Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_04-cv-03843/USCOURTS-cand-5_04-cv-03843-0/pdf.json

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

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ORDER GRANTING IN PART AND DENYING IN PART STC'S MOTION TO DISMISS —C-04-03843 RMW

JED/DOH

E-FILED on 7/14/05

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

MEMRY CORPORATION,

Plaintiff,

v.

KENTUCKY OIL TECHNOLOGY, N.V.,

PETER BESSELINK, MEMORY METALS

HOLLAND, B.V.,

Defendants.

No. C-04-03843 RMW

ORDER GRANTING IN PART AND

DENYING IN PART STC'S MOTION TO

DISMISS

[Re Docket No. 74]

KENTUCKY OIL TECHNOLOGY, N.V.,

Counterclaimant,

v.

MEMRY CORPORATION and 

SCHLUMBERGER TECHNOLOGY

CORPORATION,

Counterdefendants.

Counterclaimant Kentucky Oil Technology, N.V. ("KOT") has brought a second amended

counterclaim ("SAC") against counterdefendants Memry Corporation ("Memry") and Schlumberger

Technology Corporation ("STC"). STC moves to dismiss several counterclaims. The court has read the

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1 The CUTSA provides that "[t]his title does not affect (1) contractual remedies, whether or

not based upon misappropriation of a trade secret, (2) other civil remedies that are not based upon

misappropriation of a trade secret . . . ." Cal. Civ. Code § 3426.7(b). 

ORDER GRANTING IN PART AND DENYING IN PART STC'S MOTION TO DISMISS —C-04-03843 RMW

JED/DOH

2

moving and responding papers and considered the arguments of counsel. For the reasons set forth below,

the court grants STC's motion in part and denies it in part.

I. BACKGROUND

On April 8, 2005, this court granted in part and denied in part STC and Memry's motion to dismiss

KOT's first amended counterclaim ("FAC"). That order describes the background of this case. Unlike the

FAC, the SAC includes a seventh counterclaim for unfair competition and an eighth counterclaim for unjust

enrichment. SAC ¶¶ 70-80. However, the SAC also re-pleads several causes of action that this court's

April 8, 2005 order dismissed: a fourth counterclaim for conversion, a fifth counterclaim that seeks

damages for joinder of Peter Besselink ("Besselink) as co-inventor of the STC issued patents, and a sixth

counterclaim for a declaration that the STC Issued Patents are invalid and unenforceable. SAC ¶¶ 52-79. 

 

II. ANALYSIS

A. Standards

Dismissal under Rule 12(b)(6) is proper only when a complaint exhibits either a "lack of a

cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri

v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988). The court must accept the facts alleged in

the complaint as true. Id. "A complaint should not be dismissed 'unless it appears beyond doubt that the

plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Gilligan v.

Jamco Dev. Corp., 108 F.3d 246, 248 (9th Cir. 1997) (quoting Conley v. Gibson, 355 U.S. 41, 45-46

(1957)).

B. KOT's Seventh Counterclaim for Unfair Competition and Eighth Counterclaim for

Unjust Enrichment

STC moves to dismiss KOT's seventh counterclaim for unfair competition and eighth counterclaim

for unjust enrichment on the grounds that the California Uniform Trade Secrets Act ("the CUTSA")1

preempts them to the extent that they allege misuse of confidential information. STC also argues that to the

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2 STC argues that federal courts analyzing other state uniform trade secrets acts have

similarly reasoned that unjust enrichment claims are preempted when they rely on the same actions of

misappropriation of confidential or proprietary information. See, e.g., Nike Inc. v. Dixon, 2004 WL

3065757, *5 (D. Or. 2004); Hutchinson v. KFC Corp., 809 F. Supp. 68, 71 (D. Nev. 1992);

Glasstech, Inc. v. TGL Tempering Sys., Inc., 50 F. Supp. 2d 722, 731 (N.D. Ohio 1999).

3 At bottom, any such claim is for misappropriation of trade secrets, and KOT "should not

be able to avoid the CUTSA's preemptive ambit 'by dressing . . . claims up in different clothing . . . .'" 

