United States District Court, N.D. California, San Francisco Division
ORDER PARTLY GRANTING MOTION TO DISMISS RE: ECF NO.
BEELER United States Magistrate Judge
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. The court thus has subject-matter
jurisdiction of this case under 28 U.S.C. § 1331. The
parties have consented to magistrate
jurisdiction. The plaintiffs have moved under Rule
12(b)(6) to dismiss the defendants' counterclaims and to
strike five of their of their affirmative
defenses. The court held a hearing on this motion on
June 29, 2017. The court grants the plaintiffs'
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).
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).
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)).
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
Jonathan Wang designs golfing equipment, including clubs and
"training aids." He is the founder of plaintiff
GolfBestBuy, Inc. 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.
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"). The plaintiffs allege that Golf Tailor
bought the subject clubs for about a year and then started
counterfeiting them. Once it had a source manufacturing the
counterfeits, Golf Tailor stopped buying the authorized clubs
from the plaintiffs. The plaintiffs then started selling the
XE1-branded inventory that had been earmarked for Golf
Tailor. When the plaintiffs did this, Golf
Tailor sued them (in Washington federal court) for unfair
competition and false designation of origin.
defendants tell a different story. They "claim to own
all intellectual[-]property rights" in these products;
they call the plaintiffs' claimed rights
"bogus."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.
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." The defendants transferred both Texas
cases to this district as a more convenient
forum. The plaintiffs consented to that
transfer. Meanwhile, in the Washington suit, Golf
Tailor and Mr. Oyler sued the plaintiffs over the disputed
products.The plaintiffs have moved to dismiss that
case for lack of personal jurisdiction or, alternatively, to
transfer it to this district. (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.
suit Golf Tailor brings 13 counterclaims. Twelve concern six
images of the disputed XE1. 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. The crux of
all these counterclaims is that Mr. Oyler designed the
XE1. Golf Tailor's last counterclaim is
under the federal Defend Trade Secrets Act
("DTSA"), 18 U.S.C. § 1836. The DTSA
counterclaim involves both the XE1 and the Speed Whip.
plaintiffs now move to dismiss the defendants'
counterclaims and to strike five of their affirmative
Counterclaim 13 - Defend Trade Secrets Act
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)).
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,
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." 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.
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
Action Learning, 2014 WL 12564011 at *6 (emphases
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." Golf
Tailor repeats this assertion elsewhere.
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
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." Golf Tailor alleges that it "sold
the . . . Speed Whip in interstate commerce,
" 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
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. 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).
Counterclaims 1-12 - Mr. Oyler as Author of the Disputed
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 ...