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Biod, LLC v. Amnio Technology, LLC

United States District Court, Ninth Circuit

January 24, 2014

BioD, LLC; and BioDlogics, LLC, Plaintiffs,
v.
Amnio Technology, LLC; Applied Biologics, LLC; Terrell Suddarth; Pinnacle Transplant Technologies, LLC; and Bruce Werber, D.P.M., Defendants.

ORDER

H. RUSSEL HOLLAND, District Judge.

Motion to Dismiss

Defendants Amnio Technology, LLC; Bruce Werber, D.P.M.; Terrell Suddarth; and Pinnacle Transplant Technologies, LLC move to dismiss plaintiffs' amended complaint.[1] These motions are opposed.[2] Oral argument was requested but is not deemed necessary.

Background

Plaintiffs are BioD, LLC and BioDlogics, LLC., which is a wholly owned subsidiary of BioD.[3] Defendants are Amnio Technology, LLC; Applied Biologics, LLC; Terrell Suddarth; Pinnacle Transplant Technologies, LLC (PTT); and Bruce Werber, D.P.M.[4]

"BioD is a biotechnology company engaged in the development and commercialization of novel biological products derived from the placental tissues that it recovers from live, healthy donors pursuant to informed consent."[5] "BioDlogics is "responsible for the recovery, processing, and distribution of human tissue allografts."[6]

"On June 1, 2006, Suddarth began his full-time employment with BioD as Director of Manufacturing/Product Development."[7] Suddarth "remained employed by BioD... through August 21, 2009"and "returned to BioD as a paid consultant from March 14, 2010 through July 10, 2011."[8] Plaintiffs further allege that "Suddarth is a Member of BioD, LLC."[9] Suddarth contends, and plaintiffs do not dispute, that as part of his compensation he received a 1% membership interest in BioD. Plaintiffs allege that "[p]ursuant to the BioD Limited Liability Company Agreement, Suddarth promised and agreed that he would not disclose BioD's confidential and proprietary information."[10]

In April 2007, Suddarth signed an Employee Confidentiality and Invention Assignment Agreement in which he agreed to only use BioD's confidential information "to the extent necessary to perform [his] duties as an employee of the Company for the benefit of the Company."[11] The Employee Confidentiality Agreement provides that Suddarth's obligations under the agreement "remain in full force and effect not only during [his] employment with Company, but also after the termination of any such employment for any reason."[12] The Employee Confidentiality Agreement also provides that Suddarth

irrevocably consent[s] and submit[s] to the exclusive jurisdiction of the courts of the State of Colorado and the U.S. District Court for the District of Colorado with respect to any actions or causes of action arising under this Agreement, and further agree[s] that such courts shall be the exclusive venue of any actions or causes of action arising hereunder (unless injunctive relief is sought and, in the Company's judgment, may not be effective unless obtained in some other venue).[13]

Plaintiffs allege that "[i]n January 2013, Suddarth, [d]efendant Werber and others formed a new company, [d]efendant Amnio Technology[, ]" which is "a direct competitor of BioD."[14] Plaintiffs allege that "Suddarth provided Plaintiffs' Trade Secrets, the BioD Confidential Information and the BioDlogics Confidential Information[15] to... Werber, Amnio Technology, PTT, and perhaps others."[16] Plaintiffs allege that "PTT is manufacturing... placental tissue products for distribution by Amnio Technology and [d]efendant Applied Biologics."[17] Plaintiffs further allege that Werber, Suddarth, and Amnio Technology are claiming that a 2010-2011 research study done using plaintiffs' products is research conducted using Amnio Technology's products.[18] Plaintiffs also allege that "Amnio Technology, Suddarth, and Werber unlawfully copied significant portions of the BioD website and then used [that] material, without authorization, in Amnio Technology's own website."[19]