April 8, 2005 Order at 18 (quoting Callaway, 318 F. Supp. 2d at 220). 

ORDER GRANTING IN PART AND DENYING IN PART STC'S MOTION TO DISMISS —C-04-03843 RMW

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extent that both causes of action allege misuse of information that does not constitute a trade secret, they

are preempted by federal patent law. 

As mentioned in the court's April 8, 2005 order, California courts have held that the CUTSA

preempts common law misappropriation of trade secrets claims. See Accuimage Diagnostics Corp. v.

Terarecon, Inc., 260 F. Supp. 2d 941, 954 (N.D. Cal. 2003). In addition, both the court's April 8, 2005

order and a Delaware court applying California law held that the CUTSA generally preempts conversion

claims. See Order at 16; Callaway Golf Co. v. Dunlop Slazenger Group Americas, Inc., 318 F. Supp.

2d 216, 218 (D. Del. 2004). At the time of the court's April 8, 2005 order, California courts had declined

to rule on whether the CUTSA preempts unfair competition or unjust enrichment claims. See City

Solutions v. Clear Channel Communications, Inc., 365 F.3d 835, 838 (9th Cir. 2004) (not addressing

the preemption issue but upholding a jury verdict in favor of a plaintiff on an unfair competition claim but

against the plaintiff on a CUTSA claim); Postx Corp. v. Secure Data in Motion, Inc., 2004 WL 2663518

*8 (N.D. Cal. Nov. 20, 2004) (opining but not deciding that the CUTSA does not preempt unfair

competition claims "not based on precisely the same nucleus of facts"). Another court in the Northern

District recently held that the CUTSA "preempts . . . claims for unfair competition and unjust enrichment

[when] those claims are based on the same nucleus of facts as the misappropriation of trade secrets claim

for relief." Digital Envoy, Inc. v. Google, Inc., 370 F. Supp. 2d 1025, 1035 (N. D. Cal. 2005).2 Based

on Digital Envoy, and on the reasoning set forth in the court's April 8, 2005 order, the court believes that

the CUTSA preempts KOT's unfair competition and unjust enrichment claims to the extent that they allege

that STC misused confidential information.3

However, KOT argues that the CUTSA does not preempt its unfair competition and unjust

enrichment claims to the extent they seek redress for STC's misuse of non-confidential information. The

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4

 However, it is still theoretically possible for STC to be guilty of unfair competition and

unjust enrichment for misuse of information that is part of the public domain. STC's alleged anti-competitive

behavior could constitute unfair competition. In addition, because STC has arguably received a benefit at

KOT's expense, such conduct could also constitute unjust enrichment. 

ORDER GRANTING IN PART AND DENYING IN PART STC'S MOTION TO DISMISS —C-04-03843 RMW

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court agrees. KOT's unfair competition and unjust enrichment claims allege that STC used information that

was published in the Besselink applications. SAC ¶¶ 70-75, 79-80. An element of a misappropriation of

trade secrets claim is that the item "is the subject of efforts that are reasonable under the circumstances to

maintain its secrecy." Cal. Civ. Code § 3426.1(d). Thus, KOT could not recover on a misappropriation

of trade secrets theory for misuse of published information. Accordingly, because KOT's unfair competition

and unjust enrichment claims "are not based upon misappropriation of a trade secret" to the extent they

allege misuse of non-confidential information, the CUTSA "does not affect" them. See Cal. Civ. Code §

3426.7(b).

Nevertheless, STC argues that federal patent law preempts KOT's claims.4 STC contends that

KOT could have sought a correction of inventorship under 35 U.S.C. § 256 or filed patent applications

claiming the same subject matter as the STC Applications and Issued Patents in an attempt to provoke an

interference before the PTO. STC cites Hunter-Douglas, Inc. v. Harmonic Design, Inc., 153 F. 3d

1318 (Fed. Cir. 1998), overruled on other grounds by Midwest Industries, Inc. v. Karavan Trailers,

Inc., 175 F.3d 1356 (Fed. Cir. 1999), Dow Chem. Co. v. Exxon Corp., 139 F.2d 1470 (Fed. Cir.

