Alterg, Inc. v. Boost Treadmills LLC

• Decision Date: 20 May 2019
• Docket Number: Case No. 18-cv-07568-EMC
• Citation: 388 F.Supp.3d 1133
• Court: U.S. District Court — Northern District of California
• Parties: ALTERG, INC., Plaintiff, v. BOOST TREADMILLS LLC, et al., Defendants.

388 F.Supp.3d 1133

ALTERG, INC., Plaintiff,

v.BOOST TREADMILLS LLC, et al., Defendants.

Case No. 18-cv-07568-EMC

United States District Court, N.D. California.

Signed May 20, 2019

Carmen Maria Aviles, David James Miclean, Miclean Gleason LLP, San Mateo, CA, Danielle Marie Mihalkanin, Manatt, Phelps and Phillips, LLP, Palo Alto, CA, for Plaintiff.

Rick C. Chang, Duane H. Mathiowetz, Morgan Franich Fredkin Siamas & Kays LLP, San Jose, CA, for Defendants.

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS

Docket No. 15

EDWARD M. CHEN, United States District Judge

Plaintiff AlterG, Inc. ("AlterG") brings this action against three of its former employees, Sean Whalen, Thomas Allen, and Michael James Bean (the "Individual Defendants") and the competing company they founded, Boost Treadmills LLC ("Boost") (collectively, "Defendants"). AlterG alleges that Defendants infringed its patents and misused its trade secret information to create Boost products. AlterG's complaint pleads ten causes of action: (1) patent infringement; (2) breach of contract; (3) trade secret misappropriation; (4) breach of fiduciary duty; (5) interference with contract; (6) interference with prospective economic advantage; (7) false advertisement; (8) trade libel; (9) unfair competition; and (10) conspiracy. Pending before the Court is Defendants' motion to dismiss all counts of the complaint. Docket No. 15 ("Mot.").

For the reasons stated on the record at the hearing on May 9, 2019 and discussed below, the motion to dismiss is GRANTED .

I. FACTUAL AND PROCEDURAL BACKGROUND

The complaint alleges the following. Plaintiff AlterG is a "medical device company" that is the "leading provider of impact reduction treadmills," also known as "Anti-Gravity Treadmills," that are used for "orthopedic rehabilitation and training." Docket No. 1 ("Compl.") ¶ 14. "One of the keys [sic ] drivers of AlterG's success is its patented Differential Air Pressure (‘DAP’) technology," which works by "us[ing] a pressurized bag to provide a counterforce to the subject's body weight, reducing their effective weight on the treadmill surface." Id. ¶ 15. From 2012 to 2015, AlterG devoted substantial resources to develop "a lower cost, bare bones AlterG machine" in response to "potential competitors who wanted to develop anti-gravity training and rehab machines using mechanical unweighting and other options, and at a lower price point than AlterG." Id. ¶ 22. AlterG calls this project the "Low-Cost Platform Project," or "LCPP." Id. AlterG ultimately decided not to commercialize or sell any products developed as part of the LCPP. Id. ¶ 23.

The Individual Defendants are three former employees of AlterG. "Whalen was the founder of AlterG" as well as "the initial and primary inventor ... principally involved in developing the technology and products of the company." Id. ¶ 19. He therefore "had intimate access to and knowledge of AlterG products, technology, business plans, intellectual property strategy, marketing strategy, financial data, vendors, suppliers, customers, and confidential research and development." Id. In 2012, Whalen relinquished his former positions at AlterG but continued working for the company as a consultant until he stopped working for AlterG altogether on March 31, 2015. Id. ¶¶ 21, 24. During this consultancy period, "Whalen was the principal consultant and engineer" on the LCPP. Id. ¶ 22.

Allen joined AlterG in 2007 and has "held numerous jobs at AlterG in sales, business development, and in international sales." Id. ¶ 25. Through those positions, he became "intimately familiar with the products of AlterG and specifically the costing, bill of materials (BOM), sales and financial information, customer acquisition, marketing projections, and business strategy for AlterG products." Id. Like Whalen, Allen worked closely with the LCPP team from 2012 through 2015. Id. ¶ 27. Allen was also AlterG's "principal liaison" to Woodway USA ("Woodway"), a longtime supplier of treadmills for AlterG. Id. ¶¶ 25, 28. He resigned from AlterG on April 28, 2015. Id. ¶ 29.

