PTP OneClick LLC v. Avalara Inc, No. 2:2019cv00640 - Document 54 (W.D. Wash. 2019)
Court Description: ORDER granting in part and denying in part Defendant Avalara's 8 Motion to Dismiss. The court DISMISSES WITH PREJUDICE and without leave to amend PTP's claims for patent infringement and unfair competition. Signed by Judge James L. Robart. (SWT)
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PTP OneClick LLC v. Avalara Inc Doc. 54 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 8 9 10 PTP ONECLICK, LLC, CASE NO. C19-0640JLR ORDER ON DEFENDANT’S MOTION TO DISMISS Plaintiff, 11 v. 12 13 AVALARA, INC., Defendant. 14 15 I. INTRODUCTION 16 Before the court is Defendant Avalara, Inc.’s (“Avalara”) motion to dismiss 17 Plaintiff PTP OneClick, LLC’s (“PTP”) complaint. (MTD (Dkt. ## 8, 9); 1 see also 18 Compl. (Dkt. # 1).) The court has reviewed the motion, the parties’ submissions filed in 19 support of and in opposition to the motion, the relevant portions of the record, and the 20 applicable law. In addition, PTP requested oral argument on Avalara’s motion (see 21 1 22 The court’s citations to the motion to dismiss relate to Avalara’s brief in support of that motion, which is located at docket number 9. ORDER - 1 Dockets.Justia.com 1 Request (Dkt. # 44)), and the court heard the argument of counsel on September 26, 2 2019. Being fully advised, the court GRANTS in part and DENIES in part the motion 3 and DISMISSES WITH PREJUDICE and without leave to amend PTP’s claims for 4 patent infringement and unfair competition under Wisconsin statutory law (see Compl. 5 ¶¶ 55-60, 72-77). 6 II. BACKGROUND 7 PTP is a limited liability company organized under the laws of the state of 8 Delaware with members who are citizens of Illinois, California, Wisconsin, New Jersey, 9 and Minnesota. (Compl. ¶¶ 2, 5.) Avalara is incorporated in and has its principal place 10 of business in the state of Washington. (Id. ¶ 5.) Avalara is in the business of selling tax 11 preparation software. (See id. ¶ 14.) Avalara has a satellite office in Wisconsin and has 12 sold tax software “in Wisconsin and throughout the United States.” (See id. ¶¶ 3, 7; see 13 also MTD at 10. 2) On October 22, 2018, PTP filed a complaint against Avalara alleging 14 five counts: (1) patent infringement, (2) misappropriation under federal trade secret laws, 15 (3) misappropriation under state uniform trade secret laws, (4) unfair competition under 16 Wisconsin statutory law, and (5) breach of contract. (Compl. ¶¶ 55-81.) 17 PTP alleges that, in 2006, Pavlos T. Pavlou and Nichols M. Mavros filed a 18 provisional application for a patent of the Pavlou SalesTaxPRO, which is a “method and 19 system” for “automatically calculating sales and use tax, populating tax forms, managing 20 both state and self-administered local taxes, and optionally e-filing those returns (where 21 2 22 When referencing page numbers in this ruling, the court references the page number generated by the court’s electronic filing system. ORDER - 2 1 permitted).” (Id. ¶ 13.) In 2006, Mr. Paylou also founded the company now known as 2 PTP to develop and market the invention. (Id.) 3 In 2017, the United States Patent and Trademark Office (“USPTO”) issued U.S. 4 Patent No. 9,760,915 (“the ’915 Patent”) to PTP as assignee of inventors Mr. Pavlou and 5 Mr. Mavros. (Id. ¶ 44.) The ’915 Patent describes a system and method for 6 automatically preparing state and local sales and use taxes. (Id. ¶ 13; see also id. ¶¶ 44, 7 46, Ex. 3 (“’915 Patent”).) During the prosecution of the ’915 Patent, the USPTO 8 Examiner rejected the claims of the ’915 Patent on the basis that the claims recited a 9 patent-ineligible abstract idea under 35 U.S.C. § 101. (Kurtenbach Decl. (Dkt. # 13) ¶ 2, 10 Ex. 1 at 4.) PTP appealed the decision to the USPTO’s Patent Trial and Appeal Board 11 (“the PTAB”). (Id. ¶ 4, Ex. 3 (attaching appeal brief).) Reciting the Supreme Court’s 12 framework as articulated in Alice Corporation Party Ltd. v. CLS Bank International, 573 13 U.S. 208, 216-18 (2014), which follows the two-part test set forth in Mayo Collaborative 14 Services v. Prometheus Laboratories, Inc., 566 U.S. 66 (2012), the PTAB reversed the 15 Examiner. (Kurtenback Decl. ¶ 4, Ex. 5.) The PTAB’s reversal, however, was grounded 16 in the Examiner’s failure to adequately support his rejection of the ’915 Patent. (See id. 17 at 5 (“In this case, we determine that the Examiner fails to establish that the features of 18 any claim, when considered as an ordered combination, fail to transform the claim as 19 required by the Alice test.”).) 20 The USPTO issued the ’915 Patent with two independent claims. Claim 1 recites: 21 1. A computer-implemented method of automatically preparing tax returns of a taxable entity comprising: 22 // ORDER - 3 1 2 3 4 5 6 receiving by a computer tax information associated with the taxable entity, wherein the tax information includes information regarding a location and a transaction associated with the taxable entity; automatically determining by the computer a plurality of taxing authorities associated with the location and the transaction; automatically determining by the computer multi-level tax rates associated with the plurality of taxing authorities based on the received tax information; automatically calculating by the computer one or more tax amounts based on the received tax information and the multi-level tax rates; 7 8 9 10 11 automatically determining by the computer multi-level tax return information based on the received tax information and the one or more calculated tax amounts; and transmitting over a computer network the multi-level tax return information to a computer system associated with one of the plurality of taxing authorities associated with the multi-level tax return information. 12 (’915 Patent at 133-34.) The second independent claim, Claim 12, is to a system for 13 preparing tax returns, which depends on a “database,” and requires the same steps as 14 Claim 1. (Id. at 134.) 15 PTP alleges that, in 2011, Avalara, a company in the business of selling tax 16 preparation software, expressed an interest in PTP’s products, and PTP and Avalara 17 discussed a potential business relationship. (Copmpl. ¶ 14.) The parties arranged to meet 18 in Avalara’s Washington office on August 2, 2011, to discuss Avalara’s “possible 19 acquisition” of PTP. (Id. ¶ 16, Ex. 2 (“Confidentiality Agreement”) at 2.) 20 On August 1, 2011, the parties executed a confidentiality agreement, which 21 required Avalara to keep confidential any information that PTP disclosed in connection 22 with the possible acquisition, including the details of PTP’s invention. (See id. ¶ 17; see ORDER - 4 1 also Confidentiality Agreement ¶¶ 1-2.) Avalara also promised that it would “not use 2 any Information other than in connection with the Transaction.” (Confidentiality 3 Agreement ¶ 1.) Among other terms, the confidentiality agreement required Avalara, if 4 Avalara “determined not to proceed” with the possible acquisition, to “promptly destroy 5 all copies” of the written information that PTP had supplied to Avalara in connection 6 with the possible acquisition, or to “promptly deliver” to PTP all copies of the same 7 written information. (Id. ¶ 4.) The confidentiality agreement stated that it governed “all 8 Information received during the period from the date of this agreement,” and that 9 Avalara’s “obligations of confidentiality . . . expire[d] three years from the date of this 10 [confidentiality] agreement.” (Id. ¶ 10.) 