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`Case 2:19-cv-01745-JLR Document 35 Filed 03/30/20 Page 1 of 21
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`UNITED STATES DISTRICT COURT
`WESTERN DISTRICT OF WASHINGTON
`AT SEATTLE
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`PHILIPS NORTH AMERICA, LLC,
`et al.,
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`CASE NO. C19-1745JLR
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`ORDER
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`v.
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`Plaintiffs,
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`SUMMIT IMAGING INC., et al.,
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`Defendants.
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`I.
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`INTRODUCTION
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`Before the court is Defendants Summit Imaging Inc. (“Summit”) and Lawrence R.
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`Nguyen (collectively, “Defendants”) Federal Rule of Civil Procedure 12(b)(6) motion to
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`dismiss. (Mot. (Dkt. # 26); see also Reply (Dkt. # 29).) Plaintiffs Philips North America
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`LLC, Koninklijke Philips N.V., and Philips India Ltd. (collectively, “Philips”) oppose the
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`motion. (Resp. (Dkt. # 28).) The court has reviewed the motion, the parties’ submissions
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`in support of and in opposition to the motion, the relevant portions of the record, and the
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`ORDER - 1
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`Case 2:19-cv-01745-JLR Document 35 Filed 03/30/20 Page 2 of 21
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`applicable law. Being fully advised, the court GRANTS in part and DENIES in part
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`Defendants’ motion to dismiss.1
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`II. BACKGROUND
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`Philips manufactures, sells, and services medical imaging systems—including
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`ultrasound systems, computed tomography scanners, positron emission tomography
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`scanners, X-ray machines, magnetic resonance scanners, and nuclear medicine
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`scanners—for hospitals and medical centers. (See Am. Compl. (Dkt. # 23) ¶¶ 1, 21.)
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`The vast majority of the allegations in the complaint relate to Philips’ ultrasound imaging
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`devices. Philips sells and services ultrasound imaging devices under the “CX,”
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`“HD,” “ClearVue,” “Sparq,” “VISIQ,” “Xperius,” “Affiniti,” and “EPIQ” brand names
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`(collectively, the “Ultrasound Systems”). (Id. ¶ 23.) In addition to the Ultrasound
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`Systems, Philips manufactures and sells related ultrasound hardware devices. (See id.)
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`The Ultrasound Systems are driven by one of two software platforms that Philips
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`developed and owns: (1) Philips Voyager Platform and (2) Philips Common Platform.
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`(See id. ¶¶ 26-27, 29.)
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`Each Ultrasound System Philips sells includes certain software and hardware
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`features that may only be used when Philips enables a particular licensable feature for the
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`specific Ultrasound System. (Id. ¶ 33.) For each Ultrasound System, Philips enables
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`1 Defendants requested oral argument on the motion (see Mot. at 1), but Philips did not
`(see Resp. at 1). The parties thoroughly briefed the issues, and the court finds that this matter
`can be decided on the parties’ papers. Thus, the court DENIES Defendants’ request for oral
`argument. See Local Rules W.D. Wash. LCR 7(b)(4) (“Unless otherwise ordered by the court,
`all motions will be decided by the court without oral argument.”).
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`ORDER - 2
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`Case 2:19-cv-01745-JLR Document 35 Filed 03/30/20 Page 3 of 21
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`only the licensed features and tools that their customers purchased for that specific
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`system, and only the specific authorized users of the machine can access the enabled
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`features and software options. (Id.) Philips has registered the copyright in the software
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`for the different Ultrasound Systems they sell (see id. ¶ 30, Ex. A), and allege that they
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`“use[] multiple layers of technological controls to protect” their copyrighted works from
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`unauthorized access (see id. ¶ 32). Philips alleges that their software and access control
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`systems are trade secrets and that those systems contain other trade secret information.
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`(See, e.g., ¶ 134.)
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`Philips alleges that Summit hacks into Philips’ software and alters the Ultrasound
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`Systems using a program Summit developed called Adepto in order to enable features or
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`options for which Philips’ customers have not paid Philips. (See id. ¶¶ 4-6.) Philips
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`claims that Summit trains its customers on how to circumvent Philips’ access controls.