Bean joined AlterG in 2008 and worked in various sales roles at the company. Id. ¶ 34. He resigned from AlterG in April 2017. Id. ¶ 35. "Since Bean's departure from AlterG in April 2017, AlterG has discovered communications between Bean and Allen about Allen's work on a competing anti-gravity unit while Bean was still an employee of AlterG." Id.

Each of the Individual Defendants signed various confidentiality and non-disclosure agreements with AlterG during their employment with the company, which provided that they would "not use or disclose AlterG's proprietary and confidential information in any way contrary to the benefit of AlterG." Id. ¶¶ 20, 25, 34. AlterG and Woodway also "entered into various confidentiality agreements whereby AlterG would provide to Woodway proprietary and confidential information to assist Woodway to build and supply AlterG with anti-gravity units." Id. ¶ 31.

Boost was formed at the end of 2016 and registered in April 2017. Id. ¶ 36. Allen and Bean are founders of Boost, and Whalen worked for the company in product development. Id. AlterG believes that "Defendants conspired almost immediately [upon leaving AlterG] to create a competing machine incorporating AlterG intellectual property," and that "Boost was developing an unweighting treadmill well prior to the company's registration." Id. ¶¶ 36, 39. As part of this process, Whalen and Allen started "secretly" working with Woodway and "utilized confidential, proprietary, and trade secret information from the [LCPP], and other AlterG intellectual property, to shortcut the research and development time to come to market with a lower cost unweighting treadmill." Id. ¶ 33. "At the end of 2017, Boost introduced its first product—the Boost One," which "infringes AlterG patents" and "incorporates numerous technology features developed by AlterG in connection with the [LCPP]." Id. ¶ 38.

AlterG further alleges that Defendants "falsely claim that the problematic Boost One is a superior product over the AlterG DAP systems ‘at a fraction of the cost.’ " Id. ¶ 44. Defendants have also "told customers and prospects false statements to denigrate AlterG and its superior technology, falsely claiming that AlterG was going out of business, is in poor financial health and will not be able to get Woodway treadmills anymore." Id. ¶ 45. The upshot of Defendants' allegedly unlawful practices is that Defendants have been able to "sell over 20 units [of Boost products] to date to customers considering an AlterG unit." Id. ¶ 46.

II. LEGAL STANDARD

For a plaintiff to survive a Rule 12(b)(6) motion to dismiss after Ashcroft v. Iqbal , 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) and Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), his factual allegations "must ... suggest that the claim has at least a plausible chance of success." Levitt v. Yelp! Inc. , 765 F.3d 1123, 1134-35 (9th Cir. 2014). In other words, the complaint "must allege ‘factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.’ " Id. (citations omitted). "The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility ‘of entitlement to relief.’ " Id.

The Ninth Circuit has outlined a two-step process for evaluating pleadings against this standard. "First, to be entitled to the presumption of truth, allegations in a complaint or counterclaim may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively. Second, the factual allegations that are taken as true must plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation." Levitt , 765 F.3d at 1135 (citations omitted).

III. DISCUSSION

A. Patent Infringement

AlterG alleges that Defendants directly, indirectly, and willfully infringed five of AlterG's patents. The '795 and '572 Patents (the "Weight Calibration Patents") relate to systems that adjust the air pressure inside the treadmill chamber in response to the body weight of the user. See Compl. ¶¶ 67–84. The complaint provides the following descriptions of the Weight Calibration Patents:

• [F]eatures of the technology claimed in the '795 Patent provide a system by applying pressure to a portion of a body of an individual in a chamber having an aperture along a vertical axis for receiving the portion of the body of the individual. A pressure sensor is coupled to the chamber for measuring a pressure inside the chamber. A negative feedback control system, calibrates, adjusts, and maintains the pressure inside the chamber. Compl. ¶ 67.

• Broadly speaking, the '572 Patent claims a system by applying pressure to a portion of a body of an individual in a chamber having an aperture along a vertical axis for receiving the portion of the body of the individual. A pressure sensor is coupled to the chamber for measuring a pressure inside the chamber. A negative feedback control system calibrates, adjusts, and maintains the pressure inside the chamber. Compl. ¶ 73.

The '716, '764, and '656 Patents (the "Height Adjustment Patents") relate to adjustable mechanisms that allow a treadmill to accommodate users of different heights. Compl. ¶¶ 49–66. The complaint provides the following descriptions of the Height Adjustment Patents:

• Broadly speaking, the '716 Patent claims various embodiments of Differential Air Pressure systems and methods of using such systems. Without reference to the

...