United States District Court, N.D. California, San Jose Division
ORDER (1) GRANTING DEFENDANT'S PARTIAL MOTION TO DISMISS; (2) GRANTING IN PART DEFENDANT'S MOTION TO STRIKE [Re: ECF No. 18]
BETH LABSON FREEMAN, District Judge.
Defendant Tela Innovations, Inc. ("Defendant" or "Tela") brings a Partial Motion to Dismiss Plaintiff Taiwan Semiconductor Manufacturing Co.'s ("Plaintiff" of "TSMC") Complaint. Plaintiff brings suit alleging four causes of action: fraud-deceit, breach of a contractual non-disclosure agreement, trade secret misappropriation, and breach of a contractual cooperation and licensing agreement. (Compl., ECF 7 at 10-15) Defendant moves to dismiss Plaintiff's first cause of action for fraud-deceit for failure to state a claim upon which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6), and for failure to meet the heightened pleading requirements for fraud under Rule 9(b). In addition, Defendant moves to strike Plaintiff's allegation of "willful and malicious" conduct in its third cause of action for trade secret misappropriation, pursuant to Rule 12(f).
Having considered the briefing and oral argument of the parties, the Court GRANTS Defendant's Partial Motion to Dismiss, with leave to amend, with regard to Plaintiff's first cause of action for fraud-deceit. The Court further GRANTS IN PART Defendant's Motion to Strike, with leave to amend.
A. Procedural History
Plaintiff filed its initial Complaint in the above-captioned action on January 24, 2014. (ECF 1) Three days later, on January 27, 2014, it filed a Corrected Complaint. (Compl., ECF 7) On March 20, 2014, Defendant filed its Partial Motion to Dismiss and Motion to Strike ("Mot. to Dismiss"). (ECF 18) Plaintiff filed its Opposition ("Opp. to Mot. to Dismiss") on April 3, 2014. (ECF 20) Defendant replied on April 10, 2014. (ECF 21) The case was reassigned to the undersigned judge on April 17, 2014, and oral argument was held on July 10, 2014.
B. Factual Allegations
Plaintiff is a Taiwanese corporation with its principal place of business in Hsinchu, Taiwan. (Compl., ECF 7 ¶ 2) Defendant is a Delaware corporation with its principal place of business in Los Gatos, California. ( Id. ¶ 3)
Plaintiff describes itself as a "provider of semiconductor fabrication services for customers who design their own circuit layouts, but who either lack their own semiconductor manufacturing expertise and facilities, or simply wish to use TSMC's high quality fabrication services or technology." ( Id. ¶ 2) In order for a customer to utilize TSMC's fabrication services, their circuitry designs must "comply with certain Design Rules' that TSMC develops for each of its process technology nodes and for each of the general types of chips that can be made at a given node." (Compl. ¶ 14) TSMC states that these Design Rules are "an important and competitively sensitive aspect of TSMC's technology, " that are treated by TSMC as "highly confidential, proprietary information." ( Id. )
In 2006, Tela approached TSMC with a design idea for "a highly regularized circuit architecture, " (Compl. ¶ 17), usable with "process nodes of 90 [nanometers ("nm")] or smaller" in size. ( Id. ) This "gridded array approach" was included in a patent application, Provisional Application No. 60/781, 288, filed with the United States Patent and Trademark Office ("USPTO") on March 9, 2006. ( Id. ) TSMC alleges that, as of May 2006, Tela's design remained "conceptual and only in the earliest stages of testing, " and that Tela was unsure whether fabricating Tela's design would be "feasible or cost-effective." ( Id. ¶ 18) TSMC states that Tela did not know whether TSMC's "Design Rules could be pushed' sufficiently to develop a cell library incorporating Tela's approach." ( Id. ) To determine whether fabrication was possible, and to assist in the design of the chip architecture, Tela subsequently requested that "TSMC  disclose its 65 [nanometer ("nm")] and 45 nm Design Rules to Tela, " ( id. ¶ 19), so that Tela could propose "Design Rule changes that might be needed to accommodate its gridded design." ( Id. )
On May 16, 2006, TSMC and Tela entered into a Nondisclosure Agreement ("2006 NDA"), whereby TSMC would provide Tela copies of several of its confidential Design Rules. ( Id. ¶ 20) The 2006 NDA applied "only to geometrics greater than 32 nm, " ( Id. ) and permitted Tela " only [to] use [TSMC's] Confidential Information for the purpose of mutually beneficial technical and business developments." ( Id. (emphasis and brackets in Complaint)) The 2006 NDA further prohibited Tela "from using such Confidential Information for any other purposes. " ( Id. (emphasis in Complaint)) After both parties signed the 2006 NDA, TSMC provided to Tela copies of TSMC's 65 nm and 45 nm confidential Design Rules. ( Id. ¶ 21)
From 2006 through 2009, TSMC and Tela "collaborated to test the viability of Tela's gridded design approach." ( Id. ) During this time, TSMC states that it "disclosed to Tela... that certain aspects of Tela's gridded design approach were unnecessary, counterproductive, and not commercially viable." ( Id. ) TSMC alleges that, through the disclosure of its Design Rules and other shared information, it informed Tela of "the ways in which TSMC's own [integrated circuit] design parameters and approach differed from the invention that Tela had disclosed in its provisional patent application No. 60/781, 288." ( Id. )
In November 2008, Tela received U.S. Patent No. 7, 446, 352 ("the 352 Patent"), which TSMC describes as "the first patent to mature from [Tela's] March 9, 2006 provisional application." ( Id. ¶ 22) TSMC alleges, however, that:
[O]n September 17, 2008, just two months before it received the 352 patent, Tela had applied for another patent that claimed subject matter that it did not invent[, ]... [and] instead made use of confidential information about TSMC's different and better option for a 45 nm design architecture that TSMC had provided to Tela for their mutual benefit, not for Tela to use for a patent application.
( Id. ¶ 23) TSMC alleges that this Application, No. 12/212, 562, along with another Application, No. 12/402, 465, improperly made use of TSMC's confidential information, provided by TSMC to Tela pursuant to the 2006 NDA. ( Id. )
On January 23, 2009, Tela and TSMC entered into a collaboration agreement ("2009 Agreement"), in order to "co-develop 65 and 45 nm cell libraries, layouts, and other materials incorporating Tela's and TSMC's technology." ( Id. ¶ 24) TSMC states that, during this collaboration, Tela knew that TSMC's 65 nm and 45 nm Design Rules did not practice "at least two essential elements" of the gridded design included in Tela's 352 Patent, ...