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`(See id. ¶ 7.) Summit allegedly advertises that its Adepto tool is a “legal solution” or a
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`“legal alternative” to working with Philips in order to enable additional features and
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`options. (See id. ¶ 8.) Mr. Nguyen is the “principal owner, Governor, Chief Executive
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`Officer, and Chief Technology Officer of Summit.” (Id. ¶ 14.) Philips alleges that Mr.
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`Nguyen designed, directed, and carried out Summit’s hacking scheme. (See, e.g., id.
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`¶¶ 39, 42, 53, 59, 62-63, 89-100.)
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`Philips brings seven causes of action against Defendants: (1) circumventing a
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`technological measure in violation of the Digital Millennium Copyright Act (“DMCA”),
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`17 U.S.C. § 1201; (2) modifying copyright management information (“CMI”) in violation
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`of the DMCA, 17 U.S.C. § 1202; (3) trade secret misappropriation in violation of the
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`ORDER - 3
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`Case 2:19-cv-01745-JLR Document 35 Filed 03/30/20 Page 4 of 21
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`Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1836; (4) trade secret misappropriation
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`in violation of the Washington Uniform Trade Secrets Act (“UTSA”), RCW ch. 19.108;
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`(5) false advertising in violation of Section 43(a) of the Lanham Act, 15 U.S.C.
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`§ 1125(a); (6) unfair competition in violation of the Washington Consumer Protection
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`Act (“CPA”), RCW 19.86.020 et seq.; and (7) copyright infringement in violation of the
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`Copyright Act, 17 U.S.C. §§ 101, 501. (See Am. Compl. ¶¶ 73-218.)
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`III. ANALYSIS
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`Pursuant to Rule 12(b)(6), Defendants move to dismiss the following claims for
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`failure to state a claim: Philips’ DMCA claims, DTSA claim, UTSA claim, false
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`advertising claim, CPA claim, and any portion of their copyright infringement claim that
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`alleges contributory copyright infringement. (See Mot. at 5-24.) The court sets forth the
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`applicable legal standard before addressing Philips’ causes of action in turn.
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`A.
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`Legal Standard
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`Rule 12(b)(6) provides for dismissal for “failure to state a claim upon which relief
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`can be granted.” Fed. R. Civ. P. 12(b)(6). When considering a motion to dismiss under
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`Rule 12(b)(6), the court construes the complaint in the light most favorable to the
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`nonmoving party. Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946
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`(9th Cir. 2005). The court must accept all well-pleaded facts as true and draw all
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`reasonable inferences in favor of the plaintiff. Wyler Summit P’ship v. Turner Broad.
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`Sys., Inc., 135 F.3d 658, 661 (9th Cir. 1998). The court, however, is not required “to
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`accept as true allegations that are merely conclusory, unwarranted deductions of fact, or
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`unreasonable inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th
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`ORDER - 4
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`Case 2:19-cv-01745-JLR Document 35 Filed 03/30/20 Page 5 of 21
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`Cir. 2001). “To survive a motion to dismiss, a complaint must contain sufficient factual
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`matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft
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`v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
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`570 (2007)); see also Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir.
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`2010). “A claim has facial plausibility when the plaintiff pleads factual content that
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`allows the court to draw the reasonable inference that the defendant is liable for the
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`misconduct alleged.” Iqbal, 556 U.S. at 677-78. “A pleading that offers ‘labels and
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`conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not
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`do.’. . . Nor does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further
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`factual enhancement.’” Id. at 678 (quoting Twombly, 550 U.S. at 555, 557).
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`B.
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`Summit’s Motion to Dismiss
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`1.
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`Circumventing a Technological Measure
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`Defendants argue that Philips’ claim for circumventing a technological measure in
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`violation of the DMCA, 17 U.S.C. § 1201 should be dismissed because Philips failed to
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`access to a copyrighted work has been circumvented.” (See Mot. at 13.) The Ninth
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`Circuit explains that § 1201 of the DMCA sets forth “two distinct types of claims.” MDY
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`Indus., LLC v. Blizzard Entm’t, Inc., 629 F.3d 928, 944 (9th Cir. 2010); see also 17
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`U.S.C. § 1201. “First, § 1201(a) prohibits the circumvention of any technological
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`measure that effectively controls access to a protected work and grants copyright owners
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`the right to enforce that prohibition.” Id. Section 1201(a)(1)(A) contains a general
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`prohibition against “circumventing a technological measure that effectively controls
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`ORDER - 5
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`access to a work protected under [the Copyright Act],” see 17 U.S.C. § 1201(a)(1)(A),
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`while § 1201(a)(2) prohibits trafficking in technology that circumvents a technological
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`measure that “effectively controls access” to a copyrighted work, see 17 U.S.C. §
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`1201(a)(2). “Second, and in contrast to § 1201(a), § 1201(b)(1) prohibits trafficking in
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`technologies that circumvent technological measures that effectively protect ‘a right of a
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`copyright owner.’” MDY Indus., LLC, 629 F.3d at 944 (quoting 17 U.S.C. § 1201(b)(1)).
