Foundry. Therefore, the Court finds that Brocade has sufficiently alleged this cause 8 of action as well.*fn4

10 forbidding employment or business activities for another entity while employed by Foundry.

Therefore, this claim is sufficiently alleged. 14

15 provisions forbidding solicitation of Brocade's clients and employees. While A10 complains that 16 the complaint is insufficient because it fails to identify "which employees the individual defendants 17 solicited," in fact, the FAC asserts that Chen solicited defendants Jalan, Szeto, Han, Hwang, and 18

Cheung, as well as other employees. See FAC ¶¶ 34-44, 54, 61. Brocade's allegations therefore 19 provide sufficient detail such that A10 can respond to its claims. At this point in the litigation, this 20 is all Brocade must do. 21

22 breach of contract. 23

25 the following clause from the employment contracts: "for the period of my employment by the 26

The Court also finds that Brocade has adequately alleged breach of contract provisions Brocade clearly alleges that all of the individual defendants performed work for A10 to help develop the accused AX Series product while still employed by Foundry. FAC ¶¶ 30, 37-39. 13

Finally, the Court finds that Brocade has adequately alleged breach of the contract

Therefore, the Court DENIES A10's Motion to Dismiss Brocade's thirteenth claim for

ii. Unenforceability of anti-solicitation provision

A10 moves to dismiss the portion of Brocade's breach of contract claim which is based on Company and for one (1) year after the date of my employment by the Company I will not . . . (ii) 2 solicit the business of any client or customer of the Company (other than on behalf of the 3

Company)." Mot. at 20. A10 argues that under California law, this type of non-compete provision 4 is unenforceable. See Bus. & Prof. Code § 16600; Edwards v. Arthur Andersen LLP, 44 Cal. 4th 5

937, 948 (Cal. 2008). Brocade challenges A10's argument regarding Edwards, saying that it 6 invalidated a non-competition clause as opposed to a non-solicitation clause, and is therefore 7 inapposite. Opp'n at 18. However, in Edwards, the court noted that "[t]he second challenged 8 clause prohibited Edwards, for a year after termination, from 'soliciting,' defined by the agreement 9 as providing professional services to any client of Andersen's Los Angeles office." Edwards v. 10

California Supreme Court regarding the scope of Business and Professions Code § 16600, the

Court finds that the language Brocade relies upon for this portion of its breach of contract claim 13 would be unenforceable under California law, unless it falls into one of the statutory exceptions. 14

Such clauses may be enforceable if they are "necessary to protect an employer's trade secret." 15

Asset Mktg. Sys. v. Gagnon, 542 F.3d 748, 758 (9th Cir. 2008). Because it is at least plausible, 16 based on all of the allegations in the FAC, that Brocade will be able to show that this exception 17 applies to this portion of its breach of contract claim, the Court finds that Brocade has stated a 18 claim for breach of this provision of the contract. For the reasons set forth in the preceding section, 19 the Court rejects A10's argument that the factual allegations underlying this claim are too vague or 20 conclusory to state a claim. 21

contract. 23

26 on behalf of A10 while still employed at Foundry, these claims must fail. As stated above, 27 however, the Court finds that the FAC sufficiently alleges that the defendants used proprietary 28

Arthur Andersen LLP, 44 Cal. 4th 937, 948 (Cal. 2008). Given this recent statement by the 11

Accordingly, the Motion is DENIED regarding Brocade's thirteenth claim for breach of

g. Fourteenth and Fifteenth Claims for Breach of Fiduciary Duty and Breach of the

Duty of Loyalty

A10 argues that because Brocade has not sufficiently alleged how the defendants worked

Brocade information in developing products for A10, and that some of this activity occurred while defendants were still employed by Foundry. FAC ¶¶ 30, 37-39. A10 asserts that the FAC does not 2 sufficiently allege that Jalan and Szeto took any actions that could constitute a breach while still 3 employed by Foundry, the FAC sufficiently alleges facts making it plausible that they did. For 4 example, the FAC alleges that they retained copies of Brocade source code which were later used 5 in developing the AX Series products; presumably, any copies were made before Jalan and Szeto 6 left the company. FAC ¶¶ 37, 57-59. 7

8 fiduciary duty and breach of the duty of loyalty is DENIED. 9

Accordingly, the Motion to Dismiss the fourteenth and fifteenth claims for breach of

h. Sixteenth Claim for Interference with Prospective Economic Advantage

A10 argues that Brocade's claim for interference with prospective economic advantage is

not supported by sufficient factual allegations. On this claim, the Court agrees with A10. This claim requires allegation of the following elements: (1) an economic relationship between the 13 plaintiff and some third party with the probability of future economic benefit to the plaintiff; (2) 14 defendant's knowledge of the relationship; (3) intentional acts, apart from the interference itself, by 15 defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) 16 economic harm to the plaintiff proximately caused by the acts of the defendant. Sessions Tank 17

330-31 (1985)). "[A] plaintiff must establish an existing economic relationship or a protected 19 expectancy with a third person, not merely a hope of future transactions." See Swingless Golf Club 20

Brocade has failed to allege the existing economic relationship or protected expectancy with any 22 third party. While the parties' briefing focused on other elements of this claim, the Court finds that 23

Brocade has not adequately alleged the first element. The FAC states that the defendants "engaged 24 in wrongful conduct designed to interfere with or disrupt Plaintiffs' relationships with their actual 25 and prospective customers," but does not identify the identity of the customers or the basis for 26

Brocade's expectation. FAC ¶ 194. In this instance, the Court agrees with A10 that the pleadings 27 are too vague to determine whether Brocade has alleged more than a mere hope of future 28 transactions with potential or existing clients.

