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Wang v. Golf Tailor, LLC

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

November 3, 2017

JONATHAN WANG and GOLFBESTBUY, INC., Plaintiffs,
v.
GOLF TAILOR, LLC, and TIM OYLER, Defendants. Timeline for XE1 Timeline for Speed Whip

          ORDER DISMISSING COPYRIGHT AND TRADE-SECRETS COUNTER CLAIMS AND STRIKING AFFIRMATIVE DEFENSES OTHER THAN THOSE BASED ON UNCLEAN HANDS RE: ECF NO. 60

          LAUREL BEELER, UNITED STATES MAGISTRATE JUDGE

         INTRODUCTION

         This case and the three cases consolidated with it generally involve competing claims of design-patent theft related to a golf club - the XE1 - and a golf training aid - the Speed Whip.[1]The plaintiffs (Jonathan Wang and Golf BestBuy) and the defendants (Timothy Oyler and Golf Tailor) both claim to have designed the golf club and training aid; both claim 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, arguing that the defendants used copies of the plaintiffs' designs to counterfeit the golf club and golf aid.[2] The defendants countersued the plaintiffs with six claims for declaratory relief regarding the copyright-infringement claims (based on inequitable conduct in the form of the plaintiffs' theft of the defendants' trade secrets) and one claim of trade-secrets theft in violation of the California Uniform Trade Secrets Act (“CUTSA”), Cal. Civ. Code §§ 3426- 2426.11.[3]

         The plaintiffs move to (1) dismiss the copyright counterclaims under Rule 12(b)(6) on the ground that the defendants do not adequately plead inequitable conduct as an affirmative defense, (2) strike the second affirmative defense of “Patent Damages Barred;” and (3) dismiss the defendants' trade-secrets counterclaim under Rule 12(b)(6) for failure to plausibly plead facts showing trade-secrets theft.[4] The court strikes the affirmative defense of “Patent Damages Barred, ” strikes the inequitable-conduct defense to the extent that the defense is predicated on a theory of an implied license or permission, and denies the motion to strike the unclean-hands defense. The court grants the motion to dismiss the counterclaims, primarily because Mr. Wang's alleged bad acts happened after Golf Tailor publicly disclosed its trade secrets through product sales and also because the allegations of conspiracy are conclusory.

         STATEMENT[5]

         This case involves 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.”[6] The plaintiffs claim that Golf Tailor sold a “CSi Wedge” as an unauthorized derivative of the XE1.[7] The training aid is called the “Speed Whip.”[8] The parties' competing claims are the same for both products. The plaintiffs and the defendants claim that the other party stole their designs, 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.”[9] He is the founder of plaintiff GolfBestBuy, Inc.[10] 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”).[11] 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”).[12] 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.[13] Mr. Wang registered his copyrights in February 2017.[14]

         According to the plaintiffs: “Defendants acquired copies of Mr. Wang's six designs - including the '449 and '644 Drawings - from [Golf Gifts & Gallery], a distributor of golf merchandise that regularly sells products designed by Mr. Wang.”[15] Mr. Wang provided Golf Gifts & Gallery with two prototype golf clubs and photographs of the prototypes because the defendants expressed interest in buying the clubs from Golf Gifts & Gallery.[16] The defendants acquired the prototypes and photographs from Golf Gifts & Gallery.[17] Golf Tailor proceeded to buy the subject clubs for about a year and then started counterfeiting them.[18] Once it had a source manufacturing the counterfeits, Golf Tailor stopped buying the authorized clubs.[19] The plaintiffs sold the XE1-branded inventory that had been earmarked for Golf Tailor.[20] When the plaintiffs did this, Golf Tailor sued them (in Washington federal court) for unfair competition and false designation of origin.[21]

         The defendants tell a different story. In April 2015, Golf Tailor's CEO Tim Oyler asked Golf Gifts & Gallery to manufacture the Speed Whip (“designed through instruction and direction by Mr. Oyler . . . with Mr. Oyler directing all design modifications”) for Golf Tailor to sell to distributers and consumers.[22] “Around July 2014, and concurrently with the manufacture of the Speed Whip, ” Golf Tailor hired Golf Gifts & Gallery to “prepare CAD drawings based on Mr. Oyler's design for a new golf club, ” the XEI, again for Golf Tailor to sell to end users.[23] “As with the Speed Whip, [Golf Tailor and Mr. Oyler disclosed] the confidential XE1 information” to Golf Gifts & Gallery.[24]

