Five Star Gourmet Foods, Inc. v. Fresh Express, Inc. ( 2020 )

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 FIVE STAR GOURMET FOODS, INC., et al., Case No. 19-cv-05611-PJH 8 Plaintiffs, 9 ORDER GRANTING DEFENDANT'S v. MOTION TO DISMISS 10 FRESH EXPRESS, INC., et al., Re: Dkt. No. 38 11 Defendants. 12 13 14 Defendant Proseal America, Inc.’s (“Proseal”) motion to dismiss came on for 15 hearing before this court on February 19, 2020. Plaintiffs Five Star Gourmet Foods, Inc. 16 (“Five Star”) and Direct Pack, Inc. (“Direct Pack”) appeared through their counsel, Chris 17 Arledge. Defendant appeared through its counsel, Jeanne Gills. Having read the papers 18 filed by the parties and carefully considered their arguments and relevant authority, and 19 good cause appearing, the court hereby GRANTS defendant’s motion for the following 20 reasons. 21 BACKGROUND 22 On September 5, 2019, plaintiffs Five Star and Direct Pack filed the original 23 complaint in this action against defendants Fresh Express, Inc. (“Fresh Express”), 24 Proseal, Plastic Ingenuity, Inc. (“Plastic Ingenuity”), John Olivo, Kenneth Dively, Fabian 25 Pereira, and Doe defendants. On October 31, 2019, plaintiffs filed a First Amended 26 Complaint (“FAC”). Dkt. 13. The FAC asserts ten causes of action: (1) fraud and deceit; 27 (2) misappropriation of trade secrets; (3) design patent infringement; (4) active 1 trade dress infringement; (7) common law unfair competition; (8) statutory unfair 2 competition; (9) breach of contract; and (10) intentional interference with contract. 3 Plaintiffs asset the Second, Fourth, and Sixth through Ninth causes of action against 4 Proseal. 5 On December 30, 2019, defendant Proseal filed the present motion to dismiss 6 based on Federal Rules of Civil Procedure 12(b)(6). The motion seeks to dismiss all 7 claims asserted against Proseal. Proseal also filed a request for judicial notice (“RJN”) 8 consisting of seven images of Proseal’s machinery. Dkt. 39. Plaintiffs object to the RJN. 9 Dkt. 47. Prior to the hearing on this motion, the court issued an order granting in part and 10 denying in part defendant Fresh Express’ motion to dismiss. Dkt. 59. In response to that 11 order, plaintiffs filed a Second Amended Complaint (Dkt. 67, the “SAC”), and the parties 12 have stipulated that the pending motion to dismiss should apply to the SAC. Dkt. 71. For 13 purposes of this motion, the SAC is substantially similar to the FAC and alleges the same 14 causes of action. 15 Plaintiff Five Star is a California corporation that sells pre-packaged salads in 16 plastic containers. Those plastic containers are configured with various compartments 17 such that the salad’s ingredients are kept separate in the packaging. SAC ¶¶ 17, 23. 18 Plaintiff Direct Pack is a co-owner, with Five Star, of U.S. Design Patent Nos. 698,665 19 and 698,666. Id. ¶ 40. Defendant Fresh Express also sells pre-packaged snacks and 20 salads and also uses plastic packaging that divides salad ingredients into segregated 21 compartments while packaged. Plaintiffs allege that Fresh Express infringed on their 22 design patents and trade dress. Id. ¶¶ 39–44, 51–61. Defendant Proseal is a Virginia 23 corporation and supplies machinery to both Five Star and Fresh Express necessary to 24 seal each company’s salad bowl products. Id. ¶¶ 4, 24. 25 Plaintiffs’ claims against Proseal derive largely from allegations concerning Five 26 Star and Fresh Express. The court’s January 31, 2020 order contains a more thorough 27 recitation of the facts between those parties. Dkt. 59. In 2016, a Fresh Express 1 Fresh Express stated an interest in exploring how the two companies could “develop a 2 fruitful partnership together.” SAC ¶ 16. Five Star agreed to permit Fresh Express 3 executives to tour Five Star’s Florida facility in May 2017. Id. ¶ 18. All of the visitors 4 signed non-disclosure agreements before entering the facility, as is required of all visitors 5 to Five Star. Five Star showed them its production process, how it staffs its production 6 lines, the equipment and equipment vendors it uses, and provided a comprehensive view 7 of Five Star’s entire salad bowl production process, including how it set up its assembly 8 lines and the order of operations. Id. 9 Plaintiffs allege that Fresh Express has since used Five Star’s confidential 10 business information and publicly available information to copy every aspect of Five 11 Star’s patented salad bowl product. As noted above, defendant Proseal has long been 12 Five Star’s supplier for the packaging machinery that seals its salad-bowl products. Id. 13 ¶ 24. Proseal is subject to a non-disclosure agreement as part of its relationship with 14 Five Star. As part of its alleged efforts to misappropriate Five Star’s products and 15 packaging, “Fresh Express convinced Proseal to sell to Fresh Express similar packaging 16 machinery as well as create a manufacturing tool set that is virtually indistinguishable 17 from the tool set used for Five Star’s packaging equipment.” Id. Plaintiffs allege this 18 allows Fresh Express to make packaging that is indistinguishable from Five Star’s and 19 without the cost associated with developing new packaging. 