Philips N. Am., LLC v. Image Tech. Consulting
| Decision Date | 26 July 2022 |
| Docket Number | Civil Action 3:22-CV-0147-B |
| Parties | PHILIPS NORTH AMERICA LLC, Plaintiff, v. IMAGE TECHNOLOGY CONSULTING LLC, and MARSHALL R. SHANNON, Defendants. |
| Court | U.S. District Court — Northern District of Texas |
Before the Court is Defendants Image Technology Consulting, LLC (Image Technology) and Marshall R. Shannon (Shannon) (collectively, the Defendants)'s Motion to Dismiss (Doc 19). For the following reasons, the Court GRANTS IN PART and DENIES IN PART Defendants' Motion.
BACKGROUND[1]
This is a trade secrets case. Philips North America LLC (Philips) “develops, sells, supports, maintains, and services medical imaging systems . . . used at hospitals and medical centers, including the proprietary hardware, software, and documentation for such systems.” Doc. 1, Compl., ¶ 1. Philips controls access to its systems through copyright-protected proprietary software. Id. ¶¶ 2-3. Users must pay a license fee to access additional system features. Id. ¶ 20. “The systems include, but are not limited to, imaging devices such as CT and PET scanners, x-ray machines ultrasound machines, MR scanners, and nuclear medicine scanners.” Id. ¶ 19. To support and service these machines, “Philips has developed extensive proprietary information, documentation, and software” known as Customer Service Intellectual Property (CSIP). Id. ¶ 22. Individuals contract with Philips for a particular CSIP Level. Id. ¶ 25. “CSIP Level 0 materials are available to [anyone] in the United States who request[s] access to such materials.” Id. CSIP Level 1 materials are “available only to Philips' employees and customers with a valid contract and subject to non-disclosure agreements.” Id. CSIP Level 2 is available “for certain Philips' employees and specific trade partners under contract.” Id. And CSIP Level 3 is reserved for specific Philips employees. Id. Individuals with above Level 0 access must sign a confidentiality agreement that acknowledges “Philips'[s] substantial investment in Philips'[s] proprietary information.” Id. ¶ 27.
Philips controls access to CSIP materials in part through the Integrated Security Tool (IST). Id. ¶¶ 28-29. Philips “uses [the] 1ST to restrict access to . . . enhanced software tools, advanced servicing, diagnostics, and calibration software, or enabling and disabling licensable features on the Philips systems.” Id. ¶ 30. The IST “manage[s] user entitlements through . . . a user-specific IST certificate.” Id. ¶ 29. An IST certificate is “generally valid for 30 days and must be renewed.” Id. ¶ 31. “[A] customer who entered into a service contract that provides a license to access certain Philips service tools and includes confidentiality and non-disclosure terms may access certain service tools that are not available to a customer who has not entered into such a service contract.” Id. ¶ 32.
“Image Technology is a medical device equipment sale[s] and servicing company that sell[s] Philips' medical imaging devices”-specifically parts for and servicing of Philips MRI systems-and Shannon “is [its] director of operations.” Id. ¶¶ 4, 38-41. Philips granted Defendants CSIP Level 0 access to service Philips systems and never authorized a higher level of access. Id. ¶¶ 52-56.
However, while investigating a “third-party medical device repair company, 626 Holdings, LLC . . . and its principal, Alexander Kalish” (Kalish), Philips “discovered that . . . Kalish created an IST certificate generator software program to generate fake Philips IST certificates that impersonate Philips employees,” and that Kalish provided such information to Defendants. Id. ¶ 43. Defendants used these “fake and/or unauthorized IST certificates to hack Philips'[s] access control mechanisms on the Philips systems to gain unlicensed and unauthorized access to Philips systems . . ., including software to modify medical devices.” Id. ¶ 42. “Defendants also s[old] and/or provide[d] fake and/or unauthorized IST certificates to third parties.” Id.