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`In other words, § 1201(a) is focused on prohibiting “circumvention of technologies
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`designed to prevent access to a work” while § 1201(b) “prohibits trafficking in devices
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`that facilitate circumvention of measures that protect against copyright infringement.”
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`See id. at 944, 946 (citations omitted). Although Philips’ response to Defendants’ motion
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`fails to explicitly state whether Philips’ first cause of action alleges a § 1201(a) claim, a §
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`1201(b) claim, or both (see, e.g., Resp. at 8 (concluding that “the [complaint] provides
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`Defendants with sufficient notice of facts supporting Plaintiffs’ DMCA Section 1201
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`claims” without detailing what subsection of § 1201 those claims are filed under)), the
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`complaint appears to plead claims under both § 1201(a)(1) and (a)(2).2 (See Am. Compl.
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`¶¶ 85, 88 (citing 17 U.S.C. § 1201(a)(1)-(2)).)
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`Philips has sufficiently pleaded that their Ultrasound Systems are protected by “a
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`technological measure that effectively controls access to a work” under §§ 1201(a)(1) and
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`(a)(2). Under § 1201(a), “a technological measure ‘effectively controls access to a work’
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`2 Because Philips does not appear to be pursuing a claim under 17 U.S.C. § 1201(b), the
`court will not address Defendants’ argument that Philips fails to state a claim under that
`provision.
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`ORDER - 6
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`Case 2:19-cv-01745-JLR Document 35 Filed 03/30/20 Page 7 of 21
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`if the measure, in the ordinary course of its operation, requires the application of
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`information, or a process or a treatment, with the authority of the copyright owner, to
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`gain access to the work.” 17 U.S.C. § 1201(a)(3)(B). The complaint identifies “multiple
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`layers of technological controls” that Philips employs on their Ultrasound Systems “to
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`protect Philips’ copyright-protected works from unauthorized access.” (See Am. Compl.
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`¶ 32.) Specifically, the complaint identifies the following technological measures: (1)
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`user-specific codes; (2) user-specific hardware keys; (3) machine-specific codes and
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`hardware keys; (4) software files with licensed features and optional add-on controls; (5)
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`machine-specific configuration files that control compatibility between the systems and
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`software and/or the systems and replacement parts; and (6) software disabling if a user
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`attempts to make use of an unlicensed feature. (See Am. Compl. ¶¶ 31-35, 71-72.)
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`The complaint also explains how these technological measures work. (See id.)
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`User-specific access codes and hardware keys “enable the software access and control
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`features for a particular registered user” by permitting “access to enabled Philips tools
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`and features based on a user’s registered access authorization level.” (See id. ¶ 32.)
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`Machine-specific controls “only permit user access to the features and tools that have
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`been enabled on a specific machine.” (See id.) Licensed feature controls limit what
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`features users can access on a specific machine, control access to protected software, and
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`limit the options available for use on a specific machine. (See id. ¶¶ 33-34.)
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`The court concludes that these allegations sufficiently plead that Philips’
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`Ultrasound Systems are protected by “a technological measure that effectively controls
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`access to a work” as required by §§ 1201(a)(1) and (a)(2). See, e.g., Synopsys, Inc. v.
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`ORDER - 7
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`Case 2:19-cv-01745-JLR Document 35 Filed 03/30/20 Page 8 of 21
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`AzurEngine Techs., Inc., 401 F. Supp. 3d 1068, 1072 (S.D. Cal. 2019) (finding sufficient
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`allegations that “the software will not run without the licensee ‘checking out’ a license
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`key from a server that is designed to only grant such keys to approved licensees” and
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`stating that “[e]very court to consider the issue has found that similar methods of license-
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`control satisfy the ‘effectively controls’ requirement of the DMCA”); Synopsys, Inc. v.
