Theranos, Inc. v. Fuisz Pharma LLC

• Decision Date: 26 June 2012
• Docket Number: Case No. C–11–05236–YGR.
• Citation: 876 F.Supp.2d 1123
• Parties: THERANOS, INC. and Elizabeth Holmes, Plaintiffs, v. FUISZ PHARMA LLC, et al., Defendants.
• Court: U.S. District Court — Eastern District of California

876 F.Supp.2d 1123

THERANOS, INC. and Elizabeth Holmes, Plaintiffs,

v.FUISZ PHARMA LLC, et al., Defendants.

Case No. C–11–05236–YGR.

United States District Court, N.D. California.

June 26, 2012.

David William Shapiro, Boies Schiller & Flexner LLP, Oakland, CA, David Boies, William D. Marsillo, Boies Schiller & Flexner LLP, Lisa M. Nousek, Pro Hac, Vice, Armonk, NY, Vincent Y. Liu, Boies Schiller and Flexner LLP, New York, NY, for Plaintiffs.

Jennifer L. Ishimoto, David Banie, Banie & Ishimoto LLP, Campbell, CA, for Defendants.

Order Granting Defendant John R. Fuisz's Motion to Dismiss and Granting in Part and Denying in Part Defendants Fuisz Pharma LLC, Richard C. Fuisz, and Joseph M. Fuisz's Motion to Dismiss

YVONNE GONZALEZ ROGERS, District Judge.

Plaintiffs Theranos, Inc. (“Theranos”) and Elizabeth Holmes (“Holmes”) (collectively, “Plaintiffs”) filed this action on October 26, 2011 against Defendants Fuisz Pharma LLC (“Fuisz Pharma”), John R. Fuisz (“Attorney John”), Richard C. Fuisz (“Richard”), and Joseph M. Fuisz (“Joseph”) (collectively, “Defendants”) alleging various patent and state law claims. Specifically, Plaintiffs allege ten claims for: (1) correction of inventors pursuant to 35 U.S.C. section 256 against Fuisz Pharma, Richard, and Joseph; (2) declaratory judgment based on the invalidity and unenforceability of U.S. Patent No. 7,824,612 (“ '612 Patent”) against Fuisz Pharma; (3) unjust enrichment and restitution against Fuisz Pharma, Richard, and Joseph; (4) breach of fiduciary duties against Attorney John; (5) aiding and abetting breach of fiduciary duties against Attorney John, Richard, and Joseph; (6) legal malpractice against Attorney John; (7) unfair competition and unfair business practices against all Defendants; (8) breach of contract against Attorney John; (9) inducing breach of contract and tortious interference with contractual relations against Richard and Joseph; and (10) civil conspiracy against Richard, Joseph, and Attorney John.

On February 27, 2012, Attorney John filed a Motion to Dismiss Claims Against John R. Fuisz Pursuant to Fed. R. Civ. Proc. 12(b)(6). (Dkt. No. 62 (“First Motion”).) The First Motion seeks dismissal of all claims asserted against Attorney John on the grounds that they are time-barred. Plaintiffs filed an Opposition to Motion to Dismiss Claims Against John R. Fuisz on March 12, 2012. (Dkt. No. 66 (“First Opp.”).) Attorney John filed his Reply in Support of his Motion to Dismiss on March 19, 2012. (Dkt. No. 70 (“First Reply”).)

On March 9, 2012, Fuisz Pharma, Richard, and Joseph (collectively, “Fuisz Pharma Defendants”) filed a Motion to Dismiss Claims Against Fuisz Pharma LLC, Richard C. Fuisz, and Joseph M. Fuisz Pursuant to Fed. R. Civ. Proc. 12(b)(6) and 9(b). (Dkt. No. 65 (“Second Motion”).) The Second Motion seeks dismissal of all claims against the Fuisz Pharma Defendants on the grounds that the federal claims are improperly pled and duplicative, and the state law claims are either superseded by state statute or time-barred. Plaintiffs filed an Opposition to Motion to Dismiss Claims Against Fuisz Pharma LLC, Richard C. Fuisz, and Joseph M. Fuisz on March 23, 2012. (Dkt. No. 72 (“Second Opp.”).) The Fuisz Pharma Defendants filed their Reply in Support of their Motion to Dismiss on March 30, 2012. (Dkt. No. 74 (“Second Reply”).) Hearings on the First and Second Motions took place on April 3 & 24, 2012, respectively. (Dkt. Nos. 75 & 78.)

Having carefully considered the papers submitted and the pleadings in this action, and for the reasons set forth below, the Court hereby:

• Grants the First Motion to Dismiss the fourth, fifth, sixth, seventh, eighth, and tenth claims against John Fuisz, With Leave to Amend only the seventh claim for unfair competition/unfair business practices.

• Denies the Second Motion to Dismiss the first, second, and third claims for correction of inventors, declaratory judgment, and unjust enrichment/restitution, respectively.

• Grants the Second Motion to Dismiss With Leave to Amend the fifth and seventh claims for aiding and abetting breach of fiduciary duties against Richard Fuisz and Joseph Fuisz, and unfair competition/unfair business practices against Richard, Joseph, and Fuisz Pharma, respectively.

• Grants Without Leave to Amend the Second Motion to Dismiss the ninth and tenth claims for inducing breach of contract/tortious interference with contractual relations and civil conspiracy, respectively.