20 DISCUSSION 21 A. Legal Standard 22 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests for the 23 legal sufficiency of the claims alleged in the complaint. Ileto v. Glock, 349 F.3d 1191, 24 1199–1200 (9th Cir. 2003). Under Federal Rule of Civil Procedure 8, which requires that 25 a complaint include a “short and plain statement of the claim showing that the pleader is 26 entitled to relief,” Fed. R. Civ. P. 8(a)(2), a complaint may be dismissed under Rule 27 12(b)(6) if the plaintiff fails to state a cognizable legal theory, or has not alleged sufficient 1 Cir. 2013). 2 While the court is to accept as true all the factual allegations in the complaint, 3 legally conclusory statements, not supported by actual factual allegations, need not be 4 accepted. Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009). The complaint must proffer 5 sufficient facts to state a claim for relief that is plausible on its face. Bell Atl. Corp. 6 v. Twombly, 550 U.S. 544, 555, 558–59 (2007). 7 “A claim has facial plausibility when the plaintiff pleads factual content that allows 8 the court to draw the reasonable inference that the defendant is liable for the misconduct 9 alleged.” Iqbal, 556 U.S. at 678. “[W]here the well-pleaded facts do not permit the court 10 to infer more than the mere possibility of misconduct, the complaint has alleged—but it 11 has not ‘show[n]’—‘that the pleader is entitled to relief.’” Id. at 679 (quoting Fed. R. Civ. 12 P. 8(a)(2)). Where dismissal is warranted, it is generally without prejudice, unless it is 13 clear the complaint cannot be saved by any amendment. Sparling v. Daou, 411 F.3d 14 1006, 1013 (9th Cir. 2005). 15 B. Analysis 16 1. Evidentiary Issues 17 The court begins with two evidentiary matters. First, plaintiffs submitted a 18 declaration from Five Star’s CEO, attached to their opposition brief, concerning certain 19 factual matters. Dkt. 46-1, (the “Shoshan Decl.”). Defendant objects to the contents of 20 the declaration. Reply at 2. Second, defendant filed an RJN seeking to notice images of 21 its machinery. Dkt. 39. Plaintiffs objected to the RJN. Dkt. 47. 22 a. Shoshan Declaration 23 The Shoshan Declaration describes the purported trade secrets that Five Star 24 provided to Proseal including “packaging prototypes, technical drawings, and information 25 regarding the precise mixture of tightness, seal quality, vacuum level, gas flush levels , 26 and oxygen levels . . .” Shoshan Decl. ¶ 4. The declaration also describes the process 27 by which Proseal developed a bespoke toolset for Five Star and how Five Star tested 1 exclusively for Five Star. Id. ¶¶ 5–7. Finally, Five Star’s CEO describes how he informed 2 Proseal’s CEO that competitors were trying to mimic Five Star’s packaging. Proseal’s 3 CEO assured him that he would not assist Five Star’s competitors. Proseal’s CEO 4 allegedly later admitted to Five Star’s CEO that Fresh Express’ infringing packaging 5 appeared to be the same as Five Star’s. Id. ¶¶ 9–10. 6 “Courts regularly decline to consider declarations and exhibits submitted in support 7 of or opposition to a motion to dismiss . . . if they constitute evidence not referenced in 8 the complaint or not a proper subject of judicial notice.” Gerritsen v. Warner Bros. Entm’t 9 Inc., 112 F. Supp. 3d 1011, 1021 (C.D. Cal. 2015) (citing City of Royal Oak Retirement 10 Sys. v. Juniper Networks, Inc., 880 F. Supp. 2d 1045, 1060 (N.D. Cal. 2012)); see also 11 Schneider v. Cal. Dep’t of Corr., 151 F.3d 1194, 1197 n.1 (9th Cir. 1998) (“In determining 12 the propriety of a Rule 12(b)(6) dismissal, a court may not look beyond the complaint to a 13 plaintiff’s moving papers, such as a memorandum in opposition to a defendant’s motion 14 to dismiss.”). “The court must, however, consider each exhibit to the declaration in turn 15 to determine whether it is a proper subject of judicial notice or can be taken into account 16 under the incorporation by reference doctrine in deciding [defendant’s] motion to 17 dismiss.” Gerritsen, 112 F. Supp. 3d at 1021–22. 18 With regard to judicial notice, Federal Rule of Evidence 201 permits a court to 19 notice a fact if it is “not subject to reasonable dispute.” Fed. R. Evid. 201(b). A fact is 20 “not subject to reasonable dispute” if it is “generally known,” or “can be accurately and 21 readily determined from sources whose accuracy cannot reasonably be questioned.” 22 Fed. R. Evid. 201(b)(1)–(2). Defendant contends that the facts recited in the declaration 23 are neither publicly available nor verifiable. Reply at 2. The court agrees; the declaration 24 consists of statements by Mr. Shoshan and are not publicly available or verifiable. 25 Therefore, the declaration is not judicially noticeable. 26 The incorporation by reference doctrine is judicially created and is normally 27 applicable when a defendant seeks to incorporate a document into the complaint “if the 1 plaintiff’s claim.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1002 (9th Cir. 2 2018), cert. denied sub nom. Hagan v. Khoja, 139 S. Ct. 2615 (2019) (quoting United 3 States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003)). “We have extended the doctrine of 4 incorporation by reference to consider documents in situations where the complaint 5 necessarily relies upon a document or the contents of the document are alleged in a 6 complaint, the document’s authenticity is not in question and there are no disputed issues 7 as to the document’s relevance.” Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 8 (9th Cir. 2010). 9 The present situation does not fall within the incorporation by reference doctrine 10 because plaintiffs (rather than defendant) seek to incorporate a new document outside of 11 their own initial pleadings. Even if the court were to allow plaintiffs to apply the doctrine, 12 the Shoshan Declaration is not referenced in the FAC, attached as an exhibit, or 13 referenced by defendant. Further, defendant disputes its contents. Thus, the 14 incorporation by reference doctrine is not appropriate here. 15 Neither judicial notice nor incorporation by reference applies and the Shoshan 16 Declaration is not appropriate to consider at the pleading stage. Moreover, plaintiffs’ 17 counsel agreed with this conclusion at the hearing and indicated the Declaration was 18 intended to demonstrate additional allegations that could be pled should the court dismiss 19 the complaint. Dkt. 69 at 22. Accordingly, the court will not consider the Shoshan 20 Declaration for purposes of defendant’s motion. 21 b. Defendant’s Request for Judicial Notice 22 Defendant Proseal requests this court take judicial notice of images of its 23 machinery, taken from a YouTube video of Proseal’s machinery. RJN at 3 n.1. 24 Defendant argues that the court should take judicial notice of its pictures because courts 25 take judicial notice of both websites (because they are publicly verifiable) and images of 26 accused products when design patent infringement is alleged. Id. at 2. Defendant 27 argues that the court should extend this reasoning to claims of inducement of design 1 photographs and a lay person cannot draw factual conclusions by looking at 2 photographs. Therefore, it is inappropriate to take judicial notice of such disputed 3 photographs. Dkt. 47, at 2. 4 Generally, when considering whether to grant a request for judicial notice, a court 5 may consider factual information from the internet as long as the facts are not subject to 6 reasonable dispute. See, e.g., Perkins v. LinkedIn Corp., 53 F. Supp. 3d 1190, 1204 7 (N.D. Cal. 2014). In Perkins, the court granted requests for judicial notice related to text 8 that was displayed online because the accuracy of the text was not in dispute. Here, 9 defendant intends to submit pictures, which have several possible interpretations and, 10 unlike text, can be subject to reasonable dispute. Plaintiffs have raised such objections 11 here and courts “cannot take judicial notice of the contents of documents for the truth of 12 the matters asserted therein when the facts are disputed.” Cal. Sportfishing Prot. All. v. 13 Shiloh Grp., LLC, 268 F. Supp. 3d 1029, 1038 (N.D. Cal. 2017). 14 When considering whether a product infringes on a design patent, a court may 15 consider, as defendant contends, a picture of an accused product. See, e.g., Anderson 16 v. Kimberly-Clark Corp., 570 Fed. App’x 927, 932 (Fed. Cir. 2014). Yet, as the Federal 17 Circuit has noted, the purpose of noticing a picture in this context is to “compare the 18 drawings of the patented design to the appearance of the accused products.” Id. Yet, 19 defendant is not requesting the court notice the infringing product to compare against 20 plaintiffs’ patented design. It requests the court notice a machine that creates a seal on 21 the infringing product. This request stretches the bounds of judicial notice too far. The 22 inducement claim does not require the court to compare a picture of defendant’s product, 23 which is not the infringing product, to plaintiffs’ design patent. 24 Accordingly, the court DENIES defendant’s RJN. 25 2. Second Claim: Misappropriation of Trade Secrets 26 Plaintiffs’ second claim (and first against Proseal) is for misappropriation of trade 27 secrets. “To state a claim for trade secret misappropriation under the DTSA [Defend 1 must allege that: ‘(1) the plaintiff owned a trade secret; (2) the defendant misappropriated 2 the trade secret; and (3) the defendant’s actions damaged the plaintiff.’” Alta Devices, 3 Inc. v. LG Elecs., Inc., 343 F. Supp. 3d 868, 877 (N.D. Cal. 2018) (citations omitted). 4 The DTSA defines “trade secret” as: 5 all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, 6 plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, 7 programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, 8 electronically, graphically, photographically, or in writing if—(A) the owner thereof has taken reasonable measures to keep 9 such information secret; and (B) the information derives independent economic value, actual or potential, from not being 10 generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic 11 value from the disclosure or use of the information. 12 18 U.S.C. § 1839(3). The California UTSA defines a “ ‘[t]rade secret’ ” as “information, 13 including a formula, pattern, compilation, program, device, method, technique, or 14 process, that: (1) Derives independent economic value, actual or potential, from not being 15 generally known to the public or to other persons who can obtain economic value from its 16 disclosure or use; and (2) Is the subject of efforts that are reasonable under the 17 circumstances to maintain its secrecy.” Cal. Civ. Code § 3426.1(d). “‘Information’ has a 18 broad meaning under the [UTSA].” Altavion, Inc. v. Konica Minolta Sys. Lab., Inc., 226 19 Cal. App. 4th 26, 53 (Ct. App. 2014). 