         Golf Tailor specifies its “confidential design information” as “emails, texts, and conversations containing proprietary information about the design and manufacture of the XE1 and Speed Whip products. This information is referred to herein as the “Golf Tailor Trade Secrets.”[25] It alleges that it took reasonable steps to maintain the secrecy of the trade secrets - in part by telling Golf Gifts & Gallery that the information was confidential and agreeing with Golf Gifts that information would be disclosed only to manufacture the products - in order to maintain its competitive advantage for its first-to-market products.[26]

         According to the defendants, Golf Gifts & Gallery told Golf Tailor that it would manufacture the Speed Whip and XE1 at its own facility in China.[27] Instead, it contracted with third-party manufacturer Kingstar to manufacture the products.[28] Mr. Wang is the president of Kingstar and obtained a Chinese design patent for the XE1design; he later used this patent to obtain the patent that issued as U.S. Patent D766, 388.[29] He also obtained a Chinese design patent for the Speed Whip, used it to file an expedited patent application in the U.S., and obtained the patent that issued as U.S. Patent D769, 390.[30] The patents are the subject of the related patent cases.[31] The relevant dates for the patent applications are undisputed and are as follows: (1) XE1: application for Chinese Patent No. 2015304 filed October 24, 2015, and application for U.S. Patent No. D766, 388 filed March 16, 2016; and (2) Speed Whip: application for Chinese Patent No.201620118508 filed April 11, 2016, and application for U.S. Patent No. D769, 390 filed July 14, 2016.[32]

         Golf Tailor began selling the XE1 “on or about June 24, 2015” and began selling the Speed Whip “on or about March 2016.”[33]

         The overall timeline relevant to the litigation thus is this:

Timeline for XE1

Date

Event

June 24, 2015

Golf Tailor begins publicly selling XE1 golf club

October 24, 2015

Mr. Wang files Chinese Patent No. 20153041454

March 16, 2016

Mr. Wang files U.S. Patent No. D766, 388

February 22, 2017

Mr. Wang registers copyrights

Timeline for Speed Whip

Date

Event

March 2016

Golf Tailor begins publicly selling Speed Whip

April 11, 2016

Mr. Wang files Chinese Patent No. 201630118508

July 14, 2016

Mr. Wang files U.S. Patent No. D769, 390

February 22, 2017

Mr. Wang registers copyrights

         Golf Tailor begins publicly selling Speed Whip April 11, 2016 Mr. Wang files Chinese Patent No. 201630118508 July 14, 2016 Mr. Wang files U.S. Patent No. D769, 390 February 22, 2017 Mr. Wang registers copyrights Golf Tailor brings six counterclaims for a “Declaratory Judgment of Non-Infringement” based on the defendants' inequitable conduct, implied permission, or acquiescence for six drawings: (1) the '499 Drawing; (2) the '644 Drawing; (3) the prototype photographs; (4) the '566 CAD Drawing; (5) the '569 Drawing; and (6) the '644 Drawing.[34] In its seventh counterclaim, it charges theft of trade secrets involving the XE1 and the Speed Whip, in violation of CUTSA (Cal. Civ. Code §§ 3426-2426.11).[35]

         The plaintiffs then moved to dismiss the defendants' counterclaims and to strike the second and third affirmative defenses: “Patent Damages Barred” and “Inequitable Conduct/Estoppel/Unclean Hands.”[36]

         The court notes this procedural context. When the plaintiffs filed their motion, the operative complaint was the initial complaint.[37] The defendants' defenses and counterclaims were in the Second Amended Answer, Affirmative Defenses, Counterclaims, and Third-Party Complaint.[38]The plaintiffs answered it and filed their motion.[39] The parties briefed the motion fully.[40] The plaintiffs then filed an amended complaint, the defendants filed a superseding responsive pleading and counterclaims, and the plaintiffs answered.[41] The pending motion thus is directed at a pleading replaced by an amended pleading. In all relevant respects, the two pleadings are the same. The court thus cites the Second Amended Answer, Affirmative Defenses, Counterclaims, and Third-Party Complaint[42] because the parties cite it in their papers, the outcome is the same, and a different approach would unnecessarily burden the parties, who would have to update their papers.

         The court held a hearing on November 2, 2017.[43]

         GOVERNING LAW

         The plaintiffs move to dismiss the counterclaims under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim and move to strike the second and third affirmative defenses under Rule 12(f).

         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).

         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)).

         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.).

         The court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed.R.Civ.P. 12(f). “The function of a [Rule 12(f)] motion to strike is to avoid the unnecessary expenditures that arise throughout litigation by dispensing of any spurious issues prior to trial.” Rosales v. FitFlop USA, LLC, 882 F.Supp.2d 1168, 1178 (S.D. Cal. 2012) (citing Sidney-Vinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir. 1983)). Striking is appropriate if it “will make trial less complicated or eliminate serious risks of prejudice to the moving party, delay, or confusion of the issues.” Sliger v. Prospect Mortg., 789 F.Supp.2d 1212, 1216 (E.D. Cal. 2011).