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`InnoGrit, Corp., No. 19-CV-02082-LHK, 2019 WL 4848387, at *7 (N.D. Cal. Oct. 1,
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`2019) (“Synopsys’s license key system requires the use of an encrypted control code to
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`access Synopsys software. The license key system therefore ‘requires the application of
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`information . . . to gain access to the’ Synopsys software.”) (quoting 17 U.S.C. §
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`Philips has also adequately alleged that Defendants took actions to “circumvent”
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`Philips’ access controls. Under § 1201(a), “to ‘circumvent a technological measure’
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`means to descramble a scrambled work, to decrypt an encrypted work, or otherwise to
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`avoid, bypass, remove, deactivate, or impair a technological measure, without the
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`authority of the copyright owner.” 17 U.S.C. § 1201(a)(3)(A). Numerous paragraphs in
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`the complaint detail the steps Defendants allegedly took to circumvent and modify
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`Philips’ access controls. (See, e.g., Am. Compl. ¶¶ 36, 39-46, 67-72, 81, 137, 138.) At a
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`high level, Philips alleges that Defendants remove the hard drive from the Ultrasound
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`Systems and run the Adepto program on the hard drive. (See, e.g., ¶ 42.) The Adepto
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`program changes configuration files and software files in order to enable unlicensed
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`options on the hard drive. (See id. ¶¶ 42, 57.) Philips also alleges that Defendants use
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`Adepto to hack onboard tools to force compatibility with otherwise incompatible
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`ORDER - 8
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`transducer parts. (See id. ¶¶ 69, 71-72.) These allegations sufficiently plead that
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`Defendants took actions to “circumvent” Philips’ access controls under § 1201(a). See,
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`e.g., Davidson & Assocs. v. Jung, 422 F.3d 630, 640 (8th Cir. 2005) (finding a DMCA
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`violation where the defendant developed and used an “emulator” that “allowed . . . access
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`[to] Battle.net mode features without a valid or unique CD key”); Dish Network, L.L.C. v.
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`Vicxon Corp., No. 12-CV-9-L WVG, 2013 WL 3894905, at *7 (S.D. Cal. July 26, 2013)
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`(finding that use of “piracy software” to circumvent a television provider’s security
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`measures satisfied the “circumvention” requirement of § 1201(a)).
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`Because Philips has sufficiently alleged that Defendants “circumvent[ed] a
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`technological measure that effectively controls access to a work,” see 17 U.S.C. §
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`1201(a)(1)(A); see also id. § 1201(a)(2), the court DENIES Defendants’ motion to
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`dismiss Philips first cause of action.
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`2. Modifying CMI
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`Defendants allege that Philips’ second cause of action—which alleges that
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`any CMI has been falsified, removed, or modified.” (See Mot. at 18.) Section 1202
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`defines CMI as “information conveyed in connection with copies . . . of a work.” 17
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`U.S.C. § 1202(c). Section 1202(c) lists the following types of CMI:
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`(1) The title and other information identifying the work, including the
`information set forth on a notice of copyright.
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`(2) The name of, and other identifying information about, the author of a
`work.
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`(3) The name of, and other identifying information about, the copyright
`owner of the work, including the information set forth in a notice of
`copyright.
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`(4) With the exception of public performances of works by radio and
`television broadcast stations, the name of, and other identifying information
`about, a performer whose performance is fixed in a work other than an
`audiovisual work.
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`(5) With the exception of public performances of works by radio and
`television broadcast stations, in the case of an audiovisual work, the name of,
`and other identifying information about, a writer, performer, or director who
`is credited in the audiovisual work.
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`(6) Terms and conditions for use of the work.
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`(7) Identifying numbers or symbols referring to such information or links to
`such information.
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`(8) Such other information as the Register of Copyrights may prescribe by
`regulation, except that the Register of Copyrights may not require the
`provision of any information concerning the user of a copyrighted work.
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`Id.
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`Section 1202(a) states that “[n]o person shall knowingly and with the intent to
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`induce, enable, facilitate, or conceal infringement” provide or distribute false CMI. See
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`id. § 1202(a)(1)-(2). Section 1202(b) prohibits removal or alteration of CMI, distribution
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`of CMI with knowledge that the CMI has been removed or altered, and distribution of
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`copyrighted works with knowledge that CMI conveyed with the work has been removed
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`or altered. See id. at § 1202(b)(1)-(3). A violation of § 1202(b) also requires a showing
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`that the defendant knew or had “reasonable grounds to know” that its actions would
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`“induce, enable, facilitate, or conceal an infringement of any right under this title.” Id.