20 The definition of trade secret is . . . unlimited as to any particular class or kind of matter and may be contrasted with 21 matter eligible for patent or copyright protection, which must fall into statutorily defined categories. A trade secret may consist 22 of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an 23 opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical 24 compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device or list of 25 customers. 26 Id. (citations omitted). 27 “[C]ourts are ‘in general agreement that trade secrets need not be disclosed in 1 requirement would result in public disclosure of the purported trade secrets.” Autodesk, 2 Inc. v. ZWCAD Software Co., No. 5:14-CV-01409-EJD, 2015 WL 2265479, at *6 (N.D. 3 Cal. May 13, 2015). Accordingly, a “plaintiff need not spell out the details of the trade 4 secret,” but it must “describe the subject matter of the trade secret with sufficient 5 particularity to separate it from matters of general knowledge in the trade or of special 6 persons who are skilled in the trade, and to permit the defendant to ascertain at least the 7 boundaries within which the secret lies.” Alta Devices, 343 F. Supp. 3d at 881 (citations, 8 internal quotation marks and alterations omitted); see also Vendavo, Inc. v. Price f(x) AG, 9 No. 17-cv-06930-RS, 2018 WL 1456697, at *3–4 (N.D. Cal. Mar. 23, 2018) (rejecting the 10 following allegations as insufficiently-specific: “source code, customer lists and customer 11 related information, pricing information, vendor lists and related information, marketing 12 plans and strategic business development initiatives, ‘negative knowhow’ learned through 13 the course of research and development, and other information related to the 14 development of its price-optimization software, including ideas and plans for product 15 enhancements). 16 Here, plaintiffs argue that Five Star possessed confidential information that it 17 conveyed to defendant as part of the collaborative process of building a tool for Five 18 Star’s use. Opp. at 8. Notably, the trade secrets plaintiffs reference in their opposition 19 brief are not contained in the SAC or any exhibits incorporated by reference in the SAC— 20 they are described in the Shoshan Declaration, which the court cannot consider for this 21 motion. The remaining allegations in the SAC do not in any way provide defendant 22 notice as to the trade secret at issue. For example, the SAC alleges that Fresh Express 23 “convinced Proseal to closely duplicate the tool set used to manufacture Five Star’s 24 distinctive packaging, and with insignificant changes, provide a virtually indistinguishable 25 tool set to Fresh Express.” SAC ¶ 37. Plaintiffs do not allege a trade secret. 26 Because plaintiffs do not allege a trade secret, the court need not evaluate the 27 remaining element of a misappropriation claim. For the foregoing reasons, defendant’s 1 as alleged against Proseal is GRANTED. 2 3. Fourth Claim: Active Inducement of Design Patent Infringement 3 Plaintiffs’ fourth claim is for active inducement of design patent infringement. Title 4 35 U.S.C. § 271(b) governs induced patient infringement and provides that “[w]hoever 5 actively induces infringement of a patent shall be liable as an infringer.” “To prove 6 inducement of infringement, the patentee must []show that the accused inducer took an 7 affirmative act to encourage infringement with the knowledge that the induced acts 8 constitute patent infringement.” Power Integrations, Inc. v. Fairchild Semiconductor Int’l, 9 Inc. (Power Integrations II), 843 F.3d 1315, 1332 (Fed. Cir. 2016) (alteration in original) 10 (quoting Astornet Techs. Inc. v. BAE Sys., Inc., 802 F.3d 1271, 1279 (Fed. Cir. 2015)). 11 This means that plaintiffs must demonstrate that: “(1) a third party directly infringed the 12 asserted claims of the . . . patents; (2) [defendant] induced those infringing acts; and (3) 13 [defendant] knew the acts it induced constituted infringement.” Power Integrations II, 843 14 F.3d at 1332. “To satisfy the knowledge requirement, either actual knowledge or willful 15 blindness is required.” Asia Vital Components Co. v. Asetek Danmark A/S, 377 F. Supp. 16 3d 990, 1016 (N.D. Cal. 2019) (citing Glob.-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 17 754, 766 (2011)). “Willful blindness is a high standard, requiring that the alleged inducer 18 (1) subjectively believe that there is a high probability that a fact exists and (2) take 19 deliberate actions to avoid learning of that fact.” Info-Hold, Inc. v. Muzak LLC, 783 F.3d 20 1365, 1373 (Fed. Cir. 2015) (citing Glob.-Tech Appliances, 563 U.S. at 769). 21 With regard to the first element, the parties do not address whether Fresh Express’ 22 product infringes on Five Star’s design patents. Because defendant does not contest 23 infringement and given this court’s order denying defendant Fresh Express’ motion to 24 dismiss the underlying design patent claim (Dkt. 59, at 17), the court assumes (but does 25 not decide), that Fresh Express’ product infringes on Five Star’s design patent. 