Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Cal.: Injunction against memory chip developer denied, absent UCL violation, (Apr 27, 2015)

By Michael Menzhuber, J.D., LL.M.

A computer technology manufacturer’s request for a permanent injunction against a computer memory chip developer was denied after the federal district court in Oakland held that there was no violation of the California Unfair Competition Law (UCL). A breach of contract claim, asserted as the basis for the UCL violation, was rejected by a jury (Netlist, Inc. v. Diablo Technologies, Inc., April 24, 2015, Rogers, Y.).

Background. Netlist, Inc, who was in the business of creating high performance memory chips for the computer industry, and Diablo Technologies, Inc, a developer of customized semiconductor memory chips, entered into a Mutual Non-Disclosure Agreement to discuss a possible collaboration. A few months later, they entered into a Development and Supply Agreement. Netlist later brought an action against Diablo for breach of contracts and unfair competition under the California UCL. Netlist also filed a claim for correction of an inventorship of a patent; as well as claims for trademark infringement and false and misleading advertising under the Lanham Act.

A jury found in Netlist’s favor, with respect to its Lanham Act claims, and awarded nominal damages. However, it found in Diablo’s favor with respect to Netlist’s claims for breach of contracts, misappropriation of trade secrets, and correction of inventorship of a patent. In light of the jury’s verdict, the court dissolved the Netlist’s preliminary injunction against Diablo.

The jury did not consider Netlist’s UCL claim, which sought a permanent injunction against Diablo’s manufacturer and sale of its Rush and Bolt chips, and any derivative integrated circuits, because a UCL claim is equitable in nature. The court, therefore, rather than the jury, was required to decide the issue.

Unfair Competition Law. The court noted that antitrust laws were enacted for the protection of competition, not competitors; that injury to a competitor was not equivalent to injury to competition; and that “unfair” means conduct that significantly threatened or harmed competition. The court further noted that a breach of contract claim could be a basis for an unfair business practice.

Netlist asserted that the jury’s verdict, finding that there was no breach of contracts, was erroneous and should be set aside. The court declined to do so, recognizing that courts have held that the Seventh Amendment requires a trial judge to follow a jury’s implicit or explicit factual determinations. The court determined that, based on the jury’s findings, the threshold showing of a predicate breach of contract, for purposes of relief under the UCL, was not established.

The case is No. 13-cv-5962 YGR

Attorneys: Benjamin Kneeland Riley (Bartko, Zankel, Bunzel & Miller), Erin Paige Gibson (DLA Piper LLP), and Gregory C. Schodde (McAndrews Held and Malloy Ltd.) for Netlist Inc. Fabio Elia Marino (McDermott Will & Emery) for Diablo Technologies Inc.

Companies: Netlist Inc.; Diablo Technologies Inc.

Cases: StateUnfairTradePractices CaliforniaNews