3 11 As a part of the discussions, Mr. Pavlou disclosed the underlying functionality of 12 Pavlou SalesTax PRO, including PTP’s trade secrets and algorithms for automatically 13 determining the appropriate taxing authorities and applicable tax rates. (Compl. ¶ 22.) 14 Mr. Pavlou also provided Avalara an unlocked copy of Pavlou SalesTaxPRO and 15 provided additional confidential materials in response to the follow-up questions about 16 PTP’s plans for geographic and product growth. (Id. ¶¶ 24-25.) In April 2012, Avalara 17 informed PTP that it was no longer interested in a pursuing a business relationship with 18 PTP. (See id. ¶ 26.) 19 // 20 3 21 22 The confidentiality agreement also recited that it is “governed by and construed in accordance with the laws of the [s]tate of California applicable to contracts between residents of that [s]tate and executed in and to be performed in that [s]tate, without giving effect to principles of conflicts of law.” (Id. ¶ 9.) ORDER - 5 1 PTP alleges that after the 2011 discussions, Avalara released a series of products 2 and revisions that enabled Avalara to support state and local tax return requirements of its 3 customers and enabled automatic determination and application of local taxing 4 authorities. (Id. ¶ 34.) PTP alleges that this was the functionality that Mr. Pavlou 5 disclosed to Avalara in 2011 under the protection of the confidentiality agreement. (Id.) 6 PTP alleges that it first learned of Avalara’s misappropriation in 2017, when a customer 7 informed Mr. Pavlou that Avalara’s products appeared to contain the same functionality 8 as PTP’s product. (Id. ¶ 43.) 9 III. 10 11 ANALYSIS The court now considers Avalara’s motion to dismiss each of PTP’s claims. A. 12 Legal Standards and Materials the Court Considers Federal Rule of Civil Procedure 12(b)(6) provides for dismissal for “failure to 13 state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). When 14 considering a motion to dismiss under Rule 12(b)(6), the court construes the complaint in 15 the light most favorable to the nonmoving party. Livid Holdings Ltd. v. Salomon Smith 16 Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). The court must accept all well-pleaded 17 facts as true and draw all reasonable inferences in favor of the plaintiff. Wyler Summit 18 P’ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir. 1998). The court, 19 however, is not required “to accept as true allegations that are merely conclusory, 20 unwarranted deductions of fact, or unreasonable inferences.” Sprewell v. Golden State 21 Warriors, 266 F.3d 979, 988 (9th Cir. 2001). 22 // ORDER - 6 1 “To survive a motion to dismiss, a complaint must contain sufficient factual 2 matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft 3 v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 4 570 (2007)); see also Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir. 5 2010). “A claim has facial plausibility when the plaintiff pleads factual content that 6 allows the court to draw the reasonable inference that the defendant is liable for the 7 misconduct alleged.” Iqbal, 556 U.S. at 677-78. “A pleading that offers ‘labels and 8 conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not 9 do.’. . . Nor does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further 10 factual enhancement.’” Id. at 678 (quoting Twombly, 550 U.S. at 555, 557). “[I]n many 11 cases it is possible and proper to determine patent eligibility under 35 U.S.C. § 101 on a 12 Rule 12(b)(6) motion.” FairWarning IP, LLC v. Iatric Sys., Inc., 839 F.3d 1089, 1097 13 (Fed. Cir. 2016) (quoting Genetic Techs. Ltd. v. Merial L.L.C., 818 F.3d 1369, 1373-74 14 (Fed. Cir. 2016). 15 Generally, a district court may not consider any material beyond the pleadings in 16 ruling on a Rule 12(b)(6) motion to dismiss. Lee v. City of L.A., 250 F.3d 668, 688 (9th 17 Cir. 2001) (citations omitted). The Ninth Circuit, however, carves out certain exceptions 18 to this rule. First, the court may consider documents appended or attached to the 19 complaint. United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). Second, a court 20 may consider “documents whose contents are alleged in the complaint and whose 21 authenticity no party questions, but which are not physically attached to the pleading[.]” 22 Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), overruled on other grounds by ORDER - 7 1 Galbraith v. Cty. of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). Third, a court may take 2 judicial notice of matters of public record. Lee, 250 F.3d at 688-89 (citations omitted); 3 see also Fed. R. Evid. 201. Accordingly, the court considers the confidentiality 4 agreement and the ’915 Patent, which are appended to the complaint. (See Compl. Exs. 5 2-3.) The court also takes judicial notice of the ’915 Patent 4 and the USPTO prosecution 6 history of the ’915 Patent. 5 7 B. 8 Patent Infringement Avalara moves to dismiss PTP’s claim of patent infringement on grounds of 9 invalidity. (MTD at 13-25.) Specifically, Avalara argues that the ’915 Patent is invalid 10 under 35 U.S.C. § 101 because it is directed to an abstract concept. (See id.) The parties 11 agree that the framework established by the Supreme Court in Alice, 573 U.S. at 216-18, 12 which follows the two-part test of Mayo, 566 U.S. at 75-82, controls the court’s analysis 13 // 14 // 15 // 16 17 4 See Miles, Inc. v. Scripps Clinic & Research Found., 951 F.2d 361 (9th Cir. 1991) (holding that district court did not abuse its discretion in judicially noticing a patent when ruling on a motion to dismiss nor did such judicial notice convert the motion to dismiss into a motion for summary judgment). 18 5 19 20 21 22 See Advanced Steel Recovery, LLC v. X-Body Equip., Inc., No. 216CV00148KJMEFB, 2016 WL 4192439, at *3 (E.D. Cal. Aug. 9, 2016) (ruling that a copy of a patent and the patent’s file history are matters of public record susceptible to judicial notice under Rule 201) (citing Coinstar, Inc. v. Coinbank Automated Sys., Inc., 998 F. Supp. 1109, 1114 (N.D. Cal. 1998) (granting the defendant’s request for judicial notice of two patents and documents from the file history of one of the patents)); see also Wi-LAN Inc. v. LG Elecs., Inc., 382 F. Supp. 3d 1012, 1028 (S.D. Cal. 2019) (ruling that taking judicial notice of records and reports of administrative bodies, including documents issued by the USPTO, such as a patent’s prosecution history, is appropriate on motion for judgment on the pleadings). ORDER - 8 1 for determining patent eligibility or invalidity under 35 U.S.C. § 101. (See MTD at 2 13-16; Resp. at 13-14.) The court agrees with the parties and applies Alice’s two-step 3 test. 4 In step one, the court must determine whether the patent claims at issue are 5 directed to one of the classes of patent-ineligible concepts, namely “laws of nature, 6 natural phenomena, and abstract ideas.” See Alice, 573 U.S. at 217. Avalara argues that 7 the ’915 Patent is directed to an abstract idea—namely, “calculating and filing business 8 tax returns.” (MTD at 16.) If the claims at issue are directed to an abstract idea, then the 9 court proceeds to step two of the Alice analysis, which analyzes whether the claims add 10 an “inventive concept” sufficient to “transform” the claim into “something more.” Alice, 11 573 U.S. at 217. The Supreme Court describes an “inventive concept” as “an element or 12 combination of elements that is ‘sufficient to ensure that the patent in practice amounts to 13 significantly more than a patent upon the [ineligible concept] itself.’” Id. at 217-18 14 (quoting Mayo, 566 U.S. at 73) (alteration in Alice). 