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.