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Moddha Interactive, Inc. v. Philips Electronic North America Corp.

United States District Court, D. Hawaii

March 10, 2015

MODDHA INTERACTIVE, INC., Plaintiff,
v.
PHILIPS ELECTRONIC NORTH AMERICA CORPORATION, Defendant

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[Copyrighted Material Omitted]

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For Moddha Interactive, Inc., Plaintiff: David F. Simons, LEAD ATTORNEY, The Law Offices of David F. Simons, Honolulu, HI; Geoffrey D. Menin, LEAD ATTORNEY PRO HAC VICE, Levine Plotkin & Menin LLP, Honolulu, HI; Jessica M. Wan, Randall K. Schmitt, Randall K. Schmitt, LEAD ATTORNEYS, McCorriston Miller Mukai MacKinnon LLP, Honolulu, HI.

For Philips Electronics North America Corporation, Defendant: Alan M. Grimaldi, Brian K. Andrea, Brian A. Rosenthal, LEAD ATTORNEYS, Mayer Brown LLP, Washington, DC; Andrew James Lautenbach, LEAD ATTORNEY, Starn O'Toole Marcus & Fisher Pacific Guardian Center Makai Tower, Honolulu, HI; Kyle E. Friesen, LEAD ATTORNEY, Mayer Brown LLP, Houston, TX; Mark J. Bennett, LEAD ATTORNEY, Starn O'Toole Marcus & Fisher Pacific Guardian Center Makai Tower, Honolulu, HI.

For Philips Electronics North America Corporation, Counter Claimant: Alan M. Grimaldi, Brian K. Andrea, Brian A. Rosenthal, LEAD ATTORNEYS, Mayer Brown LLP, Washington, DC; Andrew James Lautenbach, LEAD ATTORNEY, Starn O'Toole Marcus & Fisher Pacific Guardian Center Makai Tower, Honolulu, HI; Kyle E. Friesen, LEAD ATTORNEY, Mayer Brown LLP, Houston, TX; Mark J. Bennett, LEAD ATTORNEY, Starn O'Toole Marcus & Fisher Pacific Guardian Center Makai Tower, Honolulu, HI.

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ORDER GRANTING DEFENDANT'S MOTION TO DISMISS PLAINTIFF'S THIRD THROUGH SIXTH CAUSES OF ACTION

Barry M. Kurren, United States Magistrate Judge.

Before the Court is Defendant Philips Electronics North America Corporation's (" Philips" ) Motion to Dismiss Plaintiff's Third through Sixth Causes of Action (" Motion to Dismiss" ). (Doc. 136.) After careful consideration of the Motion, the supporting and opposing memoranda, and the arguments of counsel, the Court finds that MODDHA Interactive, Inc.'s (" MODDHA" )

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fraud and unfair competition counts are preempted by the Uniform Trade Secrets Act (" UTSA" ), and that MODDHA's trade secret misappropriation and breach of contract claims are barred by the applicable statute of limitations. Philips' Motion to Dismiss is therefore GRANTED. Because granting leave to amend would be futile, this dismissal is without leave to amend.

BACKGROUND

In early 2001, MODDHA's predecessor-in-interest, Porrazzo Strategic Technologies (" PST" ) began discussions with Philips about a potential business cooperation regarding certain PST Technologies. (Doc. 140 at 11-12; Doc. 140-3 at 1.) In pursuant of this potential business cooperation, PST and Philips entered into a Non-Disclosure Agreement (" NDA" ) on March 2, 2001, with the purpose of reviewing and exchanging information concerning PST technologies and Philips technologies relevant to the refinement and application of PST technologies. (Doc. 140 at 13; Doc. 141-9 at 1.) Under the NDA, the parties were able to disclose proprietary or confidential information to each other, with the agreement that:

The receiving party will treat and safeguard Confidential Information of the other party with the same standard of care (but at least a reasonable standard of care) that the receiving party employs for its own Confidential Information and shall not, without the prior written approval of the disclosing party, (a) disclose any Confidential Information to a third party, (b) use Confidential Information in any way for the benefit of any third parties, and/or (c) use Confidential Information in any way other than for PURPOSE.

( Doc. 141-9 at 1.) The NDA further provides that all confidential information exchanged between the parties " shall remain the property of the disclosing party, and shall be promptly returned to the disclosing party at its request or destroyed after the receiving party's need for it has expired, and in any event, upon termination of this Agreement." (Doc. 141-9 at 1.) The NDA was to last until and cover information received by a receiving party until one year from the date of execution of the NDA, but " all duties of confidentiality and non-use shall extend until three years from the date of execution" of the NDA. (Doc. 141-9 at 1.)

