United States District Court, N.D. California
ORDER DENYING DEFENDANTS' MOTION TO DISMISS
Docket No. 47
M. CHEN United States District Judge
AllCells, LLC has filed suit against Defendants Cepheus
Biosciences, Inc. and two if its employees, Jack Zhai and
James Lee, asserting claims for, inter alia, trade
secret misappropriation under both state and federal law. Mr.
Zhai and Mr. Lee are former employees of AllCells and
currently work for Cepheus.
pending before the Court is Defendants' motion to
dismiss. In the motion, Defendants argue that AllCells cannot
state a claim for relief under the Defend Trade Secrets Act
(“DTSA”), see 18 U.S.C. § 1836, and
the Court should decline to exercise supplemental
jurisdiction over the remaining claims which are all based on
state law. Having considered the parties' submissions as
well as the oral argument of counsel, the Court hereby
DENIES the motion to dismiss.
DTSA provides that it “shall apply with respect to any
misappropriation of a trade secret (as defined in section
1839 of title 18, United States Code, as amended by this
section) for which any act occurs on or after the
date of the enactment of this Act, ” which is May 11,
2016. 114 P.L. 153, § 2(e) (emphasis added).
Misappropriation of a trade secret can be acquisition of a
trade secret, disclosure of a trade secret, or use of a trade
secret. See 18 U.S.C. § 1839(5). Here, even if
Mr. Zhai and Mr. Lee copied and thus acquired the
alleged trade secrets before May 11, 2016, AllCells has
sufficiently alleged that there was at least use of
the trade secrets after that date. Hence, the Act
applies. Defendants' contention that AllCells
has simply made conclusory allegations of use lacks merit.
The allegations suffice under Twombly and
Iqbal. See Bell Atl. Corp. v. Twombly, 550
U.S. 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662
to the extent Defendants argue that an act of continuing
misappropriation dates back to the first misappropriation
(i.e., a “single claim” of
misappropriation) and thus the entirety of the
misappropriation falls outside the DTSA, that argument is not
persuasive. First, as AllCells points out, the DTSA did not
adopt the language of the UTSA which appears to embrace
Defendants' theory. Compare UTSA § 11
(including 1985 amendments) (providing that “[t]his
[Act] takes effect on ___, and does not apply to
misappropriation occurring prior to the effective date”
and that, “[w]ith respect to a continuing
misappropriation that began prior to the effective date, the
[Act] also does not apply to the continuing misappropriation
that occurs after the effective date”), available
(last visited February 23, 2017).
Defendants' reliance on 18 U.S.C. § 1836(d) is
misplaced. Section 1836(d) provides:
A civil action . . . may not be commenced later than 3 years
after the date on which the misappropriation with respect to
which the action would relate is discovered or by the
exercise of reasonable diligence should have been discovered.
For purposes of this subsection, a continuing
misappropriation constitutes a single claim of
18 U.S.C. § 1836(d). But as one court has explained:
[W]hile Subsection 1836(d) states that a continuing
misappropriation constitutes a single claim, it does so only
“for purposes of this subsection.” That
subsection addresses only when a claim accrues for
statute of limitations purposes, and it does not purport
to address the issue in this case: whether an owner may
recover under DTSA when the misappropriation occurs both
before and after the effective date, assuming the entire
misappropriation is within the 3-year limitations period.
Adams Arms, LLC v. Unified Weapon Sys., No.
8:16-cv-1503-T-33AEP, 2016 U.S. Dist. LEXIS 132201, at *17
(M.D. Fla. Sept. 27, 2016) (emphasis added).
foregoing reasons, Defendants' motion to dismiss is
denied. To the extent Defendants have asked the Court to rule
that AllCells's DTSA claim can be based only on
disclosure or use, and not acquisition, the Court declines.
AllCells essentially conceded at the hearing that Mr. Zhai
and Mr. Lee copied, and thus acquired, the alleged trade
secrets before May 11, 2016. That conduct lies outside the
DTSA. However, it is not clear when exactly Cepheus acquired
the alleged trade secrets. It seems likely that acquisition
occurred prior to May 11, 2016, but, at this stage in the
proceedings, the record has not been sufficiently developed
on this point. The Court also notes that it is not making any
ruling on what acts of misappropriation AllCells may rely for
its state law misappropriation claim.
order disposes of Docket No. 47.