I. Factual and Procedural Background

This action was originally filed on October 26, 2011. (Dkt. No. 1.) A first AmendedComplaint (“FAC”) was filed on February 9, 2012. (Dkt. No. 53.) The action arises from allegations that Defendants wrongful took and used Plaintiffs' confidential information relating to certain patent applications.

A. The Parties and the Patent Applications

Holmes is a named inventor on several patents and current CEO of Theranos. FAC ¶ 3. Theranos is a healthcare systems company that develops technologies used in the collection, analysis, and communication of health information. FAC ¶ 2. John is a patent attorney residing in Washington, D.C. who previously worked at a national law firm ¹ that rendered services to Plaintiffs beginning in 2003. Id. ¶¶ 5 & 17–18. Joseph is Attorney John's brother and the CEO and managing member of Defendant Fuisz Pharma LLC. Id. ¶ 7. Richard is the father of Attorney John and Joseph, and a member of Fuisz Pharma. Id. ¶ 6. While Richard and Joseph reside in California and Florida, respectively, Fuisz Pharma is an LLC formed under the laws of Delaware with its principal place of business in Florida. Id. ¶¶ 4 & 6–7. Fuisz Pharma “purports to be the owner” of the ' 612 Patent.Id. ¶ 4.

In or around August 2003, Plaintiffs retained Law Firm “to provide legal services to Plaintiffs in prosecuting patent applications covering Plaintiffs' inventions.” Id. ¶ 18. “Between 2003 and approximately early 2006, ... Law Firm represented Plaintiffs in the preparation, filing, and prosecution of their domestic and international patent applications, and continued to represent Plaintiffs until around October 2008.” Id. The legal services provided to Plaintiffs occurred “mainly out of its office located in Washington, D.C.” but included reviewing information and materials sent by Plaintiffs from California and communicating with Plaintiffs in California. Id. ¶ 19. Attorneys in Law Firm's Intellectual Property Litigation and Patent Prosecution groups (“IP Group”) had access to confidential information ² contained in Plaintiffs' files. Id. ¶ 20–22.

Law Firm's services to Plaintiffs “included preparing and filing various provisional patent applications on their behalf.” FAC ¶ 23. Specifically, in 2005, Law Firm drafted and filed four provisional patents for Plaintiffs (“Theranos Provisionals”), each of which included information that was confidential and propriety to Plaintiffs. Id. ¶¶ 24 & 26. At that time, the information was not public. Id. ¶ 36. In or around early 2006, Plaintiffs hired another law firm to prepare, file, and prosecute subsequent patent applications. Id. ¶ 27. With that law firm, Plaintiffs filed non-provisional patent applications on March 24, 2006 that “claim priority to the Theranos Provisionals.” Id. ¶ 28. The March 24, 2006 patent applications and the information contained therein were not publicly available until November 2006. Id. ¶¶ 29–30.

Plaintiffs allege that Richard and Joseph “wrongfully used the valuable confidential and proprietary information that Plaintiffs had entrusted to ... Law Firm, including both the general knowledge of Plaintiffs' work and plans and specific information set forth in the Theranos Provisionals, and in other materials submitted in confidence by Plaintiffs to ... Law Firm.” Id. ¶ 31;see id. ¶ 35. One month after the TheranosProvisionals were filed, in April 2006, Richard and Joseph filed their own provisional patent application (“Fuisz Provisional”). Id. ¶ 32. On April 24, 2007, Richard and Joseph filed a non-provisional patent application claiming the benefit of the Fuisz Provisional. Id. ¶ 34. This application ultimately matured into the '612 Patent.Id. ¶¶ 4 & 34.

Plaintiffs allege that the Fuisz Provisional included “copied concepts and disclosures from the non-public Theranos Provisionals” and Confidential Information. Id. ¶ 37 (“The same concepts and disclosures are also found in the '612 Patent.”);see id. ¶ 40. Holmes and others at Theranos, including Timothy Kemp (“Kemp”) developed the concepts contained in their Confidential Information. Id. ¶¶ 38–39. “But for” Richard and Joseph's access to Confidential Information, “they would not have been able to file the Fuisz Provisional” or obtain the '612 Patent.Id. ¶¶ 62–63.

B. Plaintiffs Discover the Fuisz Provisional and the '612 Patent

Plaintiffs “first became aware” of the Fuisz Provisional in May 2008. FAC ¶ 64. Prior to that time, they had “no reason ... to believe that [their] Confidential Information had been used by Defendants to file a patent application.” Id. In fact, they “could not reasonably have discovered” the Fuisz Provisional or use of Theranos Confidential Information any sooner than January 2008, when that information was made publicly available. Id.

On or about August 22, 2008, Holmes was informed that a lawyer by the name of John Fuisz was a partner at Law Firm. FAC ¶ 65. She was unable to schedule a meeting with a partner at Law Firm until September 22, 2008. Id. ¶¶ 65–66. On September 22, she met with two partners at Law Firm and “informed them” that Richard and Joseph “had filed an application for a patent claiming priority to the Fuisz Provisional ... which contained concepts substantially similar to those disclosed” in Confidential Information furnished to Law Firm and the Theranos Provisionals. Id. ¶ 66 (hereinafter, “Law Firm Meeting”). The partners responded that they would look into the matter. Id. ¶ 67. On or about October 28, 2008, Law Firm...