Liners v. Joor Mfg., 17 F.3d 295, 301 (9th Cir. Cal. 1994)(citing Blank v. Kirwan, 39 Cal.3d 311, 18

Corp. v. Taylor, No. C 08-05574 WHA, 2009 WL 2031768 at *4 (N.D. Cal. July 7, 2009). Here, 21 2 prospective economic advantage, and the claim is DISMISSED with leave to amend. 3

5 allege sufficient facts to state a claim for interference with contractual relations. This claim 6 requires pleading the following elements: (1) a valid contract between plaintiff and a third party; 7

Accordingly, A10's Motion is granted as to Brocade's sixteenth claim for interference with

i. Seventeenth Claim for Interference with Contractual Relations

As with all of the other claims, A10 asserts that Brocade has failed to meet its burden to

(2) defendants' knowledge of the contract; (3) defendants' intentional acts designed to induce a 8 breach or disruption of the contractual relationship; (4) actual breach or disruption of the 9 contractual relationship; and (5) resulting damage. Guidiville Band of Pomo Indians v. NGV 10 Gaming, Ltd., 531 F.3d 767, 774 (9th Cir. 2008). The Court finds that Brocade has adequately 11 alleged facts making this claim plausible on its face. Specifically, Brocade has alleged that (1) it

(because they entered such agreements themselves); (3 and 4) that the defendants encouraged other 14

A10 while still employed by Foundry, and by disclosing proprietary information belonging to 16

Foundry after their employment had terminated; and (5) that Brocade suffered damages in the form 17 of lost business as a result. See FAC ¶¶ 34, 38-46, 54-55, 61-62. 18

19 interference with contractual relations to the extent it relates to employees. 20

had employment contracts with its employees; (2) that the defendants knew of these agreements 13

Foundry employees and former employees to breach their employment agreements by working for 15

Accordingly, the Motion is DENIED regarding Brocade's seventeenth claim for

Regarding customers, Brocade argues that this claim embraces allegations that its

"relationships with [its] actual and prospective customers were in fact disrupted and Plaintiffs' [sic] 22 have been damaged." However, this allegation arises under the claim for intentional interference 23 with prospective economic relationship, and is only incorporated by reference into the contractual 24 interference claim. See FAC ¶ 196. The FAC does not otherwise allege that defendants caused the 25 breach of a contract between Brocade or Foundry and its customers. Therefore, to the extent this 26 claim is based on interference with contracts between Brocade and its customers, the FAC does not 27 allege sufficient facts to support such a claim. See, e.g., Swingless, 2009 WL 2031768 at *4 28

(finding interference with contractual relations adequately pled when the plaintiff identified

contracts "between plaintiff and its customers" and defendants' induction of breach by its 2 representation to buyers "that the defendants were the exclusive owners of the patents in dispute."). 3

j. Eighteenth Claim for Unfair Competition

California's Unfair Competition Law (UCL) defines unfair competition as any unlawful,

6 unfair or fraudulent business practice. Bus. & Prof. Code § 17200. Thus, a practice may be 7 unlawful, unfair or fraudulent to serve as the underlying basis for a UCL claim. Pfizer, Inc. v. Sup. 8

The Court hereby grants Brocade leave to add allegations to state such a claim. 4 Ct., 182 Cal. App. 4th 622, 629 (2010). A10 appears to concede that an interference with contract 9 claim can serve as the underlying violation for a UCL claim. See Reply at 15. Regardless of 10 whether or not A10 concedes this, it is true that a claim for interference with contract can serve as the underlying basis for a UCL claim. See CRST Van Expedited, Inc. v. Werner Enterprises, Inc., 479 F.3d 1099, 1107 (9th Cir. 2007) (holding that "CRST adequately alleged that Werner violated 13 the UCL because CRST adequately alleged that Werner engaged in . . . intentional interference 14 with CRST's employment contracts."). Because the Court has found that Brocade adequately 15 stated a claim for interference with contract, it likewise finds that Brocade has adequately alleged a 16

Accordingly, A10's Motion to Dismiss is DENIED regarding the eighteenth claim for UCL

18 violations. 19

IV. Conclusion 20

21 amend Brocade's sixteenth claim for interference with prospective economic advantage, and 22

DENIES the Motion as to all other asserted claims. Leave to amend is also granted as to Brocade's 23 seventeenth claim for interference with contractual relations if Brocade intends to include its 24 relations with its customers in that claim. If Brocade wishes to file an amended complaint, it shall 25 do so within 21 days of the date of this Order. No additional claims or parties may be added 26 without leave of Court or stipulation of the parties pursuant to Federal Rule of Civil Procedure 15. 27 28

UCL violation based on this predicate act. 17

For the reasons set forth above, the Court GRANTS the Motion and dismisses with leave to

IT IS SO ORDERED.


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