15 The ’915 Patent has 22 claims, but only two independent claims—Claim 1 and 16 Claim 12. (See ’915 Patent at 133-34.) The claims are all directed to the idea of 17 calculating and filing business tax returns. (See id.) Specifically, the ’915 Patent states 18 that “[i]n accordance with the present invention, the system determines the appropriate 19 tax return forms that are required based on the zip code of the location of the business 20 and fills in the appropriate data into the appropriate places in those tax forms thus greatly 21 facilitating the preparation of tax returns . . . .” (Id. at 133.) As described below, having 22 carefully reviewed the claims at issue here, and having applied the two-step analysis ORDER - 9 1 required under Alice, the court concludes that the claims at issue amount to nothing more 2 than the addition of a computer into the ordinary process of preparing and filing a 3 business tax return. Specifically, the claims identify a taxable transaction, determine the 4 tax rates applicable to that transaction depending on the location (e.g., city, county, state, 5 etc.), calculate the tax, and prepare and file the returns with the appropriate taxing 6 authority. The only difference between the claims and their associated steps and how 7 humans have always paid taxes is the use of a computer. Accordingly, the court 8 concludes that the claims and their associated steps represent nothing more than an 9 abstract idea. 10 1. Step One and Claim 1 11 In step one, the court examines the patent’s “‘claimed advance’ to determine 12 whether the claims are directed to an abstract idea.” Ancora Techs., Inc. v. HTC Am., 13 Inc., 908 F.3d 1343, 1347 (Fed. Cir. 2018), as amended (Nov. 20, 2018) (quoting Finjan, 14 Inc. v. Blue Coat System, Inc., 879 F.3d 1299, 1303 (Fed. Cir. 2018)). “[C]omputational 15 methods which can be performed entirely in the human mind” are abstract and non- 16 patentable under 35 U.S.C. § 101 because they “are the types of methods that embody the 17 ‘basic tools of scientific and technological work’ that are free to all men and reserved 18 exclusively to none.” CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1373 19 (Fed. Cir. 2011) (quoting Gottschalk v. Benson, 409 U.S. 63, 67 (1972)). 20 In cases involving software, the step one inquiry “often turns on whether the 21 claims focus on the specific asserted improvement in computer capabilities or, instead, on 22 a process that qualifies as an ‘abstract idea’ for which computers are invoked merely as a ORDER - 10 1 tool.” Id. (internal quotation marks, alterations, and citations omitted). The Federal 2 Circuit often uses a “pencil and paper” test at step one to determine if a human could 3 perform the patented method with a pencil and paper instead of a computer. See 4 Intellectual Ventures I LLC v. Symantec Corp., 838 F.3d 1307, 1318 (Fed. Cir. 2016) 5 (ruling that the patent is abstract because it is directed to a method that humans can and 6 have executed using a pen and paper). Specifically, in determining whether the concept 7 described in the claims is abstract and therefore non-patentable, the court may consider 8 whether the claimed subject matter “can be performed in the human mind, or by a human 9 using pen and paper.” CyberSource Corp., 654 F.3d at 1371-72 (citing Parker v. Flook, 10 437 U.S. 584, 586 (1984) (applying pencil and paper test)); see also OpenTV, Inc. v. 11 Apple, Inc., No. 14-cv-01622, 2015 WL 1535328, at *4 (N.D. Cal. Apr. 6, 2015) (“The 12 pen-and-paper test . . . is an analytical tool to test whether the underlying concept 13 described in the claims is abstract, and thus not patent-eligible.”) (citing cases). 14 Evaluated in light of the foregoing Federal Circuit decisions, the court concludes 15 that Claim 1 is directed to an abstract idea. The steps recited in Claim 1 are directed to a 16 long-known, human-performed process: calculating and filing business tax returns. (See 17 ’915 Patent at 133-34.) Fundamentally, these steps boil-down to the annual process of 18 gathering tax-related information, such as a list of transactions and the locations in which 19 they occurred, determining the applicable city, county, state, or federal tax rate, 20 calculating the amount of tax based on the applicable rate, and filing a return or returns 21 with the appropriate taxing authority or authorities. (See id.) The only difference 22 between the steps recited in Claim 1 and how humans have always paid business taxes is ORDER - 11 1 that Claim 1 uses a “computer.” Courts have determined that similar patents that simply 2 apply a computer to a task long performed by humans either in their minds or using pen 3 and paper are ineligible. See, e.g., Voter Verified, Inc. v. Election Sys. & Software LLC, 4 887 F.3d 1376, 1385 (Fed. Cir. 2018) (invalidating claims that were “as a whole . . . 5 drawn to the concept of voting, verifying the vote, and submitting the vote for 6 tabulation,” noting that “[h]umans have performed this fundamental activity that forms 7 the basis of our democracy for hundreds of years.”); Alice, 573 U.S. at 224-26 8 (invalidating claims directed to intermediated settlement on a generic computer). 9 The ’915 Patent acknowledges that the steps it recites—calculating business taxes 10 and preparing and filing tax returns—have been accomplished by accountants and 11 business people for generations before 2006, which is the earliest claimed priority date 12 for the ’915 Patent. (See MTD at 18; see also ’915 Patent at 121 (1:7-9 (“This 13 application claims priority to and benefit of U.S. Provisional Patent Application No. 14 60/764,717, filed on Feb. 2, 2006.”)).) On its face, the ’915 Patent describes the normally 15 “cumbersome and time-consuming nature” of manually calculating, preparing, and filing 16 state and local sales and use tax returns. (See ’915 Patent at 121 (1:20-27 (“The present 17 invention relates to a system and method for preparing multi-level tax returns and more 18 particularly for a system for calculating and preparing all state and local sales and use tax 19 returns that are applicable for the locations where the taxpayer does business which 20 greatly facilitates preparation minimizes the loss of tax deductions that are known to be 21 overlooked because of the cumbersome and time-consuming nature of determining such 22 deductions.”); 1:31-60 (describing prior art systems and manual preparation); 2:5-8 (“The ORDER - 12 1 system is . . . configured to facilitate preparation of local municipal sales and use tax 2 returns which are normally cumbersome and time consuming to prepare.”)).) Indeed, in 3 its response, PTP acknowledges that “people . . . have been paying taxes for years.” 