United States District Court, N.D. California
ORDER GRANTING DEFENDANT'S MOTION FOR
RECONSIDERATION DOCKET NO. 335
M. CHEN, United States District Judge
Artec Group, Inc. is a company that produces 3D scanning and
recognition technology. Its flagship facial recognition
product is the “Broadway 3D” line of devices.
Artec filed suit against multiple companies and individuals,
the majority of which were affiliated with Andrey Klimov,
Artec's former CEO. According to Artec, Mr. Klimov, along
with other “rogue” Artec employees,
misappropriated Artec trade secrets and then set up two
companies to compete with Artec. Those companies are ID-Wise
SIA and A-Star LLC. Artec has settled its claims with the
Klimov Defendants (i.e., Mr. Klimov, the rogue
employees, and ID-Wise and A-Star). Thus, the only claims
remaining in this case are against a company not affiliated
with Mr. Klimov - namely, Axon Business Systems.
a UAE company with whom Artec had a distribution agreement.
Under the agreement, Axon would purchase Artec product from
Artec and then resell the product to end users in the UAE.
According to Artec, Axon bought Artec product (specifically,
Broadway 3D devices) from A-Star, one of the Klimov
Defendants. Axon also bought a competing facial recognition
product (known as EnterFace) from ID-Wise, one of the Klimov
Defendants. It is primarily these two actions that underlie
Artec's claim that Axon breached the distribution
agreement between the two companies.
pending before the Court is a motion to reconsider filed by
Axon. More specifically, Axon asks this Court to reconsider
Judge Whyte's previous order denying Axon's motion to
dismiss for lack of personal jurisdiction. Having considered
the parties' briefs, the oral argument of counsel, and
all other evidence of record, the Court hereby
GRANTS the motion to reconsider and further
dismisses Axon from the case for lack of personal
FACTUAL & PROCEDURAL BACKGROUND
Whyte was the original judge assigned to this case. In
February 2016, Axon asked Judge Whyte to dismiss the claims
against it for lack of personal jurisdiction. See
Docket No. 85 (motion). In May 2016, Judge Whyte denied the
motion. See Docket No. 104 (order). After Judge
Whyte denied the motion, Axon filed a 12(b)(6) motion to
dismiss. See Docket No. 125 (motion). Judge Whyte
held a hearing on the motion, see Docket No. 143
(minutes), but the case was subsequently reassigned to this
Court. In December 2016, this Court granted in part and
denied in part Axon's 12(b)(6) motion. See
Docket No. 157 (amended order). In essence, the non-contract
claims against Axon were dismissed and the contract claims
against Axon (i.e., claims for breach of contract
and breach of the implied covenant of good faith and fair
dealing) were allowed to proceed.
in February 2017, Axon's counsel's moved to withdraw.
See Docket No. 176 (motion). The Court ultimately
granted the motion, see Docket No. 254 (order), and,
in doing so, warned Axon that it would need to find new
counsel to represent it and that, if it did not, then Artec
could seek an entry of default and a default judgment.
See, e.g., Docket No. 225 (order). Axon did not find
new counsel to represent it and thus its default was entered
in June 2017. See Docket No. 259 (clerk's
notice). Two months later, Artec filed its motion for entry
of default judgment against Axon. See Docket No. 295
response, Axon asked for permission to file an opposition to
the default judgment motion. (Axon's request was made by
its former counsel.) The Court held that, before Axon could
oppose the request for default judgment, it would have to
first move to set aside the entry of default. See
Docket No. 315 (order). Axon thus moved to set aside default
(again, represented by former counsel), see Docket
No. 320 (motion), and the Court granted the motion in
September 2017. See Docket No. 327 (order). In that
order, the Court took note of Axon's potentially
meritorious defense on lack of personal jurisdiction. The
Court added that, even if personal jurisdiction could not be
contested, there appeared to be other potentially meritorious
the Court's order setting aside the default, the Court
held a status conference in September 2017. At the
conference, the Court set a schedule for Axon's motion to
reconsider Judge Whyte's personal jurisdiction order.
See Docket No. 329 (minutes). Artec and Axon
subsequently had a settlement conference with Judge Laporte
but the case did not settle. See Docket No. 334
(minutes). This Court must proceed with the motion for
personal jurisdiction is the issue before the Court, it is
worthwhile to briefly touch on the substantive claims being
brought by Artec against Axon.
contract claims against Axon are based on the parties'
distribution agreement, which they entered into in August
2012. The agreement specified that it “shall remain in
effect for a period of one (1) year. Thereafter, the
Agreement may be renewed for successive one (1) year terms,
which renewal must be acknowledged in writing by ARTEC and
[Axon].” Dist. Agmt. § 7.1. In its complaint,
Artec does not dispute that the agreement was never renewed.
Thus, the distribution agreement terminated in or about
August 2013. Artec, however, claims breach of contract based
on provisions of the agreement that it contends survive
contract termination.According to Artec, those provisions are:
§§ 2.9, 2.11, and 7.5 of the agreement.
(1) Section 2.9. Section 2.9 has two relevant provisions.
First, Axon was barred from
“distribut[ing] equipment or products
similar to or competitive with [Artec's
products] without ARTEC's prior written consent.”
Dist. Agmt. § 2.9 (emphasis added). Second, Axon had the
duty to “keep ARTEC informed of
[Axon's] current or future sales of equipment or products
similar to or competitive with [Artec's
products].” Dist. Agmt. § 2.9 (emphasis added).
(2) Section 2.11. Section 2.11 provides in relevant part as
follows: “[Axon] shall notify ARTEC promptly of any and
all infringements, limitations, simulations, illegal uses, or
misuses of the ARTEC Marks, patents, and other
intellectual property rights.” Dist. Agmt.
§ 2.11 (emphasis added).
(3) Section 7.5. Section 7.5 of the distribution agreement
provides as follows: “Upon termination of this
Agreement, Distributor shall immediately cease all
use of the ARTEC Marks.” Dist. Agmt. §
7.5 (emphasis added).
claims that Axon breached the above provisions because,
e.g., after the contract terminated, Axon purchased
Artec product (Broadway 3D devices) from A-Star (one of the
Klimov Defendants); Axon did not inform Artec about
A-Star's selling of Artec product; Axon purchased a
competing product (EnterFace) from ID-Wise (another Klimov
Defendant); and Axon did not inform Artec about the competing
motion for default judgment, Artec seeks both damages and
injunctive relief based on the alleged misconduct by Axon.
More specifically, Artec seeks: (1) $341, 061.30 in
compensatory damages (representing the profit that Artec
would have made if Axon had bought the Broadway 3D product
from Artec itself rather than A-Star) and (2) interest at the
rate of $93.4415 per day (starting from the date of the
distribution agreement, i.e., January 7, 2015, and
ending the date of judgment). As for injunctive relief, Artec
seeks specific enforcement of the three contract provisions
above (i.e., §§ 2.9, 2.11, and 7.5).