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`//
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`ORDER - 10
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`The court agrees with Defendants that Philips fails to plead a plausible claim for
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`relief under 17 U.S.C. § 1202. Philips attempts to allege violations of §§ 1202(a) and
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`1202(b). (See Am. Compl. ¶¶ 114-15.) However, the only CMI identified with any
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`specificity in the complaint is “the terms and conditions of the use of the software,”
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`which Philips alleges resides on “machine readable configuration files.”3 (See id. ¶ 108.)
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`Although terms and conditions qualify as CMI under § 1202(c), see 17 U.S.C.
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`§ 1202(c)(6), Philips offers no factual details explaining how Defendants falsify, remove,
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`or alter Philips’ terms and conditions (see generally Am. Compl. ¶¶ 103-30). Instead,
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`Philips includes only boilerplate allegations that “Summit’s business of modifying
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`Philips’ Ultrasound Systems includes modifications to such [CMI].” (See id. ¶ 109.)
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`Without factual detail to explain what modifications Defendants make to the terms and
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`conditions, how Defendants make those modifications, or the method by which
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`Defendants distribute this modified CMI, Philips’ complaint offers only “‘naked
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`assertion[s]’ devoid of ‘further factual enhancement,’” which is insufficient to survive a
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`challenge under Rule 12(b)(6). See Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at
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`555, 557).
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`3 Philips’ opposition offers a confusing argument that certain “software files,” “option
`files,” “license management software,” “automated loading system,” and “machine specific
`configuration files” all “qualify as CMI.” (See Resp. at 9-10.) However, neither the opposition
`nor the complaint explains with any clarity how these types of systems and files constitute CMI
`under the definition provided in § 1202(c). (See generally Am. Compl. ¶¶ 103-130; Resp. at
`9-10). Moreover, even if Philips’ systems and files constituted CMI, the complaint still provides
`no detail regarding the manner in which Philips falsifies, removes, or alters this CMI in a way
`that violates 17 U.S.C. § 1202. (See generally Am. Compl. ¶¶ 103-130.)
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`ORDER - 11
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`Case 2:19-cv-01745-JLR Document 35 Filed 03/30/20 Page 12 of 21
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`Accordingly, the court GRANTS Defendants’ motion in part and dismisses
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`Philips’ second cause of action. However, because the court cannot conclude on the basis
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`of the record before it that Philips could not re-plead their 17 U.S.C. § 1202 claim to
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`plausibly allege that Defendants modified Philips’ CMI, the court grants Plaintiffs leave
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`to amend this claim. See Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (stating
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`that where claims are dismissed under Rule 12(b)(6), the court “should grant leave to
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`amend . . . unless it determines that the pleading could not possibly be cured by the
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`allegation of other facts.”).
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`3.
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`DTSA and UTSA
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`Defendants allege that Philips’ DTSA and UTSA claims fail “to allege the
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`existence of protectable trade secrets” with sufficient specificity.4 (See Mot. at 21-24.)
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`The UTSA defines a “trade secret” as:
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`information, including a formula, pattern, compilation, program, device,
`method, technique, or process that:
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`(a) Derives independent economic value, actual or potential, from not
`being generally known to, and not being readily ascertainable by
`proper means by, other persons who can obtain economic value from
`its disclosure or use; and
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`(b) Is the subject of efforts that are reasonable under the circumstances
`to maintain its secrecy.
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`4 Defendants’ reply brief also argues that Philips failed to allege that Defendants
`misappropriated Philip’s alleged trade secrets. (See Reply at 11.) However, the court declines to
`consider this argument because Defendants raised it for the first time in reply. See Coos Cty. v.
`Kempthorne, 531 F.3d 792, 812 n.16 (9th Cir. 2008) (declining to consider an argument raised
`for the first time in a reply brief); Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999) (“We do
`not consider arguments raised for the first time in the reply brief.”).