4 (Resp. at 18.) As the ’915 Patent implicitly acknowledges, Claim 1 simply further 5 automates with a generic computer what prior art had already accomplished: “Although 6 these systems facilitate sale and use tax preparation, they do not extend down to the level 7 of local municipal taxing authorities. . . . As such, accountants and business owners, in 8 addition to the systems provided above, must determine and calculate returns for such 9 local taxing authorities.” (’915 Patent at 121 (1:43-51).) Based on the court’s review of 10 Claim 1 and its related steps and Federal Circuit case authority, the court concludes that 11 the only purported advance of Claim 1—using a general-purpose computer to calculate 12 and file business taxes—is an abstract idea. 13 2. Step Two and Claim 1 14 The court also concludes that Claim 1 fails at step two. To “transform” ineligible 15 subject matter at step two, the claims must at a minimum apply conventional 16 technological elements in a novel and unconventional way and not merely use a computer 17 as a “tool” to implement an abstract idea. See, e.g., Amdocs (Israel) Ltd. v. Openet 18 Telecom, Inc., 841 F.3d 1288, 1300-01 (Fed. Cir. 2016) (“The solution requires arguably 19 generic components, including network devices and ‘gatherers’ which ‘gather’ 20 information. However, the claim’s enhancing limitation necessarily requires that these 21 generic components operate in an unconventional manner to achieve an improvement in 22 computer functionality.”); Bascom Glob. Internet Servs., Inc. v. AT&T Mobility LLC, 827 ORDER - 13 1 F.3d 1341, 1349-52 (Fed. Cir. 2016)). It is not sufficient to simply use “already available 2 computers, with their already available basic functions, . . . as tools in executing the 3 claimed process.” SAP Am., Inc. v. InvestPic, LLC, 898 F.3d 1161, 1169-70 (Fed. Cir. 4 2018). In short, “the mere recitation of a generic computer cannot transform a 5 patent-ineligible abstract idea into a patent-eligible invention.” Alice, 573 U.S. at 223. 6 Based on its review of Claim 1 and the foregoing Federal Circuit authority, the 7 court concludes that Claim 1 fails to transform the abstract concept of calculating and 8 filing business tax returns—activities that tax-preparers and business people have been 9 engaged in for decades or more—into a patentable idea. Claim 1 adds nothing more than 10 a generic “computer” and “computer network” to the abstract concept. (See ’915 Patent 11 at 133-34 (Claim 1 at 26:56-27:10).) Specifically, Claim 1 describes “[a] 12 computer-implemented method,” performing various steps “by a computer,” and 13 “transmitting over a computer network” the tax returns. (Id.) As the Supreme Court 14 stated in Alice: “[T]he relevant question is whether the claims . . . do more than simply 15 instruct the practitioner to implement the abstract idea . . . on a generic computer.” 573 16 U.S. at 225. Here, they do not. See, e.g., SAP Am. v. InvestPic, 898 F.3d at 1164-65, 17 1169-70 (ruling that generic databases and processors used to perform claims, which 18 recited methods for analyzing investment data, did not provide an inventive concept 19 under step two); BSG Tech LLC v. Buyseasons, Inc., 899 F.3d 1282, 1284-85 (Fed. Cir. 20 2018) (affirming the district court’s ruling that a generic database and “wide area 21 network” did not add a transformative inventive concept to claims directed toward 22 systems and methods of indexing information); Voter Verified, 887 F.3d at 1386 (ruling ORDER - 14 1 that the claimed “standard personal computer,” “visual display,” and keyboard” were 2 standard components insufficient to transform the abstract idea of “voting, verifying the 3 vote, and submitting the vote for tabulation,” activities human have long performed, into 4 an inventive concept); buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1355 (Fed. Cir. 5 2014) (“That a computer receives and sends the information over a network—with no 6 further specification—is not even arguably inventive.”). 7 3. Claim 12 8 The other independent claim—Claim 12—is no different. Claim 12 also fails both 9 Alice steps one and two. First, Claim 12 requires the same steps as Claim 1 but adds 10 elements such as a “database” and a “software application.” (’915 Patent at 134 (Claim 11 12 at 27:47-28:11).) For purposes of patent eligibility under 35 U.S.C. § 101, the two 12 independent claims are indistinguishable and reduce to the use of a computer or database 13 for calculating and filing business tax returns. (See id. at 133-134 (compare Claim 1 at 14 26:56-27:10 with Claim 12 at 27:47-28:11)); see also Alice, 573 U.S. at 226 (“[T]he 15 system claims are no different from the method claims in substance. The method claims 16 recite the abstract idea implemented on a generic computer; the system claims recite a 17 handful of generic computer components configured to implement the same idea.”). 18 Thus, for the same reasons that Claim 1 constitutes an abstract, non-patentable concept 19 under Alice step one, Claim 12 also constitutes an abstract concept. Further, there is 20 nothing transformative about Claim 12’s remaining elements, which include a generic 21 computer (or “computer-implemented system”), a database (including “at least one 22 database for storing tax information”), software (including “a software application stored ORDER - 15 1 in a non-transitory memory of a computer”), and a computer network (causing the 2 computer to “transmit over a computer network . . . tax return information”). (See ’915 3 Patent at 134 (Claim 12 at 27:47-28:11)); see also Mortg. Grader, Inc. v. first Choice 4 Loan Servs., Inc., 811 F.3d 1314, 1324-25 (Fed. Cir. 2016) (stating that generic 5 computer components such as an “interface,” “network,” and “database,” fail to satisfy 6 the inventive concept requirement); Intellectual Ventures I, 792 F.3d at 1368 (stating that 7 a “database” and “a communication medium” “are all generic computer elements”); In re 8 TLI Commc’ns LLC Patent Litig., 823 F.3d 607, 615 (Fed. Cir. 2016) (“Such vague, 9 functional descriptions of server components are insufficient to transform the abstract 10 idea into a patent-eligible invention.”). Thus, Claim 12 also fails to satisfy Alice step 11 two. 6 12 4. PTP’s Response 13 PTP offers three arguments in response Avalara’s motion—none of which 14 convince the court. First, PTP argues that dismissal of its patent-infringement claim 15 should be delayed because the two-part Alice test is “highly factual.” (See Resp. at 14- 16 17.) Next, PTP argues that the ’915 Patent passes the two-part Alice test. (See id. at 17 17-23.) Finally, PTP argues that the PTAB’s decision, reversing the initial patent 18 // 19 20 21 22 6 The dependent claims do not change the court’s calculus. They simply add more abstract ideas while adding nothing that improves how a computer functions. (See ’915 Patent at 134 (Claims 2-11 at 27:11-46; Claims 13-22 at 28:12-62).) Further, PTP does not assert that anything in the dependent claims separates them from the independent Claims 1 and 12 for eligibility purposes. (See Resp. at 23 (“Avalara does not dispute that if claims 1 and 12 are patent eligible, all dependent claims are as well.”).) ORDER - 16 1 examiner’s rejection of the ’915 Patent claims, is entitled to deference. (See id. at 17-18.) 