Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_15-cv-01862/USCOURTS-cand-4_15-cv-01862-4/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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United States District Court 

Northern District of California 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

GATAN, INC., 

Plaintiff, 

v. 

NION COMPANY, 

Defendant. 

Case No. 15-cv-1862-PJH 

ORDER GRANTING IN PART AND 

DENYING IN PART MOTION TO 

DISMISS 

Defendant’s motion to dismiss the second amended complaint (“SAC”) came on 

for hearing before this court on March 23, 2016. Plaintiff Gatan, Inc. (“plaintiff” or 

“Gatan”) appeared through its counsel, William Goines. Defendant Nion Company 

(“defendant” or “Nion”) appeared through its counsel, Alfred Pfeiffer. Having read the 

papers filed in conjunction with the motion and carefully considered the arguments and 

the relevant legal authority, and good cause appearing, the court hereby GRANTS in part 

and DENIES in part defendant’s motion as follows. 

BACKGROUND 

This is a breach of contract case. Plaintiff Gatan is a manufacturer of 

spectrometers (components used in electron microscopes), and defendant Nion is a 

manufacturer of electron microscopes. Nion has not historically manufactured its own 

spectrometers, and has instead bought third-party spectrometers for use in its 

microscopes. Nion entered into such a purchase agreement with Gatan, and that 

agreement gives rise to this suit. 

Specifically, on February 2, 2010, Gatan and Nion entered into a “Reseller 

Case 4:15-cv-01862-PJH Document 55 Filed 03/30/16 Page 1 of 8
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Agreement,” whereby Nion agreed to purchase certain products from Gatan (including 

spectrometers) that it would incorporate into its electron microscopes. See SAC, Ex. A. 

 The Reseller Agreement (or “Agreement”) contained a non-competition provision 

(paragraph 16 of the Agreement), which provided as follows: 

Non-Competition. Reseller shall not, during the term and for one (1) year 

following the conclusion of the Term, market, sell or distribute, or attempt to 

market, sell or distribute (i) any good or item that is similar to, or competitive 

with, any of the Products and (ii) any spectrometer for electron energy loss 

spectroscopy. In the event that Reseller markets, sells, or distributes any 

good or item that is similar to or competitive with any of the Products, Gatan 

may immediately terminate this agreement. In the event that Reseller 

provides a monochromator with its microscope and Gatan is unable to 

provide a spectrometer for energy loss spectroscopy with a FWHM energy 

resolution equal to or less than 0.71 times the specified total FHVVM 

system resolution, Reseller may develop and sell such a spectrometer 

itself. This exemption applies only to Reseller’s own new microscopes or to 

Reseller’s monochromator upgrades for its previously sold microscopes. In 

the event of any threatened or actual breach of the obligations herein, 

Gatan may, in addition to any other specific remedy for relief, enforce the 

performance of these obligations and this Agreement by injunction or 

specific performance upon application to a court of competent jurisdiction. 

 

 Gatan generally alleges that Nion has entered into transactions with third parties, 

in violation of paragraph 16. The operative second amended complaint asserts four 

causes of action. 

The first is for breach of contract, and is based on Nion’s alleged violation of 

paragraph 16 by competing with Gatan. 

The second claim is also for breach of contract, and is also based on paragraph 

16, but it is based on Nion’s alleged failure to comport with the procedure set forth in the 

third sentence of paragraph 16 – “In the event that Reseller provides a monochromator 

with its microscope and Gatan is unable to provide a spectrometer for energy loss 

spectroscopy with a FWHM energy resolution equal to or less than 0.71 times the 

specified total FHVVM system resolution, Reseller may develop and sell such a 

spectrometer itself.” Gatan argues that Nion did not provide spectrometer specifications 

to Gatan before developing one of its own. 

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The third cause of action is for breach of the implied duty of good faith and fair 

dealing, and is based on much of the same conduct as above, but also on the additional 

allegation that Nion “criticized Gatan’s technology with no factual bases for doing so.” 

SAC, ¶ 51. 

Finally, the fourth cause of action is for declaratory relief, and is based on 

paragraph 15 of the contract, which provides that “[a]ll discoveries and developments that 

Reseller may conceive, develop, or acquire, whether alone or with others, arising out of 

the incorporation of products into Reseller’s systems (collectively, ‘developments’) shall 

be the sole property of Reseller. Reseller shall grant to Gatan a nonexclusive, perpetual, 

worldwide, irrevocable license to make, have made, sell, have sold and use all of the 

developments.” Gatan argues that it has requested a license to certain developments, 

and that Nion has refused. See SAC, ¶ 59. 