In the amended complaint, BioD alleges 1) a copyright infringement claim against Amnio Technology, Werber, and Suddarth based on allegations that they copied BioD's website (Count One); 2) a Lanham Act claim against Amnio Technology based on the 2010-2011 research study (Count Three); 3) a breach of contract claim against Suddarth based on the 2007 Employee Confidentiality Agreement (Count Four); 4) a breach of contract claim against Suddarth based on the BioD Limited Liability Company Agreement (Count Five); 5) a misappropriation of trade secrets claim against Amnio Technology, Werber, Suddarth, and PTT (Count Six); 6) a breach of loyalty claim and a breach of the implied covenant of good faith and fair dealing claim against Suddarth (Count Seven); 7) an unjust enrichment claim against Amnio Technology, Suddarth, Werber, and PTT (Count Nine); 8) a tortious interference claim against Amnio Technology, Werber, and PTT (Count Ten); 9) an aiding and abetting claim against Amnio Technology, Suddarth, Werber, and PTT (Count Eleven); and 10) a conspiracy claim against Amnio Technology, Suddarth, Werber, and PTT (Count Twelve).

In the amended complaint, BioDlogics alleges 1) a Lanham Act claim against Amnio Technology based on the 2010-2011 research study (Count Three); 2) a misappropriation of trade secrets claim against Suddarth, Werber, Amnio Technology, and PTT (Count Six); 3) an unjust enrichment claim against Amnio Technology, Suddarth, Werber, and PTT (Count Nine); 4) an aiding and abetting claim against Amnio Technology, Suddarth, Werber, and PTT (Count Eleven); and 5) a conspiracy claim against Amnio Technology, Suddarth, Werber, and PTT (Count Twelve).

In addition to compensatory and punitive damages, plaintiffs seek a preliminary and permanent injunction preventing defendants from continuing to misappropriate, use, and infringe plaintiffs' trade secrets, copyrights, and other confidential information. Plaintiffs also seek a preliminary and permanent injunction preventing Suddarth from breaching the 2007 Employee Confidentiality Agreement.

Amnio Technology, Werber, and PTT now move to dismiss plaintiffs' misappropriation of trade secrets, unjust enrichment, tortious interference, aiding and abetting, and conspiracy claims against them. Suddarth moves to dismiss all of plaintiffs' claims against him.

Discussion

"Rule 8(a) of the Federal Rules of Civil Procedure requires only a short and plain statement of the claim showing that the pleader is entitled to relief.'" In re Rigel Pharmaceuticals, Inc. Securities Litig. , 697 F.3d 869, 875 (9th Cir. 2012) (quoting Fed.R.Civ.P. 8(a)(2)). "Rule 12(b)(6) authorizes courts to dismiss a complaint for failure to state a claim upon which relief can be granted.'" Id . (quoting Fed.R.Civ.P. 12(b)(6)). "To avoid dismissal, the complaint must provide more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.'" Id . (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555 (2007)). "[A] plaintiff must allege sufficient factual matter... to state a claim to relief that is plausible on its face.'" OSU Student Alliance v. Ray , 699 F.3d 1053, 1061 (9th Cir. 2012) (quoting Pinnacle Armor, Inc. v. United States , 648 F.3d 708, 721 (9th Cir. 2011)). In evaluating a Rule 12(b)(6) motion, the court accepts the complaint's well-pleaded factual allegations as true and draws all reasonable inferences in the light most favorable to the plaintiff." Adams v. U.S. Forest Srvc. , 671 F.3d 1138, 1142-43 (9th Cir. 2012).