In another investigation, “Philips learned that Defendants provided and/or sold one or more unauthorized certificates” to Alpha Biomedical and Diagnostic Corp. (Alpha). Id. ¶ 44. Defendants used fake Philips IST certificates when servicing Philips systems for Alpha, altering the settings to grant “above Level 0 access to Philips'[s] CSIP during its service and repair activities.” Id. ¶ 45. Defendants profit from this unauthorized access by advertising their ability to provide this access to customers. Id. ¶¶ 59-60.
Philips filed its Complaint on January 21, 2022, asserting claims under the Computer Fraud and Abuse Act (CFAA), Digital Millennium Copyright Act (DMCA), Defend Trade Secrets Act (DTSA), Texas Uniform Trade Secrets Act (TUTSA), and for unfair competition and fraud. See Doc. 1, Compl. ¶¶ 61-137. Defendants filed their motion to dismiss on May 4, 2022, arguing for dismissal under Federal Rules of Civil Procedure 12(b)(6), 9(b), 12(b)(7), and 12(e). Doc. 19, Mot. Dismiss. The motion is briefed and ripe for review. The Court considers it below.
Under Federal Rule of Civil Procedure 8(a)(2), a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Rule 12(b)(6) authorizes a court to dismiss a plaintiff's complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). In considering a Rule 12(b)(6) motion to dismiss, “[t]he court accepts all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007). But the court will “not look beyond the face of the pleadings to determine whether relief should be granted based on the alleged facts.” Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999).
To survive a motion to dismiss, plaintiffs must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “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.” Id. (quoting Twombly, 550 U.S. at 556). When well-pleaded facts fail to meet this standard, “the complaint has alleged-but it has not shown-that the pleader is entitled to relief.” Id. at 679 (quotation marks and alterations omitted).
A dismissal for failure to plead with particularity in accordance with Rule 9(b) is treated as a Rule 12(b)(6) dismissal for failure to state a claim. Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017 (5th Cir. 1996). Rule 9(b) provides, in pertinent part, that, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). When claims for fraud and negligent misrepresentation are based on the same set of alleged facts, Rule 9(b)'s heightened pleading standard applies. Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 n.3 (5th Cir. 2010) (citing Benchmark Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 724 (5th Cir. 2003), modified on other grounds, 355 F.3d 356 (5th Cir. 2003)); see Paul v. Aviva Life & Annuity Co., 2010 WL 5105925, at *8 (N.D. Tex. Dec. 14, 2010) (). A fraud claim requires pleading with particularity the “‘who, what, when, where, and how' of the alleged fraud.” United States ex rel. Nunnally v. W. Calcasieu Cameron Hosp., 519 F. App'x. 890, 892 (5th Cir. 2013) (quoting United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997)).
Federal Rule of Civil Procedure12(b)(7) authorizes the court to dismiss a case for failure to join an indispensable party. Resolution of a 12(b)(7) motion requires two steps. August v. Boyd Gaming Corp., 135 Fed.Appx. 731, 732 (5th Cir. 2005). “First a court must determine whether a party should be added under the requirements of Federal Rule of Civil Procedure 19(a).” Id. Under Rule 19(a), a person is a required party if (1) the person's absence will prevent the court from “accord[ing] complete relief among existing parties,” or (2) the person has an interest in the subject of the case, and disposing of it in the person's absence will either “impair or impede the person's ability to protect the interest,” or create a risk of multiple or inconsistent obligations for an existing party because of the interest. Fed.R.Civ.P. 19(a)(1)(A)-(B).
Second if joining the indispensable party would divest the court of subject matter jurisdiction, a court “must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed” under Rule 19(b). Four factors are relevant to this analysis: (1) “the extent to which a judgment rendered in the person's absence might prejudice that person or the existing parties”; (2) the degree to which “protective provisions in the judgment,” “shaping the relief,” or “other measures” might mitigate any prejudice; (3) “whether a judgment rendered in the person's absence would be adequate”; and (4) “whether the...
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