DISCUSSION 

A. Legal Standard 

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests for the 

legal sufficiency of the claims alleged in the complaint. Ileto v. Glock, Inc., 349 F.3d 

1191, 1199-1200 (9th Cir. 2003). Review is generally limited to the contents of the 

complaint, although the court can also consider a document on which the complaint relies 

if the document is central to the claims asserted in the complaint, and no party questions 

the authenticity of the document. See Sanders v. Brown, 504 F.3d 903, 910 (9th Cir. 

2007). 

 To survive a motion to dismiss for failure to state a claim, a complaint generally 

must satisfy only the minimal notice pleading requirements of Federal Rule of Civil 

Procedure 8, which requires that a complaint include a “short and plain statement of the 

claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2) 

 A complaint may be dismissed under Rule 12(b)(6) for failure to state a claim if the 

plaintiff fails to state a cognizable legal theory, or has not alleged sufficient facts to 

support a cognizable legal theory. Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 

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2013). While the court is to accept as true all the factual allegations in the complaint, 

legally conclusory statements, not supported by actual factual allegations, need not be 

accepted. Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009); see also In re Gilead Scis. 

Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). 

 The allegations in the complaint “must be enough to raise a right to relief above 

the speculative level,” and a motion to dismiss should be granted if the complaint does 

not proffer enough facts to state a claim for relief that is plausible on its face. Bell Atlantic 

Corp. v. Twombly, 550 U.S. 544, 555, 558-59 (2007) (citations and quotations omitted). 

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 (citation omitted). “[W]here the well-pleaded facts do not 

permit the court to infer more than the mere possibility of misconduct, the complaint has 

alleged – but it has not ‘show[n]’ – ‘that the pleader is entitled to relief.’” Id. at 679. 

Where dismissal is warranted, it is generally without prejudice, unless it is clear the 

complaint cannot be saved by any amendment. Sparling v. Daou, 411 F.3d 1006, 1013 

(9th Cir. 2005). 

B. Legal Analysis 

 Defendant’s primary argument on this motion is that paragraph 16’s non-compete 

provision is rendered void by California Business & Professions Code 16600, which 

provides that, other than certain statutory exceptions (none of which apply in this case), 

“every contract by which anyone is restrained from engaging in a lawful profession, trade, 

or business of any kind is to that extent void.” Plaintiff’s first cause of action is based 

entirely on paragraph 16, so if that paragraph is void under section 16600, the claim must 

be dismissed. 

 While Gatan does not point to any statutory exception that would preserve the 

validity of paragraph 16’s non-compete provision, it does point to case law supporting the 

existence of a “trade secret exception.” Specifically, the Ninth Circuit has held that 

“[u]nder California law, non-competition agreements are unenforceable unless necessary 

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to protect an employer’s trade secret,” and a court in this district has further observed 

that, because section 16600 has not been limited to the employer/employee context, 

there is no reason to similarly limit the trade secret exception. Asset Marketing Systems, 

Inc. v. Gagnon, 542 F.3d 748, 758 (9th Cir. 2008); Richmond Technologies, Inc. v. 

Aumtech Business Solutions, 2011 WL 2607158, at *18 (N.D. Cal. July 1, 2011) (noting 

that courts have held that “a non-compete or non-solicitation clause may be valid under 

section 16600 if it is necessary to protect a trade secret”); see also Golden v. California 

Emergency Physicians Medical Group, 782 F.3d 1083, 1090 (9th Cir. 2015) (section 

16600 “does not specifically target covenants not to compete between employees and 

their employers”). 

 Thus, in order to save paragraph 16 from being rendered void by section 16600, 

Gatan must adequately allege that it is “necessary to protect” its trade secrets. And 

under any reading of the Agreement (which is relied upon, and attached to, the 

complaint), paragraph 16 cannot be considered “necessary” to protect Gatan’s trade 

secrets. The Agreement already contains a separate provision, entitled “Use of 

Confidential Information,” which provides protection for Gatan’s trade secrets. 

The term “Confidential Information” is defined in paragraph 12 of the Agreement, 

and paragraph 13 requires Nion to “hold and maintain strictly confidential all Confidential 

Information,” and provides that it “shall not at any time, whether during the Term or 

thereafter, furnish, divulge, communicate, or otherwise directly or indirectly disclose or 

use any such Confidential Information, howsoever obtained or acquired, or compile, 

duplicate, develop or adapt such Confidential Information for any purpose, other than 

strictly incidental to, and solely in furtherance and within the scope of, the Agreement.” 