On June 22, 2001, PST and Philips executed a Memorandum of Understanding (" MOU" ), pursuant to which PST was to provide samples, instructions, and confidential information regarding the MODDHA QT Technology to Philips for Philips' evaluation. (Doc. 140 at 12; Doc. 140-3 at 1.) The MOU expressed the intentions of PST and Philips to investigate a potential business cooperation that " could potentially take the form of an investment, a license, a product purchase, any combination thereof, or another form." (Doc. 140-3 at 1.) The MOU further indicates that any such cooperation

is conditional upon an attractive business proposition which shall be determined at the sole discretion of Philips and upon positive findings from any appropriate evaluation by Philips of PST's business (Evaluation), conducted and judged at the sole discretion of Philips.

( Doc. 140-3 at 1.) The MOU was non-binding and was set to terminate three months from the Effective Date, unless otherwise extended by written agreement signed by both parties. (Doc. 140-3 at 2.) The MOU also encompasses a confidentiality clause, which was intended to survive the termination of expiration of the MOU, and provides that:

PST and Philips each agree that it shall not disclose and shall keep confidential any confidential and proprietary information

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furnished to it by the other Party in connection with the discussions and negotiations under this MoU [sic] and the cooperation contemplated herein, in accordance with the confidentiality provisions set forth in the Non-Disclosure Agreement entered into between PST and Philips, the terms and conditions of which are hereby incorporated herein by this reference . . . All such transferred materials will be returned to the originating Party in the event negotiations of the final agreement proves unsuccessful, or anytime upon written request.

( Doc. 140-3 at 2-3.) Thus, the terms of the NDA, along with its duties of confidentiality, were incorporated by reference into the MOU. ( See id.)

In accordance with the MOU, PST supplied samples and detailed manufacturing instructions to Philips of various PST technologies. (Doc. 131 at 7, ¶ 17; Doc. 140 at 14.) In reliance on the protections of the confidentiality provided by both the MOU and the NDA, PST's Director of Engineering and Technology Team walked Philips' representatives through the manufacturing process of PST technologies step-by-step and disclosed trade secrets, such that Philips was provided with everything it needed to go from sample to manufactured product. (Doc. 131 at 7-8, ¶ 18; Doc. 140 at 14.)

Sometime after September 11, 2001, Philips notified PST that the economic climate following the attack on the World Trade Center prevented Philips from making an investment at that time. (Doc. 131 at 9, ¶ 19; Doc. 140 at 15.) Thereafter, PST requested that Philips return all materials that PST had provided to it. (Doc. 131 at 9, ¶ 20; Doc. 140 at 15.) Philips indicated that it would consider a future investment in PST only if PST allowed Philips to retain the samples and confidential materials PST previously provided. (Doc. 131 at 9, ¶ 20; Doc. 140 at 15.) MODDHA accepted the representation of Philips, and permitted Philips to retain the materials with the terms of the MOU and NDA remaining in place. (Doc. 140 at 15.)

No further or renewed negotiations were ever pursued by Philips, and in the summer of 2008, Edward Michael Porrazzo, CTO of MODDHA, noticed that Philips was marketing and selling a home theater system through Costco Wholesale that utilized loudspeakers with components that appeared to be designed and manufactured in accordance with the PST technology previously shared with Philips. (Doc. 131 at 2, ¶ 3; Doc. 140 at 15.) MODDHA promptly retained patent counsel to investigate whether its patents had been infringed. (Doc. 140 at 16.) At this time, Philips actively and affirmatively denied using any of the confidential information obtained from MODDHA in 2001. (Doc. 140 at 16.)

On January 13, 2012, MODDHA filed its Original Complaint against Defendant Philips Electronics North America, Inc., alleging the infringement on two of its U.S. Patents, Patent Numbers 5,430,805 (" 805 Patent" ) and 5,953,438 (" 438 Patent" ), under the Patent Laws of the United States, 35 U.S.C. § 1 et seq. (Doc. 1 at 3, 4-7.) MODDHA is a corporation with its corporate headquarters in the State of Hawaii, and is wholly owned by Edward Michael Porrazzo (" Porrazzo" ), who is the co-inventor of the 805 and 438 Patents, and Veronika Sandor, the President of MODDHA and Porrazzo's wife. (Doc. 1 at 2, ¶ 1.) MODDHA filed suit, alleging that Philips Electronics North America, Inc., infringed on its 805 and 438 Patents through its manufacture, use, sale, importation, and/or offer for sale products that incorporate a neodymium ribbon tweeter. (Doc. 1 at 4-7.) MODDHA sought declaratory relief, damages, and attorneys' fees and costs. (Doc. 1 at 8.) On January 18,

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2012, MODDHA filed a First Amended Complaint (" FAC" ) naming Philips as a Defendant. ...


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