26 a. Whether Defendant Induced an Infringing Act 27 The second element requires the court to determine whether the accused inducer 1 1332. Proseal advances two theories to rebut this element: first, the SAC’s allegations 2 demonstrate legal business activity. Second, defendant did not alter its business 3 arrangements with either Fresh Express or Five Star, which it characterizes as inaction 4 rather than an affirmative act. Therefore, it cannot be held liable under an inducement of 5 patent infringement theory for failing to prevent a third-party from infringing. Mtn. at 14. 6 Plaintiffs argue that the affirmative act was to supply the tool necessary for Fresh 7 Express to infringe on Five Star’s product. Opp. at 10. 8 In Asia Vital Components, the court found that the defendant “took the affirmative 9 step of ‘manufacturing and selling/shipping the 1.5, 2.0, K7127N and K9 products to the 10 United States,’ thereby supporting induced infringement as to claims 14 and 15 of the 11 [patent at issue].” 377 F. Supp. 3d at 1017 (citation omitted). Here, defendant has taken 12 a similar affirmative step because it manufactured and shipped a product that supported 13 Fresh Express’ alleged infringement of plaintiffs’ design patents. That is sufficient to 14 demonstrate an affirmative act. 15 The cases cited by defendant do not require a different result. Generally, 16 “[s]ection 271(b) does not encompass inaction or failure to stop another’s continued 17 direct infringement.” Grecia v. VUDU, Inc., No. C-14-0775-EMC, 2015 WL 538486, at *9 18 (N.D. Cal. Feb. 9, 2015). Yet, defendant’s business practice do not meet the general 19 principle outlined in Grecia. As alleged, defendant’s business practice was to provide 20 machines to Fresh Express; those machines then helped create Fresh Express’ products 21 that allegedly infringe on plaintiffs’ design patents. The provision of machines is an 22 affirmative step. 23 Defendant also cites Tierra Borinquen, Inc. v. ASUS Computer International, Inc., 24 No. 13-CV-38-JRG, 2014 WL 894805, at *6 (E.D. Tex. Mar. 4, 2014), as an example 25 where a court found that a “neutral reseller” of products did not take any affirmative steps 26 to induce infringement. In Tierra, the defendant, OfficeMax, purchased infringing office 27 products in bulk and resold them at retail to customers. Id. There was no special 1 concluded that “the failure to change behavior in light of a new fact cannot be 2 characterized as an affirmative step evincing desire on the part of OfficeMax that users 3 infringe [the plaintiff’s] patents.” Id. Tierra is not an analogous situation. Unlike 4 OfficeMax, Proseal provides bespoke products based on specifications arrived upon in 5 collaboration with customers, such as Five Star and Fresh Express. It is not a neutral 6 reseller and has a closer relationship to its customers than a neutral reseller. Thus, 7 plaintiffs have alleged sufficient facts that an affirmative act occurred. 8 b. Whether Defendant Knew the Induced Acts Constituted 9 Infringement 10 Plaintiffs argue that defendant’s knowledge of the infringing acts is based on 11 specific discussions between executives at Proseal and Five Star. This discussion is 12 proffered exclusively in the Shoshan Declaration, which the court does not consider. 13 Plaintiffs’ remaining allegations concerning defendant’s knowledge are entirely 14 conclusory. For example, plaintiffs allege “Fresh Express convinced Proseal to sell them 15 similar equipment” and “Proseal provided the machinery and tool sets with the express 16 intention of aiding Fresh Express in its patent infringement.” SAC ¶¶ 24, 47. These 17 allegations do not address factual circumstances concerning knowledge of inducement. 18 In sum, defendant may have committed affirmative acts by supplying machinery 19 and tool sets to Fresh Express, but, without factual allegations of knowledge (or willful 20 blindness), plaintiffs have simply demonstrated that defendant was carrying on normal 21 business activities. For the foregoing reasons, defendant’s motion to dismiss plaintiffs’ 22 fourth cause of action for active inducement of design patent infringement as alleged 23 against Proseal is GRANTED. 24 4. Sixth Claim: Active Inducement of Trade Dress Infringement 25 Plaintiffs’ sixth claim is for active inducement of trade dress infringement. “To be 26 liable for contributory [i.e., inducement] trademark infringement, a defendant must have 27 (1) ‘intentionally induced’ the primary infringer to infringe, or (2) continued to supply an 1 particular product supplied.” Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, 494 F.3d 788, 807 2 (9th Cir. 2007) (quoting Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 855 (1982)). 3 “All theories of secondary liability for copyright and trademark infringement require some 4 underlying direct infringement by a third party.” Louis Vuitton Malletier, S.A. v. Akanoc 5 Sols., Inc., 591 F. Supp. 2d 1098, 1104 (N.D. Cal. 2008) (citing Perfect 10, 494 F.3d at 6 795, 807). The court first addresses the underlying trade dress infringement claim and 7 then the inducement elements. 