United States District Court, N.D. California, San Jose Division
KONINKLIJKE PHILIPS N. V. et al., Plaintiffs,
ELEC-TECH INTERNATIONAL CO., LTD., et al., Defendants.
ORDER ON MOTIONS TO DISMISS [Re: ECF 34, 35, 36]
BETH LABSON FREEMAN, District Judge.
Plaintiffs Koninklijke Philips N.V. ("Philips") and Philips Lumileds Lighting Company LLC ("Lumileds") bring suit against eleven Defendants, including a Chinese-based competitor, Elec-Tech International Co. ("ETI"), seven of ETI's subsidiaries, two corporate directors (Mr. Donglei Wang and Ms. Eva Chan), and a former Lumileds employee, Dr. Gangyi Chen, currently employed by ETI.
This case involves the global market for Light Emitting Diode ("LED") technology. In general terms, Plaintiffs' suit alleges that Dr. Chen, while still an employee at Lumileds, downloaded thousands of files "containing Philips Lumileds' trade secrets and confidential business information onto a portable storage device." Complaint, ECF 1 ¶ 5. Dr. Chen then began working for ETI in China. Plaintiffs allege that only six months after Dr. Chen began at ETI, the company announced two new high-energy LED lighting products, an amount of time Plaintiffs claim is "unprecedented" in the lighting industry. See, e.g., Compl. ¶ 62. Plaintiffs allege ten causes of action, nine of which arise out of state law. Plaintiffs also plead a single federal cause of action, based on a purported violation of the Computer Fraud and Abuse Act ("CFAA").
Defendants move to dismiss on a number of grounds: most salient for purposes of this order is Defendants' contention that Plaintiffs have failed to state a claim under the CFAA, and that the Court should dismiss this CFAA claim and decline to exercise supplemental jurisdiction over Plaintiffs' pendent state law claims. The Court ultimately agrees with Defendants, and for the reasons stated below DISMISSES this case, with prejudice.
A. Procedural History and the Motions to Dismiss
Plaintiffs filed their Complaint on June 12, 2014. Defendants then filed three motions to dismiss under Federal Rule of Civil Procedure 12(b), pursuant to a stipulation between the parties: a motion to dismiss for lack of subject matter jurisdiction, based on a lack of diversity between the parties as well as a failure to adequately plead a federal claim; a partial motion to dismiss, on behalf of seven of the eleven Defendants, for lack of personal jurisdiction; and a partial motion to dismiss nine of the ten causes of action for failure to state a claim upon which relief can be granted. Plaintiffs opposed all three motions, but withdrew their assertion of diversity jurisdiction. See ECF 84-6 at 8-9 ("Plaintiffs have chosen to withdraw their reliance on diversity as a basis for federal jurisdiction."). Plaintiffs argued that the Court nonetheless had subject matter jurisdiction over this case because the Complaint stated a claim under the CFAA, and that the Court could exercise supplemental jurisdiction over Plaintiffs' state law claims pursuant to 28 U.S.C. § 1367.
At the outset, the Court must decide the appropriate order in which to adjudicate Defendants' arguments presented in the Rule 12 motions. Though Defendants filed three motions, Plaintiffs' withdrawal of their diversity jurisdiction argument really leaves the Court with two: a partial Rule 12(b)(6) motion, which if granted as to the CFAA claim then requires the Court to determine whether it will decline to exercise its discretion to retain Plaintiffs state law claims; and a Rule 12(b)(2) motion for lack of personal jurisdiction as to seven of the Defendants.
In the normal course, the Court would determine personal jurisdiction before reaching the Rule 12(b)(6) motion. In this circuit, however, the Court may "assume the existence of personal jurisdiction and adjudicate the merits in favor of the defendant without making a definitive ruling on jurisdiction." See Lee v. City of Beaumont, 12 F.3d 933, 937 (9th Cir. 1993) overruled on other grounds by Calif. Dep't of Water Resources v. Powerex Corp., 533 F.3d 1087 (9th Cir. 2008). In Lee, the Ninth Circuit found that the district court could assume personal jurisdiction in order to reach the question of whether to dismiss the federal claims asserted against the defendant. 12 F.3d at 937-38. In this case, because the Court determines below that Plaintiffs have not-and cannot- plead a CFAA claim, the Court assumes without deciding that it has personal jurisdiction over all eleven Defendants. See Sameena, Inc. v. U.S. Air Force, 147 F.3d 1148, 1152 n.1 (9th Cir. 1998).
B. Factual Background
The facts below are pled in the Complaint, and are presumed true for purposes of adjudicating the Rule 12(b)(6) motion to dismiss.
Dr. Chen worked as a principal development engineer at Lumileds' headquarters in San Jose, California, from 2005 through 2012. In 2011, he began discussions with Mr. Wang about joining ETI. On June 22, 2012, he terminated his employment with Lumileds and, thereafter, began working at ETI. Compl. ¶¶ 5, 58. Between June 15 and June 22, 2012, Dr. Chen used a computer at Lumileds' offices "to copy several thousand files from its secure networks[, ] contain[ing] information about Philips Lumileds' proprietary epitaxy technology used in developing its LEDs, as well as other confidential business information." Compl. ¶ 55. Dr. Chen traveled to China, began working for ETI, and disclosed trade secret information regarding Lumileds' proprietary epitaxy technology to Defendants. Compl. ¶ 59.
In the Complaint, Plaintiffs asserted their CFAA claim against five Defendants: ETI, ETI International (H.K.) Co., Ltd. ("ETI-HK"), Mr. Wang, Ms. Chan, and Dr. Chen. In their opposition to the motion to dismiss, and again at oral argument, Plaintiffs conceded their CFAA claim against Dr. Chen. See, e.g., ECF 84-6 at 7 ("ETI, ETI HK, Wang, and Chan themselves were not authorized to access Lumileds' network, and Plaintiffs are not tying their liability under the statute to Chen's.") (emphasis in original). Plaintiffs allege that ETI, ETI-HK, Mr. Wang, and Ms. Chan violated the CFAA by accessing Lumileds' network "through their agent, defendant Chen, " because they themselves were not permitted to access Lumileds' network. Compl. ¶¶ 145, 147, 149. They argue that this "indirect access interpretation [of the CFAA] does not implicate current employees otherwise permitted to access their employer's computer (in this case Chen)." ECF 84-6 at 7.
Essentially, Plaintiffs argue that, though Dr. Chen himself was authorized to access Lumileds' network, and did not exceed his authorized access while downloading information prior to his resignation, the other four Defendants implicated in the CFAA claim should be held liable based on their ...