2 The court addresses these arguments in turn. 3 4 a. Deciding Patent Ineligibility at the Pleadings Stage “Patent eligibility under 35 U.S.C. § 101 is a question of law that may contain 5 underlying issues of fact.” In re Marco Guldenaar Holding B.V., 911 F.3d 1157, 1159 6 (Fed. Cir. 2018). PTP argues that the court should delay any decision applying the 7 two-part Alice test because the inquiry is “highly factual,” and therefore, inappropriate at 8 the pleadings stage. (See Resp. at 14-16.) PTP is correct that factual disputes can render 9 dismissal inappropriate, but PTP has not identified such a dispute here. (See id.) “Like 10 other legal questions based on underlying facts, this question may be, and frequently has 11 been, resolved on a Rule 12(b)(6) or (c) motion where the undisputed facts, considered 12 under the standards required by that Rule, require a holding of ineligibility under the 13 substantive standards of law.” SAP Am., Inc., 898 F.3d at 1166; see Data Engine Techs. 14 LLC v. Google LLC, 906 F.3d 999, 1007 (Fed. Cir. 2018). 15 Nevertheless, PTP relies on two recent Federal Circuit decisions that it argues 16 supports its contention that dismissal is premature: Berkheimer v. HP Inc., 881 F.3d 17 1360, 1362 (Fed. Cir. 2018), and Aatrix Software, Inc. v. Green Shades Software, Inc., 18 882 F.3d 1121, 1123 (Fed. Cir. 2018). (Resp. at 15-16.) Neither case is applicable here. 19 In Berkheimer, assertions in the patent itself were enough to create an issue of fact. See 20 881 F.3d at 1369. Indeed, the specification described “an inventive feature” that 21 improved “computer functionality.” See id. Likewise, in Aatrix, the Federal Circuit 22 vacated a district court’s dismissal and reversed the denial of leave to amend because the ORDER - 17 1 proposed second amended complaint contained “numerous” and “specific” factual 2 allegations directed to problems in computer functionality that were “solved by the Aatrix 3 patented inventions.” 882 F.3d at 1127. The Federal Circuit held that because the 4 allegations, taken as true, “suggest[ed] that the claimed invention [was] directed to an 5 improvement in the computer technology itself,” the district court erred in finding, on a 6 motion to dismiss, that the claimed invention was conventional and routine. Id. 7 Here, unlike either Berkheimer or Aatrix, neither the ’915 Patent nor PTP’s 8 complaint alleges any improvement in computer technology; nor has PTP cited to any 9 such allegation. (See generally Compl.; ’915 Patent; Resp.) Rather, the ’915 Patent 10 describes improvements in the speed and accuracy with which humans can calculate and 11 file business tax returns by automating that practice through the use of a generic 12 computer or computer components performing these routine functions. As discussed 13 above, this renders the ’915 Patent abstract and invalid and PTP’s claim for patent 14 infringement subject to Rule 12(b)(6) dismissal. 15 b. PTP Fails to Establish that the Claims Survive Alice’s Two-Part Test 16 In asserting that the ’915 Patent is directed patent-eligible subject matter under 17 Alice step one, PTP ignores Avalara’s arguments concerning the Federal Circuit’s “pencil 18 and paper” test (see generally Resp. at 17-19), and instead offers Data Engine 19 Technologies, 906 F.3d 999, to support its argument (Resp. at 19). Data Engine 20 Technologies, however, is inapposite. The claims that survived judgment on the 21 pleadings in Data Engine related to an improvement in computer functionality— 22 specifically, an improvement in how the computer displayed spreadsheets. 906 F.3d at ORDER - 18 1 1002-03, 1008. Indeed, the Data Engine Technologies claims did not merely recite the 2 idea of navigating through spreadsheets, they recited a specific interface and 3 implementation that improved the process and how humans interact with the computer. 4 Id. at 1008-09. The court held that the remaining claims, which related to the 5 identification and storage of generic spreadsheets, were abstract under Alice step one 6 because they were not directed to a similar technological improvement. See id. at 1012. 7 As discussed above, PTP’s claims fall within the second category. See supra § III.B.1, 3. 8 Indeed, PTP’s only citations to the ’915 Patent refer to the general background for the 9 invention and a summary of the system—neither of which refer to the workings of the 10 computer or any improvement thereof. (See Resp. at 18 (citing ’915 Patent at 121-22 11 (describing prior art at 1:41-60; 7 providing a detailed description at 3:7-16 8)).) Although 12 13 7 14 Of all of the systems disclosed above, only U.S. statutory invention registration H1,830 and the TaxWare system relate to use tax preparation. Although these systems facilitate sale and use tax preparation, they do not extend down to the level of local municipal taxing authorities. As such, the systems described above do not provide a complete solution for a business entity operating within a location subject to one or more local taxing authorities. As such, accountants and business owners in addition to the systems provided above, must determine and calculate returns for such taxing authorities. Moreover, any deductions provided as a result of paying local use and sales taxes in such local municipal taxing authorities are often not included in other tax returns because of the cumbersome nature and thus expense of determining such deductions. Thus, there is a need for a system for calculating state and use taxes which also supports preparation of tax returns for local taxing authorities that are applicable to the locations where the taxpayer conducts business and takes into account tax deductions for such local use taxes. 15 16 17 18 19 20 21 (’915 Patent at 121 (describing prior art at 1:41-60).) 8 22 This portion of the description of prior art states: This portion of the detailed description states: ORDER - 19 1 PTP argues that ’915 Patent “increase[s] efficiency and decrease[s] mistakes in state and 2 local sales and use tax preparation” (id.), unlike Data Engine or Berkhiemer, PTP points 3 to nothing in the ’915 Patent directed to the improvement of the computer itself. (See 4 generally id. at 17-23). 5 PTP’s arguments on Alice step two also do not withstand scrutiny. First, PTP 6 argues that the “[c]omplaint and attached patent describe an inventive concept, which 7 statements must be credited as true under Rule 12(b)(6).” (Resp. at 19.) In this context, 8 however, the court is required to focus on the ’915 Patent’s description and claims, rather 9 than conclusory recitations about novelty in the complaint. See Secured Mail Sols. LLC 10 v. Universal Wilde, Inc., 873 F.3d 905, 913 (Fed. Cir. 2017) (“In ruling on a 12(b)(6) 11 motion, a court need not ‘accept as true allegations that contradict matters properly 12 subject to judicial notice or by exhibit,’ such as the claims and the patent specification.”) 13 (quoting Sprewell, 266 F.3d at 988). As discussed above, PTP’s complaint and response 14 do not identify anything in the ’915 Patent claims that calls for a special-purpose 15 computer or that improves the computer itself. 