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Wang v. Golf Tailor, LLC

United States District Court, N.D. California, San Francisco Division

July 5, 2017

JONATHAN WANG, et al., Plaintiffs,
v.
GOLF TAILOR, LLC, et al., Defendants.

          ORDER PARTLY GRANTING MOTION TO DISMISS RE: ECF NO. 21

          LAUREL BEELER United States Magistrate Judge

         INTRODUCTION

         This case and the two cases consolidated with it generally involve competing claims of design-patent theft. The plaintiffs and defendants both claim to have designed the golf club and golf training aid in question; both claim that the other stole their designs. In this case, the plaintiffs seek relief under U.S. copyright statutes (17 U.S.C. § 101 et seq.), among other laws.[1] The court thus has subject-matter jurisdiction of this case under 28 U.S.C. § 1331. The parties have consented to magistrate jurisdiction.[2] The plaintiffs have moved under Rule 12(b)(6) to dismiss the defendants' counterclaims and to strike five of their of their affirmative defenses.[3] The court held a hearing on this motion on June 29, 2017. The court grants the plaintiffs' motion.[4]

         GOVERNING LAW

         A Rule 12(b)(6) motion to dismiss for failure to state a claim tests the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A claim will normally survive a motion to dismiss if it offers a "short and plain statement . . . showing that the pleader is entitled to relief." See Fed. R. Civ. P. 8(a)(2). This statement "must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. "The plausibility standard is not akin to a 'probability requirement, ' but it asks for more than a mere possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 556). "Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of 'entitlement to relief.''" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557).

         The pleading standards of Iqbal and Twombly apply as well to counterclaims and affirmative defenses. See Barnes v. AT&T Pension Ben. Plan-Nonbargained Program, 718 F.Supp.2d 1167, 1170-71 (N.D. Cal. 2010). "The key to determining the sufficiency of pleading an affirmative defense is whether it gives plaintiff fair notice of the defense." Id. at 1171 (quoting Wyshak v. City Nat'l Bank, 607 F.2d 824, 827 (9th Cir. 1979)). Affirmative defenses that do not meet these standards may be struck under Rule 12(f). See Id. at 1170-71; see also MIC Prop. and Cas. Corp. v. Kennolyn Camps, Inc., No. 5:15-cv-00589-EJD, 2015 WL 4624119, at *2 (N.D. Cal. Aug. 3, 2015) ("In this district at least, a defendant provides 'fair notice" of an affirmative defense by meeting the pleading standard articulated in Federal Rule of Civil Procedure 8, as further refined by" Twombly and Iqbal).

         When considering a Rule 12(b)(6) motion, the court must accept as true all factual allegations in the complaint as well as all reasonable inferences that may be drawn from such allegations. LSO, Ltd. v. Stroh, 205 F.3d 1146, 1150 n. 2 (9th Cir. 2000). Such allegations must be construed in the light most favorable to the nonmoving party. Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000). "[W]hen a written instrument contradicts allegations in the complaint to which it is attached, " however, "the exhibit trumps the allegations." Gamble v. GMAC Mortg. Corp., 2009 WL 400359, *3 (N.D. Cal. Feb. 18, 2009) (quoting N. Ind. Gun & Outdoor v. City of South Bend, 163 F.3d 449, 454 (7th Cir. 1998)).

         STATEMENT

         This case involves the intellectual-property rights - in particular, the design rights - embodied in two products. The first is a golf club and the second is a golf "training aid." The plaintiffs call the club the "Wang Golf Club, " which defendant Golf Tailor has manufactured and sold (originally under a legitimate contract) as its own "XE1 Wedge." For present purposes, following the parties' lead, the court mostly refers to the disputed club as the "XE1." The plaintiffs claim that Golf Tailor sold a "CSi Wedge" as an unauthorized derivative of the XE1. The training aid is called the "Speed Whip." The parties' competing claims are the same for both products. The plaintiffs and the defendants claim that they designed the product and that the other party stole their design, produced and sold knockoffs, and thus misappropriated their intellectual property in the XE1 and Speed Whip.