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`ORDER - 12
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`Case 2:19-cv-01745-JLR Document 35 Filed 03/30/20 Page 13 of 21
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`RCW 19.108.010(4). The DTSA provides a similar definition of “trade secret.” See 18
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`U.S.C. § 1839(3); see also MUFG Union Bank, N.A. v. Tyler, No. C17-1766RSM, 2018
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`WL 2046290, at *3 (W.D. Wash. May 2, 2018) (noting that “[t]he federal DTSA
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`provides nearly identical definitions” to the UTSA’s definitions). “Although the
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`complaint need not ‘spell out the details of the trade secret,’ a plaintiff seeking relief for
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`trade secret misappropriation must identify the trade secret ‘with sufficient particularity
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`. . . to permit the defendant to ascertain at least the boundaries within which the secret
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`lies.’” Bombardier Inc. v. Mitsubishi Aircraft Corp., 383 F. Supp. 3d 1169, 1178 (W.D.
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`Wash. 2019) (quoting SMS Signature Cars v. Connects Mktg. LLC, No. SACV 12-1300
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`JVS (ANx), 2012 WL 12893935, at *2 (C.D. Cal. Oct. 29, 2012)); see also MAI Sys.
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`Corp. v. Peak Comp., Inc., 991 F.2d 551, 522 (9th Cir. 1993); Robbins, Geller, Rudman
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`& Dowd, LLP v. State, 328 P.3d 905, 911 (Wash. Ct. App. 2014) (“The alleged unique,
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`innovative, or novel information must be described with specificity and, therefore,
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`‘conclusory’ declarations that fail to ‘provide concrete examples’ are insufficient to
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`support the existence of a trade secret.”) (quoting McCallum v. Allstate Prop. & Cas. Ins.
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`Co., 204 P.3d 944, 950-51 (Wash. Ct. App. 2009)).
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`Philips has alleged the existence trade secrets with sufficient. Philips alleges that
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`the following either constitute Philips’ trade secrets or contain Philips’ trade secret
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`material: the software in the Ultrasound Systems (see Am. Compl. ¶¶ 29, 81, 132-36);
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`the access control systems in place in the Ultrasound Systems (see id. ¶ 132-36); “tools
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`for bypassing access controls to access system file structures and for enabling copyright
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`protected software options” within the Ultrasound Systems (see id. ¶¶ 70, 72, 138-39);
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`ORDER - 13
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`Case 2:19-cv-01745-JLR Document 35 Filed 03/30/20 Page 14 of 21
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`and “other software features,” including “onboard service, calibration, and diagnostic
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`features and tools” used in the Ultrasound Systems (see Am. Compl. ¶ 36). These
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`allegations provide Defendants with “sufficient particularity . . . to ascertain at least the
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`boundaries within which the secret lies.’” Bombardier Inc., 383 F. Supp. 3d at 1178
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`(citations omitted); see also T-Mobile USA, Inc. v. Huawei Device USA, Inc., 115 F.
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`Supp. 3d 1184, 1193 (W.D. Wash. 2015) (finding the identification of “information about
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`the end effector” and “sequence files” and allegations describing “security measures,
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`including limits on access” to state a valid claims for trade secret misappropriation).
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`Accordingly, the court DENIES Defendants’ motion to dismiss Philips’ DTSA and
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`UTSA causes of action.
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`4.
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`False Advertising
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`Defendants allege that Philips’ false advertising claim is based entirely on
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`statements “regarding the legality of Defendants’ services,” which Defendants claim are
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`not actionable under the Lanham Act. (See Mot. at 8-10.) “Section 43 of the Lanham
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`Act, 15 U.S.C. § 1125(a), prohibits the use of false designations of origin, false
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`descriptions, and false representations in advertising and sales in interstate commerce.”
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`Kische USA LLC v. Simsek, No. C16-0168JLR, 2016 WL 7212534, at *9 (W.D. Wash.
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`Dec. 13, 2016) (citations omitted). The elements of a false advertising claim under
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`Section 43 are:
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`(1) a false statement of fact by the defendant in a commercial advertisement
`about its own or another’s product; (2) the statement actually deceived or has
`the tendency to deceive a substantial segment of its audience; (3) the
`deception is material, in that it is likely to influence the purchasing decision;
`(4) the defendant caused its false statement to enter interstate commerce; and
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`ORDER - 14
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`Case 2:19-cv-01745-JLR Document 35 Filed 03/30/20 Page 15 of 21
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`(5) the plaintiff has been or is likely to be injured as a result of the false
`statement, either by direct diversion of sales from itself to defendant or by a
`lessening of the goodwill associated with its products.