9 (See generally Compl., Resp.) 16 17 18 19 20 21 22 The present invention relates to a comprehensive system for receiving sales and client data and calculating and preparing various state and local sales and use taxes and returns. The system allows the user to view and print any of the returns supported by the system and optionally file the return with the proper taxing authority. In accordance with the present invention, the system is a complete solution for state and local sales and use taxes including those by municipal and local taxing authorities. (’915 Patent at 122 (providing a detailed description at 3:7-16).) 9 PTP again mistakenly relies on the Aatrix decision. (See Resp. at 20.) Although the Aatrix court recognizes that “[p]lausible factual allegations may preclude dismissing a case under § 101,” the court also recognizes that is not so where, like here, the record—in this case the ORDER - 20 1 Accordingly, the court concludes that the claims fail the Alice test and are unpatentable. 2 As a result, PTP’s claim for patent infringement is subject to dismissal. 3 c. The PTAB Decision 4 Finally, PTP urges the court to defer to the PTAB’s decision reversing the 5 examiner’s initial determination that the ’915 Patent’s claims were not directed at 6 patent-eligible subject matter. (Resp. at 23-24.) First, the PTAB decision is not binding 7 on the court. See Tinnus Enters., LLC v. Telebrands Corp., 846 F.3d 1190, 1202 n.7 8 (Fed. Cir. 2017) (ruling that the PTAB’s decision that patent claims are indefinite was not 9 binding); see also Rembrandt Wireless Techs., LP v. Samsung Elecs. Co. Ltd., 853 F.3d 10 1370, 1377 (Fed. Cir. 2017) (ruling that the PTAB’s claim construction ruling was not 11 binding). Although district courts “generally give deference to PTAB inter partes review 12 decisions based on the PTAB’s specialized patent knowledge and expertise,” TMC Fuel 13 Injection Sys., LLC v. Ford Motor Co.., No. CV 12-4971, 2016 WL 7155793, at *3 (E.D. 14 Pa. Apr. 20, 2016), aff’d sub nom. TMC Fuel Injection Sys., LLC v. Ford Motor Co., 682 15 F. App’x 895 (Fed. Cir. 2017), 10 such deference is not warranted here. The PTAB’s 16 17 18 19 20 21 patent itself—refutes those allegations as a matter of law. 882 F.3d at 1125. Here, Aatrix simply underscores that the ’915 Patent claims are devoid of any “improvements in the functioning and operation of the computer” itself. 882 F.3d at 1127-28. Instead, according to PTP, its inventive concept was increasing the “efficiencies” in filing taxes, which was a “cumbersome” and “time-consuming” process by adding a computer used as a tool. (Resp. at 20; see also Compl. ¶¶ 11-13 (describing “cumbersome and time-consuming” process of filing business tax returns, Mr. Pavlou’s conception of a “technically innovative method and system for calculating, preparing and filing state and local sales and use tax returns,” and the development the “Pavlou SalesTax PRO” computer program)). Thus, the court concludes that PTP fails to raise any factual issues such as those that prevented dismissal in Aatrix. 10 22 See also Nat’l Oilwell DHT, L.P. v. Amega W. Servs., LLC, No. 2-14-1020, 2019 WL 1787250, at *8 (E.D. Tex. Apr. 24, 2019) (“Courts in this circuit . . . often give the PTAB ORDER - 21 1 decision was limited. (See Kurtenbach Decl. ¶ 6, Ex. 5 (“PTAB Decision”).) The PTAB 2 did not—as PTP asserts—“consider whether the patent claims were eligible patent 3 subject matter under 35 U.S.C. § 101” or “f[ind] the claims to be patent eligible.” (See 4 Resp. at 23; see also PTAB Decision at 6.) Instead, the PTAB found the examiner’s 5 summary and citation-free determination that the claims were abstract to be inadequate. 6 (PTAB Decision at 6.) On this basis, the PTAB declined to “sustain the [e]xaminer’s 7 rejection of [the] claims.” (Id.) The court agrees with Avalara that, in this instance, the 8 PTAB’s decision does not warrant deference concerning the larger question at issue: 9 whether the ’915 Patent claims run afoul of Federal Circuit precedent interpreting the 10 two-part Alice test. In answering that question, the court has evaluated the claims and 11 other materials from the ’915 Patent in depth, applied the relevant case authority, and 12 determined that the claims cannot pass the Alice two-part test. See supra § III.B.1-3. The 13 PTAB Board’s circumscribed decision does not undermine that result. 14 5. Summary 15 The court concludes that the ’915 Patent claims fail the two-part Alice test, are 16 directed to an abstract concept, and therefore are not patentable. Accordingly, the court 17 grants Avalara’s motion to dismiss PTP’s claim for patent infringement. (See Compl. 18 ¶¶ 55-60.) The court dismisses this claim without leave to amend and with prejudice. 11 19 20 21 22 decision ‘reasoned deference.’”) (quoting Ilife Techs., Inc. v. Nintendo of Am., Inc., No. 3:13-CV-04987-M, 2017 WL 525708, at *4 (N.D. Tex. Feb. 9, 2017)). 11 Dismissal without leave to amend is appropriate only when the court is satisfied that the deficiencies in the complaint could not possibly be cured by amendment. Jackson v. Carey, 353 F.3d 750, 758 (9th Cir. 2003) (citing Chang v. Chen, 80 F.3d 1293, 1296 (9th Cir. 1996)); ORDER - 22 1 C. Statutes of Limitations 2 Avalara argues that the court should dismiss several of PTP’s claims as 3 time-barred. (MTD at 27-29, 34-37.) Specifically, Avalara argues that PTP’s claims 4 under the federal Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1836(b), and the 5 Wisconsin Uniform Trade Secrets Act (“WUTSA”), Wis. Stat. § 134.90, as well as PTP’s 6 breach of contract claim, are barred by the applicable statutes of limitations and subject to 7 dismissal on that basis. (MTD at 27-29, 34-37; see also Compl. ¶¶ 61-71, 78-81.) 8 9 Three-year statutes of limitations govern both the DTSA and the WUTSA. See 18 U.S.C. § 1836(d) (“A civil action under subsection (b) may not commence more than 3 10 years after the date on which the misappropriation with respect to which the action would 11 related is discovered or by the exercise of reasonable diligence should have been 12 discovered. For purposes of this subsection, a continuing misappropriation constitutes a 13 single claim of misappropriation.”); Wis. Stat. § 893.51(2) (“An action under § 134.90 14 [the WUTSA] shall be commenced within 3 years after the misappropriation of a trade 15 secret is discovered or should have been discovered by the exercise of reasonable 16 diligence. A continuing misappropriation constitutes a single claim.”). The parties 17 dispute whether California’s four-year statute of limitations, see Cal. Civ. Proc. Code 18 § 337, or Wisconsin’s six-year statute of limitations, see Wis. Stat. § 893.43(1), should 19 // 20 21 22 Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). Here, no amendment can revive the eligibility of the ’915 Patent. See Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1041 (9th Cir. 2011) (explaining that dismissal without leave to amend is proper when amendment would be futile). Accordingly, the court dismisses PTP’s patent infringement claim without leave to amend. ORDER - 23 1 apply to PTP’s breach of contract claim. (Compare MTD at 26-28 with Resp. at 27.) 