         Plaintiff Jonathan Wang designs golfing equipment, including clubs and "training aids."[5] He is the founder of plaintiff GolfBestBuy, Inc.[6] Mr. Wang claims to have filed three copyright applications related to the Wang Golf Club: (1) U.S. Copyright Office Case No. 1-4461451449 (the "'449 Drawing"); (2) No. 4461451644 (the "'644 Drawing"); and (3) No. 4459918566 (the "'566 CAD Drawing"). He claims to have seven copyright applications on a line of related clubs: (4) Nos. 1-4459919064, 1-4461451494, and 1-4461451569 (collectively, the "'569 Drawing"); and (5) Nos. 1-4461451689, 1-4461451744, and 1-4461451779 (the "'799 Drawing"). Finally, in addition to these "technical drawings, " Mr. Wang claims to have "created prototypes" of the Wang Golf Club; photographs of these prototypes are also in dispute here.[7]

         According to the plaintiffs: "Defendants Golf Tailor and Tim Oyler agreed to purchase golf clubs and training aids embodying Mr. Wang's patented and copyrighted designs through Mr. Wang's authorized distributor, Golf Gifts & Gallery ("GG&G").[8] The plaintiffs allege that Golf Tailor bought the subject clubs for about a year and then started counterfeiting them.[9] Once it had a source manufacturing the counterfeits, Golf Tailor stopped buying the authorized clubs from the plaintiffs.[10] The plaintiffs then started selling the XE1-branded inventory that had been earmarked for Golf Tailor.[11] When the plaintiffs did this, Golf Tailor sued them (in Washington federal court) for unfair competition and false designation of origin.[12]

         The defendants tell a different story. They "claim to own all intellectual[-]property rights" in these products; they call the plaintiffs' claimed rights "bogus."[13]According to Golf Tailor, its CEO, defendant Tim Oyler, designed the XE1 and Speed Whip. Golf Tailor alleges that it hired GG&G to manufacture the XE1 and Speed Whip for sale in China. It claims that it confidentially shared its designs with GG&G to facilitate their manufacture. Then, Golf Tailor alleges, GG&G "secretly shared" these designs with another Chinese manufacturer controlled by Mr. Wang. Mr. Wang then obtained a Chinese patent on the designs; he used this to support his U.S. filings on the products. When Golf Tailor discovered that the plaintiffs were selling knockoffs of the XE1 and Speed Whip, Golf Tailor sued.

         The parties have clashed over these products before. They have sued each other in federal courts in Texas and Washington. The plaintiffs here brought two design-patent suits in the Eastern District of Texas. Those cases deal respectively with the plaintiffs' patents on the Wang Golf Club and "Mr. Wang's design of a golf trainer aid."[14] The defendants transferred both Texas cases to this district as a more convenient forum.[15] The plaintiffs consented to that transfer.[16] Meanwhile, in the Washington suit, Golf Tailor and Mr. Oyler sued the plaintiffs over the disputed products.[17]The plaintiffs have moved to dismiss that case for lack of personal jurisdiction or, alternatively, to transfer it to this district.[18] (At the June 30 hearing, the parties said that the transfer is underway.) These parallel lawsuits play only a limited role here: The plaintiffs argue that the defendants have repeatedly failed to plausibly allege that Mr. Oyler designed the XE1 and Speed Whip, so that their present counterclaims should be dismissed, not with leave to amend, but with prejudice.[19]

         In this suit Golf Tailor brings 13 counterclaims. Twelve concern six images of the disputed XE1.[20] For each image, Golf Tailor asks the court to declare that the plaintiffs' claimed rights are invalid and that Golf Tailor's products did not infringe the plaintiffs' rights.[21] The crux of all these counterclaims is that Mr. Oyler designed the XE1.[22] Golf Tailor's last counterclaim is under the federal Defend Trade Secrets Act ("DTSA"), 18 U.S.C. § 1836.[23] The DTSA counterclaim involves both the XE1 and the Speed Whip.

         The plaintiffs now move to dismiss the defendants' counterclaims and to strike five of their affirmative defenses.

