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Southern District Holds That Misappropriation of Trade Secrets Claim Properly Pled Even Where Complaint Lacks Allegation of Use to Plaintiff’s Detriment

In Motion to Dismiss on November 17, 2010 at 7:47 am
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The Southern District of California denied a motion to dismiss a claim for misappropriation of trade secrets even where counter-claimant does not allege plaintiff’s use of the trade secret to counter-claimant’s detriment.  Young v. Fluorotronics, Inc., No. 10cv976-WQH-BGS, 2010 WL 4569996 (S.D. Cal. Nov. 3, 2010) (slip op.).

Background

Plaintiff John Young, M.D. filed a complaint against Fluorotronics, Inc. and others relating to his investment in Fluoro-Raman technology, which was purported to be a portable, non-destructive and rapid screening device able to detect problems with food and drugs before they are distributed and detect counterfeit drugs.  Id. *1.  Plainitff alleged that the Private Placement Memorandum and Balance Sheet falsely stated that Fluorotronics was the owner of the “iStar ICCD Intensified CCD Detector Head camera” (“Camera”) and “certain Laser Equipment” (“Laser”). Id. Young for himself and others invested in Fluorotronics, but contrary to the representations of defendants, Fluorotronics allegedly did not own the Camera, but borrowed it from Andor Technology.  Id. **1-2.  When Fluorotronics failed to pay Andor for the camera, Young purchased it from Andor. Id. *2.  Plaintiff brought claims for (1) fraud; (2) negligent misrepresentation; (3) intentional misrepresentation; (4) securities fraud in violation of the Securities and Exchange Act of 1934, Section 10(b) and Rule 10b-5; (5) sale of unregistered securities; (6) breach of fiduciary duty; (7) violation of Section 1507(a) of the California General Corporation Law; and (8) violation of Section 2201 of the California General Corporation Law.

Flurotronics brought counterclaims alleging that Fluorotronics was the owner of a patent and system called Pulsed Laser Isochronic & Raman Fluorescense Apparatus, and that one vital part of the System is the ‘Camera’ referred to in the Complaint, and Young knew that without the Camera, the System cannot work.  Id. Fluorotronics alleges that Young “unlawfully [took] possession of the Camera and he keeps it to the present, notwithstanding the objections of [Counterclaimants] and their repeated requests for him to return it to [Fluorotronics].” Id. The counterclaims include a cause of action for misappropriation of trade secrets.

Discussion

Young filed a motion to dismiss the counterclaim, seeking dismissal of inter alia, the cause of action for misappropriation of trade secrets. Id. *8.  Young contended that the Counterclaim “fail[s] to set forth the required elements” and “Counterclaimants have failed to allege . . . that they have any proof that Young used their secret to their detriment.” Id. The court disagreed, and set forth the elements as follows:

To state a cause of action for misappropriation of trade secrets under California law, a plaintiff must plead two primary elements: (1) the existence of a trade secret, and (2) misappropriation of the trade secret. See Cal. Civ.Code s 3426.1, et seq. California law defines “misappropriation” to include “(1) [a]cquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (2)[d]isclosure or use of a trade secret of another without express or implied consent by a person who … [u]sed improper means to acquire knowledge of the trade secret….” Cal. Civ.Code s 3426.1(b).

Id.

The court found that the following allegations were sufficient to state a claim, rejecting the argument that a claimant must allege “use[] of their secret to their detriment.” Id.

The Counterclaim alleges that “the System, including the Camera” were “trade secrets,” and “by unlawfully and/or improperly possessing the Camera and/or using the Camera and/or disclosing to others its inner workings,” Young “misappropriat[ed] said trade secrets, all without the permission of any of the [Counterclaimants].” (ECF No. 5 PP 35, 36). Fluorotronics has adequately alleged a claim for misappropriation of trade secrets.

Id.

Judge

District Judge William Q. Hayes.

By CHARLES JUNG

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