8 a. Trade Dress Infringement 9 The underlying trade dress infringement claim requires plaintiffs to demonstrate: 10 “(1) that [their] claimed dress is nonfunctional; (2) that [their] claimed dress serves a 11 source-identifying role either because it is inherently distinctive or has acquired 12 secondary meaning; and (3) that the defendant’s product or service creates a likelihood 13 of consumer confusion.” Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1258 14 (9th Cir. 2001) (citing Disc Golf Ass’n, Inc. v. Champion Discs, Inc., 158 F.3d 1002, 1005 15 (9th Cir. 1998); and Fuddruckers, Inc. v. Doc’s B.R. Others, Inc., 826 F.2d 837, 841 (9th 16 Cir. 1987)). 17 i. First Element: Functionality 18 The parties dispute whether Five Star’s purported trade dress claim is functional. 19 “A product feature is functional and cannot serve as a trademark if the product feature is 20 essential to the use or purpose of the article or if it affects the cost or quality of the article, 21 that is, if exclusive use of the feature would put competitors at a significant, non- 22 reputation-related disadvantage.” Qualitex Co. v. Jacobson Prods. Co., Inc., 514 U.S. 23 159, 165 (1995). In the Ninth Circuit, 24 the test for functionality proceeds in two steps. For the first step, courts inquire whether the alleged significant non- 25 trademark function satisfies the Inwood Laboratories definition of functionality—‘essential to the use or purpose of the article 26 or affects its cost or quality.’ . . . If the claimed trade dress is determined to be functional under Step One, then the inquiry is 27 over. If not, the court must proceed to the second step and reputation-related competitive disadvantage. 1 2 Millennium Labs., Inc. v. Ameritox, Ltd., 817 F.3d 1123, 1128–29 (9th Cir. 2016) (internal 3 quotation marks and citations omitted). 4 “Functionality is generally viewed as an intensely factual issue.” Id. at 1129 5 (quoting Tie Tech, Inc. v. Kinedyne Corp., 296 F.3d 778, 783 (9th Cir. 2002)). Moreover, 6 multiple functional items may be combined into a non-functional aesthetic whole. 7 Fuddruckers, Inc. v. Doc’s B.R. Others, Inc., 826 F.2d 837, 842 (9th Cir. 1987) 8 (“[F]unctional elements that are separately unprotectable can be protected together as 9 part of a trade dress. In other words, our inquiry is not addressed to whether individual 10 elements of the trade dress fall within the definition of functional, but to whether the whole 11 collection of elements taken together are functional.”). “Genericness and functionality are 12 questions of fact, making dismissal under Rule 12(b)(6) inappropriate.” Autodesk, Inc. v. 13 Dassault Systemes SolidWorks Corp., No. C08-04397 WHA, 2008 WL 6742224, at *2 14 (N.D. Cal. Dec. 18, 2008). Plaintiffs have the burden to establish that their trade dress is 15 nonfunctional. See Arcsoft, Inc. v. Cyberlink Corp., 153 F. Supp. 3d 1057, 1068 (N.D. 16 Cal. 2015). 17 Defendant argues that plaintiffs’ trade dress claim fails as a matter of law for two 18 reasons. Mtn. at 18. First, the claim does not adequately define the elements of the 19 purported trade dress. Second, the trade dress protection does not extend to functional 20 elements of the item. In response to both arguments, plaintiffs respond that functionality 21 is a highly factual question that is not appropriately decided at the pleadings stage. Opp. 22 at 11. 23 In support of its first argument, defendant cites a series of cases that stand for the 24 proposition that the plaintiffs’ description of its trade dress must give defendant sufficient 25 notice as to the trade dress claim. See, e.g., Sleep Sci. Partners v. Lieberman, No. 09- 26 04200 CW, 2010 WL 1881770, at *3 (N.D. Cal. May 10, 2010) (“A plaintiff should clearly 27 articulate its claimed trade dress to give a defendant sufficient notice.”). Plaintiffs have 1 to provide sufficient notice to defendant. The SAC alleges three elements: 2 (a) A rounded square transparent plastic bowl containing salad ingredients, particularly lettuce or other greens; (b) A 3 companion transparent plastic insert containing a central receptacle to hold the salad dressing cup and several arcuate, 4 segmental receptacles, positioned circumferentially around the central receptacle, each of the receptacles containing various 5 colorful salad toppings; and (c) An elongated generally rectangular plastic band overwrap or sleeve the overwrap or 6 sleeve being tensioned around the bowl, with said plastic band or sleeve overwrap containing a particular look and feel through 7 its use of font, colors and overall design that provides a vertical billboard as well as allowing for all the salad toppings to be 8 viewed without being obstructed by the band or sleeve. 9 SAC ¶ 56. The cases defendant cites concerned plaintiffs that left the door open to 10 expand the trade dress claim at a later stage in the litigation. For example, the court in 11 Salt Optics, Inc. v. Jand, Inc., No. SACV 10-0828 DOC, 2010 WL 4961702, at *5 (C.D. 12 Cal. Nov. 19, 2010), noted that the plaintiff expressly stated that it intended to 13 “incorporate other elements of the website into the trade dress claim at a later stage [of 14 the litigation].” Unlike those cases, plaintiffs here have been consistent in arguing the 15 same trade dress elements in the original complaint, the FAC, the SAC, and the 16 opposition brief. The underlying concern of those cases was sufficient notice, which 17 defendant has here. 18 In support of its second argument, defendant contends that plaintiffs have not 19 carried their burden that trade dress protection does not extend to functional elements. 