         ANALYSIS

         1. Counterclaim 13 - Defend Trade Secrets Act

         Counterclaim 13 alleges that, by selling the XE1-branded Wang Golf Club and the Speed Whip, the plaintiffs misappropriated Golf Tailor's trade secrets, and thereby ran afoul of the federal Defend Trade Secrets Act ("DTSA"), 18 U.S.C. § 1836. The DTSA "creates a cause of action for the 'owner of a trade secret that is misappropriated . . . if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.'" Cave Consulting Grp., Inc. v. Truven Health Analytics Inc., 2017 WL 1436044, *3 (N.D. Cal. Apr. 24, 2017) (quoting 18 U.S.C. § 1836(b)(1)). "A 'trade secret' includes 'all forms and types' of information that derives value from being secret and that the owner took reasonable measures to keep secret." Id. (quoting 18 U.S.C. § 1839(3)(A), (B)). "'Misappropriation' consists of (a) 'acquisition of a trade secret' by a person who knows or should know the secret was improperly acquired or (b) 'disclosure or use of a trade secret of another without express or implied consent.'" Id. (quoting 18 U.S.C. § 1839(5)(A), (B)). The DTSA thus "contemplates three theories of liability: (1) acquisition, (2) disclosure, or (3) use" of a trade secret. Id. (citing 18 U.S.C. § 1839(5)).

         The DTSA applies only to misappropriations that occurred "on or after the date of [DTSA's] enactment" - May 11, 2016. Id. (quoting Defend Trade Secrets Act of 2016, Pub. Law No. 114- 153, May 11, 2016, 130 Stat. 376); accord, e.g., Avago Techs. U.S. Inc. v. Nanoprecision Prods., Inc., 2017 WL 412524, * 8 (N.D. Cal. Jan. 31, 2017).

         Golf Tailor has no viable DTSA claim for the XE1. Its allegations show that, by May 11, 2016, it had already lost any trade secrets that it had in this product. Golf Tailor explains that it sold the XE1 in 2015 - well before DTSA's May 11, 2016 enactment. In its answer in this case, Golf Tailor has "[a]dmitted that [it] had greater sales of its XE1 golf clubs in November 15 than in March 2015 to November 2015."[24] Which of course shows that Golf Tailor was selling this club, at the latest, by November 2015. Selling the XE1 disclosed and "extinguished" whatever design-related trade secrets it embodied. There was consequently no XE1-related trade secret that could be misappropriated after May 11, 2016.

         The contours of Golf Tailor's trade secrets are set by California law. See Ultimax Cement Mfg. Corp. v. CTS Cement Mfg. Corp., 587 F.3d 1339, 1355 (Fed. Cir. 2009) ("We apply the trade secret law of the appropriate state, in this case, California."). Under California law: "Public disclosure, that is the absence of secrecy, is fatal to the existence of a trade secret." Id. (quoting In re Providian Credit Card Cases, 96 Cal.App.4th 292, 304 (2002)). Indeed:

It is axiomatic that information widely disclosed to the public is not a trade secret. [DVD Copy Control Ass'n v. Burner, 116 Cal.App.4th 241, 251 (2004)] (citing Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475 (1974) ("The subject of a trade secret must be secret, and must not be of public knowledge or of a general knowledge in the trade [. . . .]")). By the same token, "[i]f a so-called trade secret is fully disclosed by the products produced . . . then the right to protection is lost." Vacco Indus., Inc. v. Van Den Berg, 5 Cal.App.4th 34, 50 (1992) (citing Futurecraft Corp. v. Clary Corp., 205 Cal.App. 2d 279');">205 Cal.App. 2d 279, 289-90 (1962)); accord [Providian Credit Card Cases, 96 Cal.App.4th at 304] ("If an individual discloses his trade secret to others who are under no obligation to protect the confidentiality of the information, or otherwise publicly discloses the secret, his property right is extinguished") (quotations omitted).

Action Learning Sys., Inc. v. Crowe, 2014 WL 12564011, *5 (CD. Cal. Aug. 11, 2014) (emphases added). One form of public disclosure is selling the given product:

Whether viewed though the rubric of "not secret" or "not subject to reasonable efforts at maintaining secrecy, " it should go without saying that information, systems, or methods revealed by publicly-marketed products are not true trade secrets. Vacco Indus., 5 Cal.App.4th at 50; [Futurecraft], 205 Cal.App. 2d at 289-90 (citing Restatement (First) of Torts § 757 (1939)) ("Matters which are completely disclosed by the goods which one markets cannot be his secret[.]").

