IP Law Daily, TRADE SECRETS—N.D. Cal.: DTSA counterclaim fails because accused goods sold before enactment, (Jul 10, 2017)

By Peter Reap, J.D., LL.M.

A counterclaim brought by Golf Tailor and others (the defendants) against plaintiff golf equipment designer Jonathan Wang and others (the plaintiffs) for violation of the federal Defend Trade Secrets Act (DTSA) was dismissed because the Act only applies to misappropriations that occurred before its date of enactment and the plaintiffs had already lost any trade secrets rights they had in the accused product prior to the DTSA’s enactment, the federal district court in San Francisco has decided. However, the counterclaim was dismissed without prejudice to the defendants’ asserting a California trade secrets claim. Additionally, the defendants’ counterclaims 1-12 were dismissed, and four of their affirmative defenses were stricken (Wang v. Golf Tailor, LLC, July 5, 2017, Beeler, L.).

This case involved two products, a golf club and a golf training aid. The plaintiffs called the club, which defendant Golf Tailor manufactured and sold (originally under a legitimate contract) as its own, the XE1 Wedge. The plaintiffs claimed that Golf Tailor sold a CSi Wedge product as an unauthorized derivative of the XE1. The training aid is called the Speed Whip. The parties’ competing claims were the same for both products. The plaintiffs and the defendants claimed that they designed the product and that the other party stole their design, produced and sold knockoffs, and thus misappropriated their intellectual property. The plaintiffs moved to dismiss the defendants’ counterclaims and to strike five of their affirmative defenses.

DTSA counterclaim. Counterclaim 13 alleged that, by selling the XE1-branded Wang Golf Club and the Speed Whip, the plaintiffs misappropriated Golf Tailor’s trade secrets, and thereby ran afoul of the federal DTSA. The DTSA applies only to misappropriations that occurred on or after the date of the DTSA’s enactment, May 11, 2016, the court explained.

Golf Tailor had no viable DTSA claim for the XE1, the court held. Its allegations showed that, by May 11, 2016, it had already lost any trade secrets that it had in this product. Golf Tailor explained that it sold the XE1 in 2015, well before DTSA’s May 11, 2016 enactment. There was consequently no XE1-related trade secret that could be misappropriated after May 11, 2016.

The contours of Golf Tailor’s trade secrets were set by California law. Under California law, public disclosure, that is, the absence of secrecy, is fatal to the existence of a trade secret. Thus, whatever remedy Golf Tailor may have must come from another source, the court reasoned. The XE1-related DTSA counterclaim failed, could not be saved by amendment, and thus was dismissed with prejudice.

The preceding DTSA analysis did not necessarily apply to the Speed Whip. Nothing in any allegation showed that Golf Tailor sold the Speed Whip, or otherwise publicly disclosed whatever trade secrets it embodied, before DTSA’s enactment. Golf Tailor stated that it would withdraw its DTSA counterclaim without prejudice to asserting a California trade-secrets claim. Thus, to the extent that sales of the products pre-date DTSA’s enactment, the court dismissed the claim without prejudice to the defendants’ raising a California trade-secrets claim.

Counterclaims 1-12. These counterclaims all depended on the defendants’ central allegation that Mr. Oyler designed the XE1. More exactly, these counterclaims all charged that the plaintiffs’ claimed rights in the technical drawings and prototype photographs were invalid because they failed to name Mr. Oyler as the author of the products depicted. For the same reason, the defendants claimed that its products could not have infringed the plaintiffs’ rights in those images. The plaintiffs moved to dismiss all 12 of these counterclaims.

The court agreed with the plaintiffs. In opposing the plaintiffs’ motion, the defendants identified three groups of allegations that they said saved their counterclaims under Rules 8(a)(2) and 12(b)(6). All of these were too conclusory to survive review under Twombly and Iqbal, the court held. The first two sets of allegations to which the defendants point suffered from the additional deficiency that they related only to the Speed Whip.

The third set of allegations did discuss the XE1. But it did not sufficiently lay out even the most minimum facts showing that Mr. Oyler authored the design that Golf Tailor then shared with GG&G. On the present record, the court could not conclude that amendment would be futile. So, while the court dismissed the counterclaims, it granted the defendants leave to amend them.

Affirmative defenses. The plaintiffs moved to strike five of the defendants’ affirmative defenses. Three of these defenses, the second (inequitable conduct); the third (copyright invalidity); and the fifth (unclean hands), depended on the defendants’ claim that Mr. Oyler is the true author of the disputed product designs. However, the defendants had not plausibly alleged that Mr. Oyler was the design’s author. The court therefore granted the plaintiffs’ motion to strike these affirmative defenses. The defendants were granted leave to amend them.

The plaintiffs also moved to strike the defendants’ affirmative defense that venue was improper in this district. The court granted the motion. The court expressed no opinion concerning Golf Tailor’s claims against Kingstar in a different lawsuit. With respect to the parties and the declaratory-judgment claims that were before this court, however, venue was proper. The plaintiffs’ claims in this suit all involved the intellectual-property rights in the XE1 and Speed Whip. The plaintiffs’ declaratory claims simply restated their more basic copyright claims in slightly different doctrinal permutation. If the defendants agreed that venue was proper here for all but the declaratory claims, then, at the least, the court held that pendent venue would lie over those declaratory claims.

Finally, the defendants accused the plaintiffs of copyright misuse. This affirmative defense was pleaded inadequately and was stricken. The defendants’ copyright-misuse defense did not begin to allege sufficient facts showing that the plaintiffs misused their claimed rights to stifle competition outside the limited monopoly that copyright properly granted them over the products in question. The defendants’ allegations were too boilerplate to plausibly allege this defense.

The case is No. 3:17-cv-00898-LB.

Attorneys: Barrington E. Dyer (McDermott Will Emery LLP) for Jonathan Wang. Alison Malsbury (Harris Bricken, LLP) and Michael G. Atkins (Atkins Intellectual Property) for Golf Tailor, LLC.

Companies: Golf Tailor, LLC

Cases: TradeSecrets Copyright CaliforniaNews