Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_16-cv-07323/USCOURTS-cand-3_16-cv-07323-5/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1331 Fed. Question

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United States District Court

For the Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

ALLCELLS, LLC,

Plaintiff,

v.

JACK ZHAI, et al.,

Defendants.

Case No. 16-cv-07323-EMC 

ORDER DENYING DEFENDANTS’

MOTION TO DISMISS

Docket No. 47

Plaintiff AllCells, LLC has filed suit against Defendants Cepheus Biosciences, Inc. and 

two if its employees, Jack Zhai and James Lee, asserting claims for, inter alia, trade secret 

misappropriation under both state and federal law. Mr. Zhai and Mr. Lee are former employees of 

AllCells and currently work for Cepheus. 

Currently pending before the Court is Defendants’ motion to dismiss. In the motion, 

Defendants argue that AllCells cannot state a claim for relief under the Defend Trade Secrets Act 

(“DTSA”), see 18 U.S.C. § 1836, and the Court should decline to exercise supplemental 

jurisdiction over the remaining claims which are all based on state law. Having considered the 

parties’ submissions as well as the oral argument of counsel, the Court hereby DENIES the 

motion to dismiss.

The DTSA provides that it “shall apply with respect to any misappropriation of a trade 

secret (as defined in section 1839 of title 18, United States Code, as amended by this section) for 

which any act occurs on or after the date of the enactment of this Act,” which is May 11, 2016. 

114 P.L. 153, § 2(e) (emphasis added). Misappropriation of a trade secret can be acquisition of a 

trade secret, disclosure of a trade secret, or use of a trade secret. See 18 U.S.C. § 1839(5). Here, 

even if Mr. Zhai and Mr. Lee copied and thus acquired the alleged trade secrets before May 11, 

Case 3:16-cv-07323-EMC Document 102 Filed 03/27/17 Page 1 of 3
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United States District Court

For the Northern District of California

2016, AllCells has sufficiently alleged that there was at least use of the trade secrets after that date. 

Hence, the Act applies.1 Defendants’ contention that AllCells has simply made conclusory 

allegations of use lacks merit. The allegations suffice under Twombly and Iqbal. See Bell Atl. 

Corp. v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009).

Finally, to the extent Defendants argue that an act of continuing misappropriation dates 

back to the first misappropriation (i.e., a “single claim” of misappropriation) and thus the entirety 

of the misappropriation falls outside the DTSA, that argument is not persuasive. First, as AllCells 

points out, the DTSA did not adopt the language of the UTSA which appears to embrace 

Defendants’ theory. Compare UTSA § 11 (including 1985 amendments) (providing that “[t]his 

[Act] takes effect on _____, and does not apply to misappropriation occurring prior to the effective 

date” and that, “[w]ith respect to a continuing misappropriation that began prior to the effective 

date, the [Act] also does not apply to the continuing misappropriation that occurs after the 

effective date”), available at http://www.uniformlaws.org/Act.aspx?title=trade%20Secrets%20Act 

(last visited February 23, 2017).

Second, Defendants’ reliance on 18 U.S.C. § 1836(d) is misplaced. Section 1836(d) 

provides:

A civil action . . . may not be commenced later than 3 years after 

the date on which the misappropriation with respect to which the 

action would relate is discovered or by the exercise of reasonable 

diligence should have been discovered. For purposes of this 

subsection, a continuing misappropriation constitutes a single claim 

of misappropriation.

18 U.S.C. § 1836(d). But as one court has explained: 

[W]hile Subsection 1836(d) states that a continuing 

misappropriation constitutes a single claim, it does so only “for 

purposes of this subsection.” That subsection addresses only when a 

claim accrues for statute of limitations purposes, and it does not 

purport to address the issue in this case: whether an owner may 

recover under DTSA when the misappropriation occurs both before 

and after the effective date, assuming the entire misappropriation is 

within the 3-year limitations period.

 

1 AllCells does not dispute that the DTSA does not apply to the copying and acquisition by Mr. 

Zhai and Mr. Lee.

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United States District Court

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Adams Arms, LLC v. Unified Weapon Sys., No. 8:16-cv-1503-T-33AEP, 2016 U.S. Dist. LEXIS 

132201, at *17 (M.D. Fla. Sept. 27, 2016) (emphasis added).

For the foregoing reasons, Defendants’ motion to dismiss is denied. To the extent 

Defendants have asked the Court to rule that AllCells’s DTSA claim can be based only on 

disclosure or use, and not acquisition, the Court declines. AllCells essentially conceded at the 

hearing that Mr. Zhai and Mr. Lee copied, and thus acquired, the alleged trade secrets before May 

11, 2016. That conduct lies outside the DTSA. However, it is not clear when exactly Cepheus 

acquired the alleged trade secrets. It seems likely that acquisition occurred prior to May 11, 2016, 

but, at this stage in the proceedings, the record has not been sufficiently developed on this point. 

The Court also notes that it is not making any ruling on what acts of misappropriation AllCells 

may rely for its state law misappropriation claim.

This order disposes of Docket No. 47.

IT IS SO ORDERED.

Dated: March 27, 2017

______________________________________

EDWARD M. CHEN

United States District Judge

Case 3:16-cv-07323-EMC Document 102 Filed 03/27/17 Page 3 of 3