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`Id. (citing Skydive Ariz., Inc. v. Quattrocchi, 673 F.3d 1105, 1110 (9th Cir. 2012)).
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`“To demonstrate falsity within the meaning of the Lanham Act, a plaintiff may
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`show that the statement was literally false, either on its face or by necessary implication,
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`or that the statement was literally true but likely to mislead or confuse consumers.”
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`Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997). Because
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`liability under the Lanham Act requires a “false or misleading representation of fact,” see
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`15 U.S.C. § 1125(a)(1), “[s]tatements of opinion are not generally actionable under the
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`Lanham Act,” Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 731
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`(9th Cir. 1999). As a general rule, statements that a product or service is “legal” are
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`inactionable statements of opinion because the statements “purport to interpret the
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`meaning of a statute or regulation.” See id.; see also ThermoLife Int’l, LLC v. Gaspari
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`Nutrition Inc., 648 F. App’x 609, 614 (9th Cir. 2016) (noting that advertisements that
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`claimed products were “legal” or “DSHEA-compliant” were properly characterized as
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`“inactionable opinion” statements for purposes of the Lanham Act). However, there is a
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`“well-established exception” to the bar against false advertising claims based on opinion
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`statements for an opinion statement “by a speaker who lacks a good faith belief in the
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`truth of the statement.” See id. (citing PhotoMedex, Inc. v. Irwin, 601 F.3d 919, 931 (9th
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`Cir. 2010)).
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`Here, the court agrees with Defendants that the statements Philips bases their false
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`advertising claim on are inactionable statements of opinions about the legality of
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`ORDER - 15
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`Case 2:19-cv-01745-JLR Document 35 Filed 03/30/20 Page 16 of 21
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`Defendants’ Adepto product and related services. (See, e.g., Am. Compl. ¶ 49 (“Summit
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`falsely advertises to the public that Summit’s hacking is a legal solution to the ‘Current
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`issue in the market’ that OEM systems are protected by copyright.”), ¶ 55 (“Summit, and
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`specifically Summit’s CEO personally, then further markets their Adepto hacking tool as
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`a tool that allows Summit to lawfully provide services as an ISO without infringing
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`Philips’ (an OEM) copyright.”), ¶ 168 (“Summit explains that this method of
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`circumventing Philips access controls is legal, and avoids liability to healthcare providers
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`arising from unlawful services.”).) Indeed, Philips goes so far as to allege that
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`Defendants’ marketing is false and misleading because “Summit’s techniques are
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`unlawful as described throughout this complaint.” (See id. ¶169.) Until the court and the
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`trier of fact adjudicate this case and determine whether Defendants’ actions are unlawful,
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`however, statements about the legality of Defendants’ actions are inactionable statements
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`of opinion for purposes of the Lanham Act. See Coastal Abstract Serv., Inc., 173 F.3d at
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`731 (“Absent a clear and unambiguous ruling from a court or agency of competent
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`jurisdiction, statements by laypersons that purport to interpret the meaning of a statute or
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`regulation are opinion statements, and not statements of fact.”). Moreover, the bad faith
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`exception to the bar against opinion statements does not save Philips because Philips has
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`not adequately pleaded that Defendants lacked a good faith belief in the truth of their
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`statements about the legality of Adepto and Defendants’ services. (See generally Am.
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`Compl. ¶¶ 167-75); ThermoLife Int’l, LLC, 648 F. App’x at 614.
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`In their opposition, Philips identifies a handful of “false statements of fact” in the
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`complaint that Philips argues are sufficient to state a false advertising claim. (See Resp.
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`ORDER - 16
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`Case 2:19-cv-01745-JLR Document 35 Filed 03/30/20 Page 17 of 21
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`at 17.) Although the court recognizes that Philips’ 218 paragraph complaint includes a
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`handful of statements by Defendants that could be construed as “statements of fact,”
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`Philips cannot re-write their complaint in their opposition brief. The complaint
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`repeatedly makes clear that the gravamen of Philips’ false advertising claim is
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`Defendants’ claim that their products and services are legal. (See Am. Compl. ¶¶ 168-
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`71.) Those statements are opinion statements that cannot serve as the basis for a Lanham
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`Act false advertising claim.
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`Accordingly, the court GRANTS Defendants’ motion in part and dismisses
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`Ph