20 Mtn. at 18–19. Of course, plaintiffs will need to offer sufficient factual evidence to 21 demonstrate functionality; however, such a fact-intensive inquiry is not appropriate for a 22 motion to dismiss. Autodesk, 2008 WL 6742224, at *2. This conclusion is consistent 23 with the court’s opinion denying defendant Fresh Express’ motion to dismiss with regard 24 to plaintiffs’ trade dress infringement claim. This court determined that plaintiffs’ 25 allegations presented factual questions regarding functionality that could not be resolved 26 at the motion to dismiss state. Dkt. 59 at 22. The same holding is applicable here. 27 ii. Second and Third Elements: Secondary Meaning and 1 The parties do not discuss the remaining two elements of an underlying trade 2 dress infringement claim. The second element requires plaintiffs to allege that the 3 claimed dress serves a source-identifying role either because it is inherently distinctive or 4 has acquired secondary meaning. Because defendant does not challenge this element 5 and because secondary meaning is a question of fact (Clicks Billboards, 251 F.3d at 6 1262), the court assumes, but does not decide that plaintiffs have met this element. The 7 third element requires that the defendant’s product or service creates a likelihood of 8 consumer confusion. Again, because defendant does not challenge the likelihood of 9 consumer confusion, the court assumes, but does not decide that plaintiffs have met this 10 element. Thus, plaintiffs have stated a plausible trade dress infringement. 11 b. Contributory Trade Dress Infringement 12 Turning to the contributory trade dress infringement elements, defendant argues 13 that plaintiffs’ allegations still fail because they do not allege sufficient knowledge or 14 intentional conduct to demonstrate inducement. Mtn. at 19. Plaintiffs respond that if a 15 manufacturer creates a custom-designed product, then the manufacturer would know that 16 a different customer purchasing the same custom-designed product is using that product 17 for the same purpose. Opp. at 11. Defendant also contends that the product that it 18 provides to Fresh Express is not an infringing product because it does not bear any 19 resemblance to the purported trade dress and defendant’s machinery does not contribute 20 to making the trade dress elements. Mtn. at 19. Put differently, the trade dress 21 elements, bowl, tray insert, and plastic overband or sleeve, are designed, manufactured, 22 and sold by companies other than Proseal. Id. Plaintiffs respond that Fresh Express 23 could not have used its infringing packaging without the seal created by defendant’s 24 machinery. Opp. at 11. 25 There are two ways to demonstrate contributory trade dress: intentional 26 inducement or continuing to supply an infringing product to an infringer with the 27 knowledge that the infringer is mislabeling the particular product. Perfect 10, 494 F.3d at 1 continued to supply its product. Plaintiffs’ allegations that Proseal knew of Fresh 2 Express’ infringement are conclusory. For example, they allege “[a]s part of its efforts to 3 misappropriate Five Star’s products and packaging, Fresh Express convinced Proseal to 4 sell them similar equipment and create a manufacturing tool that is virtually 5 indistinguishable from the tool set used for Five Star’s packaging equipment.” SAC ¶ 24. 6 There are no factual allegations to support these conclusory statements. 7 Plaintiffs also contend that the court should assume Proseal knew of the 8 infringement because Proseal was familiar with Five Star’s intellectual property and was 9 asked to create a “virtually identical tool” for both companies. Opp. at 10. It is not clear 10 that plaintiffs, who only have access to their own tool, can know with certainty that the 11 tools are virtually identical. Even if the tools are identical, it is also not clear that 12 Proseal’s virtually identical tools can only be used with a singular, custom-designed 13 package. Given these uncertainties and the conclusory nature of plaintiffs’ SAC, plaintiffs 14 have not demonstrated that defendant knew it was contributing to Fresh Express’ alleged 15 trade dress infringement. 16 In sum, plaintiffs have not alleged sufficient facts to demonstrate the requisite 17 knowledge for a contributory trade dress infringement claim. For the foregoing reasons, 18 defendant’s motion to dismiss plaintiffs’ sixth cause of action for active inducement of 19 trade dress infringement as alleged against Proseal is GRANTED. 20 5. Seventh and Eighth Claims: Common Law and Statutory Unfair 21 Competition 22 Plaintiffs bring two claims for violations of both common law and statutory unfair 23 competition law. The UCL creates a cause of action for business practices that are (1) 24 unlawful, (2) unfair, or (3) fraudulent. Bus. & Prof. Code. § 17200. Each “prong of the 25 UCL [provides] a separate and distinct theory of liability.” Lozano v. AT & T Wireless 26 Servs., Inc., 504 F.3d 718, 731 (9th Cir. 2007); see also Imax Corp. v. Cinema Techs., 27 Inc., 152 F.3d 1161, 1169 (9th Cir. 1998) (discussing common law unfair competition). 