2 The court need not decide the choice of law issue at this juncture because, as discussed 3 below, irrespective of which statute of limitations applies, PTP’s breach of contract claim 4 is not subject to dismissal on statute of limitations grounds. The same is true concerning 5 PTP’s federal and state trade secrets claims. 6 Federal Rule of Civil Procedure 9(f) states that “[a]n allegation of time or place is 7 material when testing the sufficiency of a pleading.” Fed. R. Civ. P. 9(f). PTP filed its 8 complaint on October 22, 2018. (See Compl.) PTP alleges that it “first learned of 9 Avalara’s misappropriation of PTP’s trade secrets, improper use of confidential 10 information, and breach of confidentiality in 2017, when an investor alerted Mr. Pavlou 11 that Avalara’s products contained the very functionality that Mr. Pavlou had disclosed 12 under the Confidentiality Agreement to Avalara in 2011.” (Compl. ¶ 43.) Despite this 13 allegation, Avalara argues that the court should dismiss PTP’s claims federal and state 14 claims for trade secrets misappropriation and breach of contract because “PTP’s 15 Complaint does not allege . . . that PTP could not have discovered the supposed 16 misappropriation and breach of contract by engaging in a reasonably diligent inquiry as 17 required.” (Reply (Dkt. # 19) at 9.) 18 Avalara misunderstands the import of Rule 9(f). “Rule 9(f) does not require 19 specific allegations of time, but merely states that such allegations are material if they are 20 made.” First Horizon Home Loans v. Centerpiece Mortg., LLC, No. 21 CV-11-0995-PHX-JAT, 2011 WL 6178447, at *2 (D. Ariz. Dec. 9, 2011) (citing Suckow 22 Borax Mines Consol. v. Borax Consol., 185 F.2d 196, 204 (9th Cir. 1951)); see also ORDER - 24 1 Kuenzell v. United States, 20 F.R.D. 96, 99 (N.D. Cal. 1957) (“Rule 9(f) does not have 2 the effect of requiring allegations of time and place, but merely operates to make such 3 allegations, if made, material for the purposes of testing the sufficiency of the pleading as 4 against, for example, a motion to dismiss.”). 5 The Ninth Circuit clarifies that when a motion to dismiss is based on the running 6 of the statute of limitations, it can “be granted ‘only if the assertions of the complaint, 7 read with the required liberality, would not permit the plaintiff to prove that the statute 8 was tolled.’” Conerly v. Westinghouse Elec. Corp., 623 F.2d 117, 119 (9th Cir. 1980) 9 (quoting Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980)). Here, PTP 10 expressly alleges that it “first learned” of Avalara’s misappropriation and breach in 2017. 11 (Compl. ¶ 43.) Nothing in the complaint forecloses PTP from demonstrating that the 12 applicable statutes of limitations should be tolled because PTP could not have discovered 13 these acts earlier than 2017 through reasonably diligent inquiry. 12 (See generally 14 Compl.) Indeed, “[g]enerally, the applicability of equitable tolling depends on matters 15 outside the pleadings, so it is rarely appropriate to grant a Rule 12(b)(6) motion to 16 dismiss . . . if equitable tolling is at issue.” Huynh v. Chase Manhattan Bank, 465 F.3d 17 992, 1003–04 (9th Cir. 2006) (footnote added). “A Rule 12(b)(6) challenge ‘which tests 18 12 19 20 21 22 At oral argument, counsel for Avalara argued that the court could rely on a statement in PTP’s response to support dismissal based on the statute of limitations. Specifically, in its responsive memorandum, PTP stated that “Mr. Pavlou investigated and verified that Avalara’s then-current products back to 2012 contained such functionality.” (Resp. at 6.) But on a rule 12(b)(6) motion, the court does not ordinarily consider matters outside the pleadings. See Lee, 250 F.3d at 688. In cases where the statute of limitations defense cannot be resolved on a motion to dismiss, the defendant is of course free to raise the issue again, if appropriate, on a motion for summary judgment. See Baldain v. Am. Home Mortg. Servicing, Inc., No. CIV S-09-0931 LKK/GGH, 2010 WL 56143, at *5 (E.D. Cal. Jan. 5, 2010). ORDER - 25 1 the sufficiency of the complaint, generally cannot reach the merits of an affirmative 2 defense, such as the defense that the plaintiff’s claim is timebarred,’ except for the 3 ‘relatively rare circumstances where facts sufficient to rule on an affirmative defense are 4 alleged in the complaint.’” Anderson v. Teck Metals, Ltd., No. CV-13-420-LRS, 2015 5 WL 59100, at *2 (E.D. Wash. Jan. 5, 2015) (quoting Goodman v. Praxair, Inc., 494 F.3d 6 458, 464 (4th Cir.2007)). Thus, the court cannot dismiss the complaint unless “[t]he facts 7 necessary to determine the applicability of the discovery rule . . . clearly appear on the 8 face of the complaint.” Id. Here, they do not. Accordingly, the court denies Avalara’s 9 motion to dismiss PTP’s state and federal trade secrets misappropriation claims and 10 PTP’s breach of contract claim as time-barred. 13 11 // 12 13 14 15 16 17 18 19 20 21 22 13 Avalara also argues that, pursuant to paragraph 10 of the confidentiality agreement, any confidentiality Avalara owed to PTP under the confidentiality agreement regarding PTP’s information expired on August 1, 2014—three years after the August 1, 2011, date of the agreement. (See MTD at 29, 28; Reply at 16; see also Confidentiality Agreement ¶ 10.) As a result, Avalara argues that any confidentiality obligations it owed to PTP expired long before the applicable limitations periods. (See MTD at 29, 28; Reply at 16.) PTP counters that, under paragraph 4 of the agreement, Avalara also breached its obligation to promptly destroy or return all written information if it decided not to proceed with the transaction, and the three-year expiration period of paragraph 10 is not applicable to this requirement. (Resp. at 28.) Avalara replies that PTP does not allege that Avalara ever provided a notice of destruction to PTP, and the lack of such a notice should have alerted PTP to a potential breach. (Reply at 16.) However, whether and when Avalara provided such a document destruction notice to PTP and whether that notice or lack thereof should have reasonably alerted PTP concerning its claims are highly factual issues that the court is unwilling to resolve in the context of a motion to dismiss. Further, although the agreement appears to terminate any confidentiality obligations after three years, the court notes that paragraph 1(ii) also describes Avalara’s obligations to “not use” the information at issue “other than in connection with the [t]ransaction.” (See Confidentiality Agreement at 2.) Arguably, this obligation to “not use” the information is distinct from Avalara’s confidentiality obligation and, if so, it arguably did not expire on August 1, 2014. The court does not make any rulings in the context of Avalara’s motion to dismiss concerning how the confidentiality agreement should be interpreted. It only references these provisions to emphasize how factually intensive these statute of limitations issues are, and therefore, that it would be inappropriate to resolve them in the context of this motion to dismiss. ORDER - 26 1 2 D. WUTSA Avalara also moves to dismiss PTP’s claim under the WUTSA on grounds that 3 PTP’s claim is beyond the territorial reach of the WUSTA. (MTD at 31-33.) According 4 to Avalara, because PTP’s complaint does not allege that the accused conduct “had 5 ‘significant adverse effects’ on the citizens of Wisconsin,” the presumption against the 6 extraterritorial application of statutes requires dismissal of PTP’s state misappropriation 7 of trade secrets claim under the uniform act. (See id. at 24 (quoting Emergency One, Inc. 8 v. Waterous Co., 23 F. Supp. 2d 959, 972 (E.D. Wis. 1998)).) The court disagrees. 