1998), and Methode Electronics, Inc. v. Hewlett-Packard Co., Inc., 55 U.S.P.Q.2d 1602 (N.D. Cal.

2000) for the proposition that allowing unfair competition and unjust enrichment claims to proceed instead

of patent claims "would frustrate congressional intent to define exclusively the contours of inventorship and

infringement liability through patent law." Mot. at 12. 

In addition, STC claims that KOT's attempt to seek damages for misuse of information in which it

had no property right contravenes the Supreme Court's holding in Bonito Boats, Inc. v. Thunder Craft

Boats, Inc., 489 U.S. 141 (1989). In Bonito Boats, the Court struck down a Florida unfair competition

statute that prohibited the use of a specific process for duplicating unpatented boat hulls. The Court

reasoned that "the [s]tates may not offer patent-like protection to intellectual creations which would

otherwise remain unprotected as a matter of federal law." Id. at 156. STC argues that KOT's state law

claims seek to vindicate "patent-like rights of indefinite scope and duration." Rep. Br. at 6. 

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5 Although Methode seems to be inconsistent with this result, that case (1) pre-dates

American Cyanamid V and (2) was rendered by a district court, not the Federal Circuit.

ORDER GRANTING IN PART AND DENYING IN PART STC'S MOTION TO DISMISS —C-04-03843 RMW

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However, the cases STC cites in favor of its preemption argument reveal that courts hold that state

law claims are preempted when they are predicated upon wrongdoing in front of the PTO. Indeed, such

claims "occupy a field identical in scope with the inequitable conduct defense." Semiconductor Energy

Lab. Co. v. Samsung Elecs. Co., Ltd., 204 F.3d 1368, 1382 (Fed Cir. 2000). However, patent law

does not preempt state law claims that are based on subsequent conduct that occurs in the marketplace. 

See Hunter-Douglas, 153 F.3d at 1322-33 (to escape preemption, a plaintiff must allege or prove that the

patentholder perpetrated fraud before the PTO or acted in bad faith in the marketplace); Dow, 139 F.3d at

1470 ("unlike [a] common law abuse of process claim . . ., the tort claim asserted here for intentional

interference with actual and prospective contractual relations is not an alternative or additional remedy for

inequitable conduct before the PTO"); Methode, 55 U.S.P.Q.2d at 1604 (claims for unjust enrichment and

unfair competition preempted where "the fundamental premise of each of these counterclaims as pled is that

Methode should have named Finisar on the patent"). 

Univ. of Colo. Found, Inc. v. Am. Cyanamid Co., 342 F.3d 1298 (Fed. Cir. 2003) is closely

analogous to the case at bar. In that case, a group of doctors sued a company for unjust enrichment,

alleging that the group patented its idea to reformulate a prenatal vitamin. Id. at 1300. The Federal Circuit

affirmed the district court's conclusion that federal patent law did not preempt the unjust enrichment claim,

reasoning that it "springs not from an attempt to enforce intellectual property rights, but instead from

Cyanamid's alleged wrongful use of the [d]octors' research results." Id. at 1306 (quotation omitted). The

court distinguished Bonito Boats on the grounds that the Florida statute "substantially impede[d] public use

of an unpatentable intellectual creation." Id at 1307 (emphasis in original).5 

Like the doctors' claims in American Cyanamid V, KOT's unjust enrichment and unfair

competition causes of action allege that STC acted improperly in the marketplace. Thus, KOT's claims go

beyond mere allegations that (1) STC acted improperly in front of the PTO or (2) KOT is entitled to a

patent-like right in the Besselink Applications. The SAC alleges that STC (1) "clouded title to the

inventions described in the Besselink Applications and impeded [KOT's] ability to license those

applications to interested third parties in the field of oil exploration" and (2) "received a benefit which [it]