1 other claims for relief. SAC ¶¶ 70–71, 78. Because the court finds that plaintiffs’ other 2 claims must be dismissed, the unfair competition law claims must likewise be dismissed. 3 For the foregoing reasons, defendant’s motion to dismiss plaintiffs’ seventh and eighth 4 causes of action for violations of the statutory and common law unfair competition as 5 alleged against Proseal is GRANTED. 6 6. Ninth Claim: Breach of Contract 7 Plaintiffs’ ninth claim is for breach of the non-disclosure agreement (“NDA”) 8 between Five Star and Proseal. To plead a claim for breach of contract under California 9 law, plaintiffs must allege: “(1) existence of the contract; (2) [plaintiffs’] performance or 10 excuse for nonperformance; (3) defendant’s breach; and (4) damages to plaintiff[s] as a 11 result of the breach.” Appling v. Wachovia Mortg., FSB, 745 F. Supp. 2d 961, 974 (N.D. 12 Cal. 2010) (quoting CDF Firefighters v. Maldonado, 158 Cal. App. 4th 1226, 1239 (Ct. 13 App. 2008)). 14 Neither party disputes the existence or validity of the mutual NDA as a binding 15 contract. Additionally, neither party explicitly discusses plaintiffs’ performance or excuse 16 of performance. The dispositive question is whether defendant breached the contract by 17 disclosing plaintiffs’ confidential information to Fresh Express. The NDA, which is 18 incorporated by reference to the SAC, defines “confidential information” broadly and does 19 so intentionally. SAC, Ex. 1, ¶ 1 (“The parties hereto agree that it is their specific intent 20 that the definition of Confidential Information be defined as broadly as possible within the 21 permissible context of applicable law.”). Further, the NDA imposes obligations on the 22 parties not to disclose or make available confidential information to any third party unless 23 an exception applies (i.e., the confidential information was in the public domain or the 24 non-releasing party gave prior written authorization). Id. ¶¶ 2–3. 25 In many respects, the issue of confidential information tracks the parties’ 26 arguments regarding trade secrets. Similar to their trade secret misappropriation claim, 27 plaintiffs contend that the confidential information at issue here is the information supplied 1 between the two companies. Opp. at 7. Defendant characterizes the confidential 2 information at issue here as Proseal’s own sealing technology, which, as it points out, 3 does not belong to plaintiffs. Mtn. at 14. Defendant emphasizes that sharing confidential 4 information does not create a license or vest a proprietary right, interest, or title in that 5 confidential information. Further, the NDA makes clear that there is no exclusivity 6 between the parties. 7 Without the Shoshan Declaration, the SAC fails to allege what constitutes 8 confidential information with any particularity, similar to the court’s conclusion with regard 9 to plaintiffs’ trade secret allegations. The lack of particularity makes it difficult to 10 determine whether a breach occurred. Nor do plaintiffs allege direct knowledge of the 11 breach. Instead, they ask the court to assume that because Fresh Express’ packaging is 12 virtually indistinguishable to Five Star’s and because Proseal had “an opportunity and 13 motive for using Five Star’s information” (Opp. at 7), then Proseal breached its NDA 14 obligation. These assumptions are not tenable. As discussed in regard to plaintiffs’ 15 contributory trade dress inducement claim, it is not clear that virtually indistinguishable 16 packaging inexorably means that defendant used the exact same specifications on one 17 product (Fresh Express’) as it did on another (Five Star’s). Further, it is equally plausible 18 that defendant and Fresh Express configured their own toolset in the exact same method 19 that defendant and Five Star arrived on their tool set: through a substantial back-and- 20 forth process. Plaintiffs have not demonstrated a plausible disclosure of confidential 21 information from Proseal to Fresh Express and, thus, no breach. 22 For the foregoing reasons, defendant’s motion to dismiss plaintiffs’ ninth cause of 23 action for breach of contract as alleged against Proseal is GRANTED. 24 7. Amendment Would Not Be Futile 25 While the court does not consider the Shoshan Declaration for purposes of the 26 motion to dismiss, there is relevant factual matter in the declaration that could be 27 included in an amended complaint. At the hearing, plaintiffs’ counsel proffered the 1 complaint. Accordingly, the court finds that further amendment would not be futile. 2 CONCLUSION 3 In light of the foregoing, the court GRANTS defendant’s motion to dismiss and all 4 of plaintiffs’ causes of action as alleged against Proseal America, Inc. are DISMISSED 5 WITH LEAVE TO AMEND. While the court grants leave to amend, the schedule for filing 6 an amended complaint will be set when the court issues an order in response to Fresh 7 Express’ pending motion to dismiss. Dkt. 72. 8 IT IS SO ORDERED. 9 Dated: March 16, 2020 10 /s/ Phyllis J. Hamilton PHYLLIS J. HAMILTON 11 United States District Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27