Copyright infringement claim (Count One)

Suddarth contends, and BioD does not dispute, that BioD's copyright infringement claim against him is based on secondary liability. "Secondary liability for copyright infringement may be imposed where a party has not committed direct infringement, but nonetheless played a significant role in direct infringement committed by others." Viesti Assocs. Inc. v. Pearson Educ., Inc., Case No.12-cv-02240-PAB-DW, 2013 WL 4052024, at *6 (D. Colo. 2013). There are two types of secondary liability: contributory liability and vicarious liability. "[A] defendant is a contributory infringer if it (1) has knowledge of a third party's infringing activity, and (2) induces, causes, or materially contributes to the infringing conduct.'" Perfect 10, Inc. v. Visa Int'l Service Ass'n , 494 F.3d 788, 795 (9th Cir. 2007) (quoting Ellison v. Robertson , 357 F.3d 1072, 1076 (9th Cir. 2004)). "In the context of copyright law, vicarious liability extends beyond an employer/employee relationship to cases in which a defendant has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities.'" A&M Records, Inc. v. Napster, Inc. , 239 F.3d 1004, 1022 (9th Cir. 2011) (quoting Fonovisa, Inc. v. Cherry Auction, Inc. , 76 F.3d 259, 262 (9th Cir. 1996)).

Plaintiffs allege that Suddarth "copied material portions of the BioD Website", that Suddarth "had access to the content of the BioD website and the content contained therein because Suddarth had access to the BioD Website and the content while working for BioD", and that Suddarth, as a founder of Amnio Technology, "directed and supervised the infringing conduct, and sought to receive a financial benefit from the infringement."[20] Courts have found such conclusory allegations insufficient to state a claim for contributory or vicarious copyright infringement.

For example, in Viesti, 2013 WL 4052024, at *1, Viesti, a stock photography agency, alleged that Pearson had used photographs in a manner that exceeded the scope of Pearson's licenses and brought claims of copyright infringement, contributory copyright infringement, and vicarious copyright infringement against Pearson. As for contributory copyright infringement, Viesti alleged

that "Pearson transmitted the Photographs to other entities, subsidiary companies, divisions, affiliates, and/or third parties, who then translated the publications at issue into additional languages and included the Photographs in the translated publications without permission." In addition, the complaint claims that "Pearson had knowledge of the unauthorized use of the Photographs" by third parties and "Pearson enabled, induced, caused, facilitated, or materially contributed to the unauthorized use of the Photographs." Moreover, the complaint avers that "Pearson profited from its unauthorized transmission of the Photographs to other entities."

Id. at *7 (internal citations omitted). The court found these allegations insufficient to state a plausible contributory copyright claim because there were "no factual assertions describing how Pearson enabled, induced, or facilitated the infringement of the photographs." Id . The court concluded that "[w]ithout factual allegations describing instances of Pearson encouraging or promoting third parties to infringe Viesti's photographs, the complaint does not permit the [c]ourt to infer more than the mere possibility of Pearson's misconduct." Id.

As for vicarious liability, Viesti's complaint alleged "that Pearson had the right and ability to prevent the infringing conduct of other entities.' In addition, the complaint claims that Pearson received a direct financial benefit from the unauthorized use of the Photographs.'" Id . at *8 (internal citations omitted). The court found these allegations insufficient "because they are nothing more than a recitation of one element of a vicarious copyright infringement claim." Id . The court explained that "[t]he factual averments present no evidence to support a plausible inference that Pearson had the right or ability to prevent infringing conduct of unidentified third parties" and that "[g]iven that no third parties are identified in the complaint, Viesti's claim that Pearson had the right to control these unidentified third parties is speculative and conclusory." Id.

Similarly here, plaintiffs have done nothing more than recite elements of contributory and vicarious copyright infringement claims. Plaintiffs have not alleged that Suddarth was uniquely in possession of the original material on BioD's website, but rather plaintiffs allege that the material was publically available on the website for anyone to read and copy.[21] Plaintiffs have not alleged how Suddarth, as a non-employee of Amnio Technology, was personally responsible for the content of Amnio Technology's website. It is not sufficient to allege that Suddarth was a founder of Amnio Technology. Although plaintiffs allege some factual details about what was actually copied from BioD's website, they allege no factual details as to Suddarth's personal involvement in the infringement. Plaintiffs have alleged no facts that suggest that Suddarth induced Amnio Technology to infringe BioD's website or that suggest that Suddarth had the ...


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