Qbex Computadoras S.A. v. Intel Corp.
| Decision Date | 17 November 2017 |
| Docket Number | Case No. 17-CV-03375-LHK |
| Parties | QBEX COMPUTADORAS S.A., Plaintiff, v. INTEL CORPORATION, Defendant. |
| Court | U.S. District Court — Northern District of California |
Plaintiff Qbex Computadoras S.A. ("Qbex") sues Defendant Intel Corporation ("Intel") for claims arising from Intel's provision of allegedly faulty smartphone microprocessors, which Qbex alleges overheated and sometimes caused the smartphones to catch fire or explode. Before the Court is Intel's motion to dismiss six of Qbex's eight claims for relief and certain of Qbex's prayers for relief. ECF No. 18 ("Mot."). Having considered the submissions of the parties, the relevant law, the parties' arguments at the November 16, 2017 hearing, and the record in this case, the Court GRANTS IN PART and DENIES IN PART Intel's motion to dismiss six of the eight claims for relief and certain prayers for relief.
Intel is a Delaware corporation based in California that "designs, trademarks, manufactures, markets, and sells microprocessors." Complaint ("Compl."), ECF No. 1, ¶ 12.
Qbex is a Brazilian company that sells consumer electronics. Id. ¶¶ 11, 17-18. Qbex began selling electronics in Brazil in 2003. Id. ¶ 18. In 2005, Qbex began selling desktop computers. Id. ¶ 20. In 2008, Qbex desktops were recognized among the "most reliable" computers in Brazil. Id. ¶ 21. In 2012 and 2013, Qbex was listed among the top ten desktop vendors in Brazil. Id. Qbex began selling laptop computers in 2010. Id. ¶ 20. In 2013, Qbex began selling tablets. Id. By September 2015, Qbex's TX300 tablet was the second most sold tablet in Brazil. Id. ¶ 24. Between 2005 and 2012, Qbex's revenues increased from roughly $1,300,000 to $85,000,000 per year. Id. ¶ 22.
In January 2015, Alessandra Souza, an Intel executive representative in Brazil who was in charge of the Qbex account, approached Joabe Fonseca, the president of Qbex, about the possibility of launching Intel's line of smartphones in Brazil under the Qbex brand. Id. ¶ 25. The smartphones would feature Intel's SoFIA microprocessor and mobile platform. Id. ¶ 26.
On February 27, 2015, Souza sent Fonseca catalogs of Intel's original design manufacturers ("ODMs") that would provide the Intel smartphone hardware to Qbex. Id. ¶ 29. Qbex explains that U.S. technology companies design products and then outsource the manufacturing of those products to ODMs. Id. ¶ 30. Water World Technology Co. Ltd. ("Water World") in China would be the ODM for the motherboard and internal systems of the smartphones. Id. ¶ 31. Fuzhou Rockchip Electronics Co. Ltd. ("Rockchip") was the ODM for the SoFIA microprocessors. Id. ¶ 32. Fortune Ship Technology (UK) Limited ("Fortune Ship"), I-Swim Technology Company Limited ("I-Swim"), and UK Tianruixiang Communication Equipment Limited ("UK Tianruixiang"), all based in China or Hong Kong, were the systemintegrators for the smartphone parts. Id. ¶ 31. Souza told Fonseca that Intel was responsible for the design and quality of the products and that Intel had supervising technicians working at its ODM and system integrator partners' factories to ensure compliance with Intel's standards and designs. Id. ¶ 33.
Fonseca attended Intel's Solutions Summit for Latin America (the "ISS Conference") on April 22, 2013. Id. ¶ 34. At the ISS Conference, Fonseca met with Intel's vice president and sales and marketing group general manager for Latin America, Steve Long. Id. ¶ 35. During the meeting with Long, Fonseca agreed on behalf of Qbex to launch the Intel smartphones under the Qbex brand. Id.
On June 5, 2015, Marcelo Pinheiro of Intel sent Fonseca a presentation about the SoFIA microprocessor and Intel's mobile platform. In this presentation, Intel represented that its SoFIA microprocessor performed better than the microprocessors produced by Intel's competitors MediaTek and Qualcomm. Id. ¶ 37. Based on this presentation, Fonseca confirmed Qbex's decision to launch Intel's smartphones rather than Qualcomm's smartphones. Id. ¶¶ 37-38.
Qbex contends that the contractual relationship between Intel and Qbex was governed by a range of written agreements that Qbex refers to as the "umbrella agreements." Id. ¶¶ 39, 48. The umbrella agreements included a Technology Provider Program Agreement ("Provider Agreement"), a Channel Trademark License Agreement, and separate Price Matching Agreements. Id. ¶¶ 40, 47. Qbex contends that the umbrella agreements "were supplemented or expanded by oral and written communications regarding the number of units that Qbex agreed to purchase and that Intel agreed to provide to Qbex from its ODMs." Id. ¶ 48.
