IP Law Daily, TRADE SECRETS—Cal. App.: Dismissal of suit against Starbucks over coffee-flavored lip balms for lack of personal jurisdiction upheld, (Aug 29, 2022)

By Linda O’Brien, J.D., LL.M.

Notwithstanding coffee chain Starbucks’ retail presence in California, it was undisputed that it was a Washington corporation and there was no evidence that the retail activity was contacted to the alleged trade secret misappropriation.

A developer of coffee-flavored lip balms did not demonstrate that the alleged trade secret misappropriation was related to or arose out of Starbucks contacts with California, a California state court of appeals in an unpublished opinion has ruled. Starbucks was a Washington corporation and its national marketing campaign, that included an award of coffee-flavored lip balms among other promotional items, did not drive Starbucks retail sales only in California. Thus, the dismissal of the suit for lack of personal jurisdiction was affirmed (Balmuccino, LLC v. Starbucks Corp., August 24, 2022, Byrdsong, R.).

In 2016, four California residents developed a line of coffee-flavored lip balms. In June 2017, they met in New York with Mesh Gelman, the head of product development for coffeehouse chain Starbucks Corporation, to market their idea and provided prototypes of the product that specifically aligned with Starbucks’ top flavors. Gelman left Starbucks’ employment shortly afterward and there were no further communications between the parties.

The four individuals formed Balmuccino, a California limited liability company, and in October 2019, brought suit against Starbucks for trade secret misappropriation, breach of contract, and breach of confidence. The complaint alleged that Starbucks contacted a Balmuccino supplier in 2018 to inquire about coffee-flavored lip balms, presented prototypes that were identical to those provided to Gelman in the marketing meeting, and Starbucks distributed coffee-flavored lip glosses in a nationwide promotion that benefitted its retail sales in California.

Starbucks moved to quash service of summons for lack of personal jurisdiction, asserting jurisdiction was lacking because it was a corporation formed under the laws of the State of Washington, all of its corporate decisions, including product development and marketing, were made in Washington, and it did not purposely avail itself of the benefits of doing business in California in connection with the subject matter of the complaint. The trial court granted the motion and dismissed the suit for lack of personal jurisdiction. Balmuccino appealed.

The court found that Balmuccino failed to show that its controversy was related to or arose out of Starbucks contacts with the State of California. It was undisputed that Starbucks is a Washington corporation and therefore not subject to general jurisdiction in California. In rejecting Balmuccino’s assertion that the court had specific jurisdiction over Starbucks because Balmuccino developed the product in California, its members resided in California, and the damage caused by Starbucks to its business in California, the court noted that the focus of the inquiry into specific jurisdiction was the defendant’s relationship with the forum state.

According to the court, the U.S. Supreme Court in Walden v. Fiore, 571 U.S. 277 (2014), rejected attempts to satisfy the minimum contacts requirement solely through evidence of the contacts between the plaintiff with the forum state or the defendant’s contacts with residents of that state. Balmuccino contended that the following points of contact connected the controversy and Starbucks to California: California was home to the entire Balmuccino team; the ideas that led to the business venture arose in California; the product was developed in California; the product design and prototypes were developed in California; the marketing for the Starbucks meeting in New York were created in California; and communications between the parties, other than the New York meeting, took place in California. None of the points of contact conferred specific jurisdiction over Starbucks because they only related to Balmuccino’s contacts with California or Starbucks contacts with Balmuccino and not with Starbucks contacts with California involving the subject of the lawsuit, the court stated.

Specifically, the contended points of contact did not demonstrate that the alleged trade secret misappropriation arose out of or related to Starbucks contacts with California. There was undisputed that Starbucks nationwide promotion - which included a four-day social media contest in the U.S. and Canada where winners received a “Sip Kit” o four coffee-flavored lip glosses, a gift card, and other promotional items – drove Starbucks retail sales in California as the entire promotional campaign was created, developed, and launched in Washington, not California, no Sip Kit lip glosses were awarded to anyone in California, and none was sold in California. In affirming the trial court order, the court concluded that, notwithstanding Starbucks’ “ubiquitous” retail presence in California, Starbucks was a Washington corporation and the controversy between the parties was not related to and did not arise out of Starbucks contacts with the State of California.

The case is No. B308344.

Attorneys: Eduardo Martorell (Martorell Law APC) for Balmuccino, LLC. Paul W. Sweeney, Jr. (K&L Gates, LLP) for Starbucks Corp.

Companies: Balmuccino, LLC; Starbucks Corp.

Cases: TradeSecrets CaliforniaNews