Action Learning, 2014 WL 12564011 at *6 (emphases added).

         As Action Learning points out, public disclosure can be framed as the end of "reasonable steps" to protect a product's secrecy. In this case, Golf Tailor repeatedly states that it took steps to protect its intellectual property in the XE1 until it began selling it. For example, in its operative pleading, Golf Tailor explains that it "took reasonable steps . . . to ensure" that the "confidential designs" for the XE1 and Speed Whip "would not [be] disclose[d] . . . until the designs were introduced into the market."[25] Golf Tailor repeats this assertion elsewhere.[26]

         Selling the XE1 and the Speed Whip in 2015 would thus disclose and "extinguish" whatever trade secrets Golf Tailor had in these products. This is especially true for the products' ornamental, design features, which are the focus of this lawsuit. Design features obviously would be revealed by the products' sale. Cf, e.g., Arminak & Assocs., Inc. v. Saint-Gobain Calmar, Inc., 501 F.3d 1314, 1319 (Fed. Cir. 2007) ("A design patent protects the nonfunctional aspects of an ornamental design . . . ."). Thus, Golf Tailor had no design-related trade secret in the XE1 when DTSA became effective on May 11, 2016. There was consequently no XE1-related trade secret that the plaintiffs could have misappropriated on or after that date. Insofar as it targets the XE1, Golf Tailor's DTSA counterclaim therefore fails. Furthermore, given Golf Tailor's binding assertion that it sold the products in 2015, the court does not see how amendment could save the DTSA counterclaim. Whatever remedy Golf Tailor may have must come from another source. The XE1-related DTSA counterclaim fails, cannot be saved by amendment, and thus is dismissed with prejudice.[27]

         The preceding DTSA analysis does not necessarily apply to the Speed Whip. Nothing in any allegation shows that Golf Tailor sold the Speed Whip, or otherwise publicly disclosed whatever trade secrets it embodied, before DTSA's enactment. The most that Golf Tailor's allegations say in this regard is that, "[i]n December 2015, Golf Tailor approved the final samples of the Speed Whip and placed an order with GG&G for 15, 000 Speed Whip units at about this time."[28] Golf Tailor alleges that it "sold the . . . Speed Whip in interstate commerce, "[29] but it does not specify when it started doing so. Thus, it is possible that Speed Whip sales did not begin until May 11, 2016. At the hearing, however, the plaintiffs proffered the defendants' admissions about sale dates that preceded the DTSA's effective date. Golf Tailor responded ultimately that it would withdraw its DTSA counterclaim without prejudice to asserting a California trade-secrets claim. To the extent that sales of the products pre-date DTSA's enactment, the court dismisses the claim without prejudice to the defendants' raising a California trade-secrets claim.

         The plaintiffs raise additional arguments against the DTSA counterclaim. These, in principle, could defeat the DTSA counterclaim, apart from the question of whether sales began before or after the law's enactment. Specifically, the plaintiffs argue that the defendants have not adequately alleged facts showing that they took reasonable steps to keep the product designs secret, that they derived economic value from keeping these designs secret, or that the plaintiffs wrongfully acquired or used the trade secrets that the products embodied.[30] The court disagrees. Apart from the date-of-enactment issue, the defendants' allegations are at least minimally sound under Rule 8(a)(2) and 12(b)(6).

         2. Counterclaims 1-12 - Mr. Oyler as Author of the Disputed Designs

         These counterclaims all depend on defendants' central allegation that Mr. Oyler designed the XE1. More exactly, these counterclaims all charge that the plaintiffs' claimed rights in the technical drawings and "prototype photographs" identified earlier (see, supra, note 20) are invalid because they "fail[ed][ to name Mr. Oyler as the author" of the products depicted. For the same reason, the defendants claim that its products could not have infringed the plaintiffs' rights in those images. The plaintiffs move to dismiss all 12 of these counterclaims. They argue that ...


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