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ORDER GRANTING IN PART AND DENYING IN PART STC'S MOTION TO DISMISS —C-04-03843 RMW

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has unjustly retained at the expense of [KOT]." SAC ¶¶ 74, 80. At oral argument KOT's counsel clarified

that KOT claims that (1) STC obtained patents based on information in the Besselink Applications, (2)

publicized its technology in the marketplace but did not exploit it, and (3) thus controlled the market by

dissuading companies from licensing KOT's technology for fear of being sued for infringement. Although

STC's counsel correctly noted that the SAC does not explicitly refer to this course of conduct, the court

believes that its references to "cloud[ing] title," impeding KOT's "ability to license," and "unjustly retain[ing]"

a benefit state claims for unfair competition and unjust enrichment, especially when "construed in the light

most favorable to the non-moving party." Sanders v. Kennedy, 794 F.2d 478, 481 (9th Cir. 1986). 

Moreover, KOT has no other way to seek redress for STC's alleged anti-competitive conduct.

Even if KOT successfully brought a claim for inequitable conduct, it could not seek damages for the period

in which STC has allegedly prevented it from licensing its technology. Nor could KOT obtain damages via

its correction of inventorship claim. April 8, 2005 Order at 20. Finally, even if KOT filed its own patents

and brought an interference in front of the PTO, KOT could not recover a royalty for STC's use of the

Besselink Applications: indeed, STC has not used its patents at all. Only state tort and contract law can

make KOT whole for this discrete aspect of STC's alleged wrongdoing. In sharp contrast to Bonito

Boats, KOT does not attempt to elevate some property right to the status of patent protection; instead, it

merely seeks to invoke contract and tort remedies. Because KOT's unfair competition and unjust

enrichment claims do not conflict with federal patent law, the court denies STC's motion to dismiss KOT's

seventh and eighth counterclaims. 

 B. KOT's Fourth, Fifth and Sixth Counterclaims

KOT claims that it re-plead its fourth counterclaim for conversion, sixth counterclaim for a

declaration that the STC Issued Patents are invalid and unenforceable, and fifth counterclaim for damages

stemming from joinder of Besselink as a co-inventor of the STC Issued Patents solely for the purposes of

appellate review. This court dismissed KOT's fourth and sixth counterclaims in their entirety and KOT's

fifth counterclaim to the extent it seeks money damages in its April 8, 2005 order. KOT has stipulated to

dismissal of these claims again. Opp. at 12. The court thus dismisses them consistent with its April 8, 2005

order.

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ORDER GRANTING IN PART AND DENYING IN PART STC'S MOTION TO DISMISS —C-04-03843 RMW

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III. ORDER

For the foregoing reasons, the court grants and denies STC's motion to dismiss as follows:

1. The court denies STC's motion to dismiss KOT's seventh and eighth counterclaims for unfair

competition and unjust enrichment.

2. The court grants STC's motion to dismiss KOT's fourth, fifth, and sixth counterclaims consistent

with its April 8, 2005 order.

DATED: 7/14/05 /s/ Ronald M. Whyte

RONALD M. WHYTE

United States District Judge

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ORDER GRANTING IN PART AND DENYING IN PART STC'S MOTION TO DISMISS —C-04-03843 RMW

JED/DOH

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Notice of this document has been electronically sent to:

Counsel for Memry:

Andrew C. Ryan ryan@cantorcolburn.com 

William J. Cass wcass@cantorcolburn.com 

Benjamin J. Holl benjamin.holl@dbr.com 

Charles A. Reid, III charles.reid@dbr.com 

Counsel for STC:

Nancy J. Geenen ngeenen@foleylaw.com 

David B. Moyer dmoyer@foley.com 

Kimberly K. Dodd kdodd@foley.com 

Counsel for KOT:

Michael H. Bierman mbierman@luce.com 

Nicola A. Pisano npisano@luce.com 

Counsel are responsible for distributing copies of this document to co-counsel that have not registered for

e-filing under the court's CM/ECF program.

Dated: 7/14/05 /s/ MAG

Chambers of Judge Whyte

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