In preparation for the launch of the smartphones, Qbex invested more than $130,000 and eventually shifted more than 90% of its capacity to the assembly, marketing, and sale of the Intel smartphones. Id. ¶ 53. Qbex also hired more than 200 new employees for the Intel smartphone business. Id. Qbex began to sell the Intel smartphones in October 2015. Id. ¶ 55. Between October 2015 and December 2016, Qbex sold (or distributed) 235,074 units. Id. ¶ 57.
Qbex contends that the Intel microprocessor "and/or mobile system had a design defect that caused the [smartphone] to overheat and even explode." Id. ¶ 58. As a result of the defect, there were 2 reported incidents of malfunction in December 2015, 43 smartphone returns or complaints in January 2016, 79 returns or complaints in February 2016, and 219 returns or complaints in March 2016. Id. ¶ 70. In April 2016, there were 401 complaints or returns; in May 2016, there were 915 complaints or returns; and in June 2016 there were 1,446 complaints or returns. Id. ¶ 75. There were 9,090 complaints or returns in July 2016 and 5,962 complaints or returns in August 2016. Id. ¶ 86. In total, Qbex alleges it received more than 35,000 customer complaints related to the alleged design defect in the SoFIA microprocessor. Id. ¶ 91.
Qbex explains that as part of its quality control procedures, Qbex tested the performance of smartphone samples it received from the ODMs before beginning its own mass production of the phones. Id. ¶ 64. "While performing these tests, Qbex's engineering team noted that the temperature of the Intel [s]martphones was higher than the temperature of other comparable electronics." Id. ¶ 65.
In an email dated December 12, 2015, Raul Miranda of Qbex's engineering team reported the overheating problem to Fortune Ship officials and attached a copy of a Qbex engineering report showing a performance temperature of 44 degrees Celsius. Id. ¶¶ 66-67; Exh. E. On December 14, 2015, Raymond Zou of Fortune Ship responded that Compl. ¶ 68; Exh. E. Qbex raised the overheating issue with Souza, who represented to Qbex that Intel would review the issue with Fortune Ship. Compl. ¶ 69. Qbex contends that Souza's response was misleading because Intel and Fortune Ship had already determined by October 2015 that the smartphones tended to overheat. Id. ¶¶ 59, 69.
Qbex alleges that between February and April 2016, Intel officials conveyed satisfaction with the sales of the Intel phones in the Brazilian market and optimism about the future of theSoFIA platform. Id. ¶¶ 72-76. On April 29, 2016, however, Intel announced that it was canceling the production of the SoFIA microprocessor. Id. ¶ 77. Intel represented to Qbex that this decision was a result of business restructuring, not because of any problem with the microprocessor. Id.
At the May 2016 ISS Conference, Fonseca met with Souza, Long, and Vice President and General Manager of Global Accounts CJ Bruno. Id. ¶ 79. During that meeting, Bruno "agreed on behalf of Intel to sell to Qbex through Intel's ODMs 970,000 smartphone units to cover the market demand through the second quarter of 2017." Id. ¶ 81. Qbex contends that Intel "further agreed to provide technical support to Qbex and its customers through, at least, the second quarter of 2017." Id. ¶ 83. This agreement was memorialized in an email dated May 19, 2016. Id. ¶ 84; Exh. G.
At some point, Qbex heard rumors that Intel fired all the engineers in charge of the SoFIA microprocessors and that the ODMs could not solve the overheating problems without Intel's engineers. Compl. ¶ 87. Qbex eventually "confirmed through an independent study that a design defect in Intel's SoFIA microprocessor" was indeed the cause of the smartphones' overheating problems. Id. ¶ 88. In December 2016, Qbex terminated its relationship with Intel and stopped selling the Intel smartphones. Id. ¶ 89.
Qbex contends that it has suffered damages as a result of the defective SoFIA microprocessors including but not limited to the loss of its investment in the smartphone expansion, the loss of goodwill and reputation, and the loss of expected profits on the sale of the smartphones that Intel agreed to supply through the second quarter of 2017. Id. ¶ 90. In addition, Qbex alleges that it hired 216 additional employees to manage customer complaints and related lawsuits. Id. ¶ 91. Moreover, Qbex has agreed to exchange more than 18,000 defective smartphones and has resolved or settled numerous administrative and judicial complaints. Id. Finally, Qbex is currently storing 13,518 smartphones that it cannot sell, in addition to 20,000 units held in customs in Brazil and 10,000 units in storage at the ODM factories in Hong Kong. Id. ¶ 92.
Qbex filed the instant complaint on June 12, 2017. Compl. The complaint alleges eight causes of action under Delaware law: (1) common law fraud; (2) violation of the Delaware Consumer Fraud Act, 6...
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