         “Immateriality” under Rule 12(f) speaks to the relevance of challenged allegations. “‘Immaterial' matter is that which has no essential or important relationship to the claim for relief or the defenses being pleaded.” Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), rev'd on other grounds, 510 U.S. 517 (1994) (quotation omitted). Where a movant challenges allegations as immaterial, “[a] court must deny the motion to strike if there is any doubt whether the allegations in the pleadings might be relevant in the action.” Oracle Am., Inc. v. Micron Tech., Inc., 817 F.Supp.2d 1128, 1132 (N.D. Cal. 2011). “[G]enerally, ” then, courts grant such a motion “only where ‘it is clear that the matter to be stricken could have no possible bearing on the subject matter of the litigation.'” Rosales, 882 F.Supp.2d at 1179 (quoting Walters v. Fid. Mortg. of Cal., 730 F.Supp.2d 1185, 1196 (E.D. Cal. 2010) (citing in turn Lilley v. Charren, 936 F.Supp. 708, 713 (N.D. Cal. 1996)).

         “As a rule, motions to strike are regarded with disfavor because striking is such a drastic remedy; as a result, such motions are infrequently granted.” Amini Innovations Corp. v. McFerran Home Furnishings, Inc., 301 F.R.D. 487, 489-90 (C.D. Cal. 2014) (citing Freeman v. ABC Legal Servs., Inc., 877 F.Supp.2d 919, 923 (N.D. Cal. 2012) (citing in turn Stanbury Law Firm v. IRS, 221 F.3d 1059, 1063 (8th Cir. 2000)). “[W]hen ruling on a motion to strike, ” the court accepts the challenged allegations as true and “must liberally construe” those allegations “in the light most favorable” to the non-moving pleader. Stearns v. Select Comfort Retail Corp., 763 F.Supp.2d 1128, 1140 (N.D. Cal. 2010); see, e.g., Multimedia Patent Trust v. Microsoft Corp., 525 F.Supp.2d 1200, 1211 (S.D. Cal. 2007) (“In determining a motion to strike, a district court must view the pleadings in the light most favorable to the pleader.”).

         ANALYSIS

         1. California Uniform Trade Secrets Act

         The court previously dismissed the defendants' trade-secrets counterclaim claim under the federal Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1836. The DTSA applies only to misappropriations that occur on or after May 11, 2016, the DTSA's date of enactment. Cave Consulting Grp., Inc. v. Truven Health Analytics Inc., No. 15-CV-2177-SI, 2017 WL 1436044, *3 (N.D. Cal. Apr. 24, 2017); accord, e.g., Avago Techs. U.S. Inc. v. Nanoprecision Prods., Inc., No. 16-CV-3737-JCS, 2017 WL 412524, * 8 (N.D. Cal. Jan. 31, 2017). The court held that to the extent that product sales preceded DTSA's enactment, the date-of-enactment issue precluded a DTSA claim.[44] The dismissal was without prejudice to the defendants' raising a California trade-secrets claim.[45]

         To state a claim for trade-secrets theft under CUTSA, a defendant must plead the existence of a trade secret, and the misappropriation of it. Cal. Civ. Code § 3426.1(b); see AccuImage Diagnostics Corp. v. Terarecon, Inc., 260 F.Supp.2d 941, 950 (N.D. Cal. 2003). The defendants plausibly plead the existence of their trade secrets in the form of their proprietary and secret designs, their efforts to retain secrecy, and their communication of confidentiality to Golf Gifts & Gallery. As the court held, the allegations “are at least minimally sound under Rule 8(a)(2) and 12(b)(6).”[46] But the defendants did not plead the misappropriation of the trade secrets. The timeline in the Statement demonstrates that the defendants' alleged use of the trade secrets happened after Golf Tailor publicly disclosed the trade secrets through its product sales. There can be no unlawful misappropriation after public disclosure of the secret. In re Providian Credit Card Cases, 96 Cal.App.4th 292, 304 (2002) (“[p]ublic disclosure, that is the absence of secrecy, is fatal to the existence of a trade secret”); Kavanagh v. Tuller, No. 16-CV-01937-H (BGS), 2017 WL 1496436, at *4 (S.D. Cal. Apr. 26, 2017) (dismissing with prejudice trade secret claim because claimant admitted she publically disclosed her product through marketing and sales); Hosp. Mktg. Concepts LLC v. Six Continents ...


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