See SAC, Ex. A, ¶ 13. Paragraph 13 further provides that Nion “will not directly or 

indirectly create any products, parts, systems, methods, tools, dies, techniques, 

processes, solutions, or other technologies, ideas, items, or concepts at any time sold, 

marketed, used, or developed by Gatan or its affiliates, or any part thereof, or otherwise 

use any Confidential Information for commercial purposes or in any manner detrimental 

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to Gatan or its affiliates.” 

Given the comprehensive protections set forth in paragraph 13, the court finds that 

the non-compete provision in the Agreement is not necessary to protect Gatan’s trade 

secrets. Accordingly, the non-compete provision in paragraph 16 is rendered void by 

section 16600, and as a result, the motion to dismiss the first cause of action is 

GRANTED without leave to amend. 

As mentioned above, the second cause of action is based on the third sentence of 

paragraph 16, which requires Nion to provide spectrometer specifications to Gatan, in 

order to allow Gatan an opportunity to meet those specifications, before Nion may 

develop and sell a spectrometer of its own. See SAC, Ex. A, ¶ 16. Gatan argues that, 

even if the court finds the non-compete provision to be void, it may simply “sever the first 

sentence of paragraph 16” and enforce the remainder of the paragraph. 

The court disagrees, and finds that the requirement to provide Gatan with 

spectrometer specifications makes no sense in the absence of a non-compete provision. 

The provision at issue essentially carves out an exception to the non-compete provision, 

allowing Nion to compete only if a certain prerequisite is met. However, if there is no 

enforceable non-compete provision, then Nion is free to sell its own spectrometer without 

any need to comply with a prerequisite. Accordingly, the motion to dismiss the second 

cause of action is GRANTED without leave to amend. 

Plaintiff’s third cause of action alleges a breach of the implied duty of good faith 

and fair dealing, and while it is based largely on the same allegations as the first two 

causes of action, it also contains some free-standing allegations – specifically, that Nion 

“criticized Gatan’s technology with no factual bases for doing so,” and that it “discusse[d], 

in detail . . . the weaknesses in Gatan’s spectrometer design and how Nion would 

improve upon this in their own design.” SAC, ¶¶ 31, 51. 

While these allegations do not directly depend on the non-compete provision, they 

do indirectly depend on it. If there were no non-compete provision in the first place, Nion 

would have been free to “criticize” Gatan’s product and to “discuss” its weaknesses and 

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potential areas for improvement (though, if those criticisms were indeed untrue, Gatan 

might be able to proceed under a business tort theory). And now that the court has found 

the non-compete provision to be unenforceable, the parties are in the same position that 

they would have been if there had never been a non-compete provision. For that reason, 

the court finds no implied duty not to criticize or discuss the weaknesses of each other’s 

product, and it GRANTS the motion to dismiss plaintiff’s third cause of action without 

leave to amend. 

Plaintiff’s fourth cause of action is based on paragraph 15 of the Agreement, which 

provides as follows: 

All discoveries and developments that [Nion] may conceive, develop, or 

acquire, whether alone or with others, arising out of the Incorporation of 

Products into [Nion’s] systems (collectively, “Developments”) shall be the 

sole property of [Nion]. [Nion] shall grant to Gatan a non-exclusive, 

perpetual, worldwide, irrevocable license to make, have made, sell, have 

sold, and use all the Developments. 

 The complaint alleges that “[i]n or about spring 2014, Gatan requested a license 

from Nion pursuant to paragraph 15,” but Nion’s response “indicated that it did not 

believe that Nion was obligated to provide Gatan with the license it was requesting under 

the Agreement, and refused to provide Gatan with the license it requested.” SAC, ¶ 29. 

Specifically, Nion acknowledged that there were two such “discoveries and 

developments,” and told Gatan that it would be “happy to place both discoveries in the 

public domain, and they are actually rather obvious,” and that “[t]here is no need for a 

license to use them.” SAC, ¶ 30. However, the Agreement is clear in requiring Nion to 

“grant to Gatan” a license, and does not create any exception for discoveries that Nion 

would be “happy to place” in the public domain (at some unspecified time), or even 

discoveries that Nion claims are “rather obvious.” Indeed, if Nion is willing to place the 

discoveries in the public domain, then it should be equally willing to grant Gatan the 

license to which it claims to be entitled. Accordingly, defendant’s motion to dismiss the 

fourth cause of action is DENIED. 

Case 4:15-cv-01862-PJH Document 55 Filed 03/30/16 Page 7 of 8
United States District Court 

Northern District of California 

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Case 4:15-cv-01862-PJH Document 55 Filed 03/30/16 Page 8 of 8