Meggitt (Orange County), Inc. v. Nie, 2014 WL 5528546, No.
SACV 13–0239 (C.D. Cal. Nov. 3, 2014)
Note: the caption lists the defendant as Nie Yongzhong, and
I’m following the rule that Chinese family names go first since he appears in
the case as Mr. Nie, but I don’t know how this will show up in dockets/reports. Plaintiffs (Meggitt) make sensors and
accelerometers to measure vibration, shock, and pressure. A related company employed Nie as an engineer
in China; he had access to Meggitt’s trade secrets and signed an agreement not
to use them. But then he founded defendant
Xiamen Niell Electronics, which now manufactures and markets sensors and
accelerometers that have nearly identical specifications as several Meggitt
products.
Meggitt sued for trade secret misappropriation, unfair
competition, conversion, and breach of duty of loyalty and received a
preliminary injunction. After more
rounds, Meggitt added a Lanham Act false advertising claim.
First, the court ruled that the claim had to satisfy Rule
9(b) because, though one could allege negligent false advertising (comment: or
for that matter faultless false advertising; that’s what strict liability
means), if the plaintiff alleges a unified course of fraudulent conduct then
Rule 9(b) applies. (What really gets me
about this rule is that nobody applies it to trademark claims. How often does a trademark plaintiff allege exactly the same cursory statements
about bad faith/intent to deceive that trigger 9(b) in the Ninth Circuit when
they’re alleged in a §43(a)(1)(B) complaint?
Indeed, how many trademark complaints don’t allege intent to deceive?)
Here, the complaint alleged an overall plan and scheme to
misappropriate confidential information and misrepresent Xiamen Niell to the
industry “as being a well-established, strong, reputable and reliable company
with qualified engineers, and a wide range of product offerings, and from whom
the customer can expect to obtain high-quality and reliable products and
after-sale service.” However, the
complaint did satisfy Rule 9(b), even without factual allegations establishing
when or where the “scheme and plan” was devised, or who devised it. The issue
wasn’t the planning of the scheme, but its execution; also, planning was within
the defendants’ knowledge, and for such matters Rule 9(b) may be relaxed.
Meggitt alleged that Nie and Xiamen Niell falsely advertised
products through catalogues and data sheets at two trade shows. The advertising was allegedly false because
the catalogues and data sheets advertised products that did not exist and
contained false product specifications. Defendants admitted that they advertised some
products that hadn’t been manufactured, but argued that they never represented
that all their products were available off the shelf. Instead, the products
could be made for customers, and predictions about future events are ordinarily
non-actionable expressions of opinion. This, they argued, corresponded to
industry practice, in which orders are normally “driven by customer
specifications.”
The catalogues and data sheets attached to the complaint did
have future-oriented aspirational language, such as, “Niell–Tech will provide
the most excellent products and services for you,” which was non-actionable in
itself. But the data sheets also
contained “detailed specifications for products for which neither prototypes
nor samples were ever manufactured”; statements that some non-manufactured
products had “proven use” under certain conditions; and statements that other
products were “made by Xiamen Niell–Electronics Co., Ltd.” and operated at
certain levels. In addition, the data sheets had photos of non-manufactured
products, some of which were actually photographs of Meggitt products photoshopped
to bear defendants’ marks and product numbers.
(Pro tip: don’t do this. Just don’t.)
It might turn out that customers in this industry wouldn’t
be misled, but that possibility wasn’t a proper ground on which to dismiss the
complaint.
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