9 The federal system is one of notice pleading. Galbraith v. Cty. of Santa Clara, 10 307 F.3d 1119, 1126 (2002). Rule 8’s liberal notice pleading standard “requires that the 11 allegations in the complaint ‘give the defendant fair notice of what the plaintiff’s claim is 12 and the grounds upon which it rests.’” Pac. Coast Fed’n of Fishermen’s Assocs. v. 13 Glaser, --- F.3d ----, 2019 WL 4230097, at *6 (9th Cir. Sept. 6, 2019) (quoting 14 Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002), overruled in part on other 15 grounds by Twombly, 550 U.S. 544). However, “[a] party need not plead specific legal 16 theories in the complaint, so long as the other side receives notice as to what is at issue in 17 the case.” Id. (quoting Am. Timber & Trading Co. v. First Nat’l Bank of Or., 690 F.2d 18 781, 786 (9th Cir. 1982)). Further, the federal pleading rules “do not countenance 19 dismissal of a complaint for imperfect statement of the legal theory supporting the claim 20 asserted.” Johnson v. City of Shelby, Miss., 574 U.S. 10, 135 S. Ct. 346, 346 (2014). 21 Avalara’s extraterritoriality argument founders on these fundamental principles of 22 notice pleading. Avalara does not argue that PTP has failed to allege facts supporting the ORDER - 27 1 elements of a claim for trade secret misappropriation under the WUTSA or any other 2 state’s uniform trade secrets act. (See generally MTD.) Instead, Avalara seizes on PTP’s 3 citation of the WUTSA and argues that this is fatal to PTP’s claim. (See id. at 31-33.) 4 Avalara misunderstands the inquiry on a Rule 12(b)(6) motion. The question is not 5 whether PTP has identified the correct legal theory or statute for obtaining relief on the 6 facts alleged. Indeed, as noted above, PTP need not plead a legal theory at all. See 7 Glaser, --- F.3d ----, 2019 WL 4230097, at *6. Rather, the question is whether PTP has 8 provided Avalara fair notice and stated a claim with “sufficient factual matter” to 9 demonstrate “that it is plausible on its face.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 10 550 U.S. at 570). With respect to PTP’s misappropriation claim, Avalara has not asserted 11 otherwise. (See generally MTD.) 12 Avalara’s extraterritoriality claim is really a choice-of-law argument in disguise. 13 This case was originally filed in federal district court in the Eastern District of Wisconsin. 14 (See generally Compl.) Upon Avalara’s motion under 28 U.S.C. § 1404(a), the 15 Wisconsin federal district court subsequently transferred the case to federal district court 16 in the Western District of Washington. (See 4/30/19 Order (Dkt. # 25).) In addition, the 17 parties’ confidentiality agreement contains a California choice of law provision. 18 (Confidentiality Agreement ¶ 9); see supra n.4. All three states have adopted versions of 19 the Uniform Trade Secrets Act. See RCW ch. 19.108; Wis. Stat. 134.90; Cal. Civ. Code 20 § 3426.1 et seq. Thus, Avalara is correct that, at this stage in the litigation, it is unclear 21 whether Wisconsin law applies to PTP’s state uniform trade secrets act claim. Because 22 choice-of-law “is fact-intensive inquiry that ‘does not lend itself readily to disposition on ORDER - 28 1 a [Rule] 12(b)(6) motion,’” Kaspers v. Howmedica Osteonics Corp., No. C15-0053JLR, 2 2015 WL 12085853, at *11 (W.D. Wash. Oct. 23, 2015) (quoting FutureSelect Portfolio 3 Mgmt., Inc. v. Tremont Grp. Holdings, Inc., 331 P.3d 29, 36 n.12 (Wash. 2014)), the 4 court finds it inappropriate to address that issue at this juncture. Accordingly, the court 5 denies Avalara’s motion to dismiss PTP’s claim under the Uniform Trade Secrets Act. 6 E. 7 Unfair Competition PTP asserts a claim for “unfair competition” based on a statute that is colloquially 8 known as Wisconsin’s Little Fair Trade Commission Act, Wis. Stat. § 100.20. (See 9 Compl. ¶ 73 (“Wisconsin state law provides a private right of action for unfair 10 competition.” (citing Wis. Stat. §100.20))); see also Reusch v. Roob, 610 N.W. 2d 168, 11 176 (Wis. 2000). Avalara moves to dismiss this claim arguing that the provision provides 12 no private right of action for PTP’s claim. (MTD at 25-26.) The court agrees. 13 14 The court first examines the statutory framework at issue. PTP asserts that it brings its unfair competition claim under Section 100.20(1t), which provides: 15 It is an unfair trade practice for a person to provide any service which the person has the ability to withhold that facilitates or promotes an unfair method of competition in business, an unfair trade practice in business, or any other activity which is a violation of this chapter. 16 17 Wis. Stat. § 100.20 (1t). Under Section 100.20(2)(a), the Department of Agriculture, 18 Trade and Consumer Protection (“the Department”) may issue “general orders 19 prescribing methods of competition in business or trade practices in business which are 20 determined by the department to be fair.” Id. § 100.20(2)(a). Under Section 100.20(3), 21 // 22 ORDER - 29 1 the Department may also issue “special orders” against an individual enjoining or 2 requiring certain methods of competition. See id. § 100.20(3). 3 4 5 6 7 Section 100.20(5), which delineates the specific parameters of a private right of action under the chapter, provides as follows: Any person suffering pecuniary loss because of a violation by any other person of s. 100.70 or any order issued under this section may sue for damages therefor in any court of competent jurisdiction and shall recover twice the amount of such pecuniary loss, together with costs, including a reasonable attorney fee. 8 Id. § 100.20(5). Violations of Section 100.70 relate to the misuse of titles reserved for 9 persons and/or businesses involved with professions in health or hazardous materials 10 occupations. See id. § 100.70. Thus, under the plain language of the statute the only 11 circumstances in which a plaintiff may bring a private cause of action pursuant to Section 12 100.20 relate to circumstances either involving (1) a violation of Section 100.70 or (2) a 13 violation of a general or special order issued pursuant to Sections 100.20(2)(a) or 14 100.20(3). Neither of the circumstances required under Section 100.20(5) to bring a 15 private cause of action is alleged in PTP’s complaint. (See generally Compl.) In 16 Emergency One, Inc. v. Waterous Co., Inc., 23 F. Supp. 2d 959, 971-72 (E.D. Wis. 1998), 17 the district court for the Eastern District of Wisconsin engaged in a thorough statutory 18 analysis of the preceding version of the statute at issue and reached a similar conclusion 19 concerning the circumscribed nature of the private right of action under Section 20 100.20(5). See also In re Aftermarket Filters Antitrust Litig., No. 08 C 4883, 2009 WL 21 3754041, at *10 (N.D. Ill. Nov. 5, 2009) (relying on Emergency One and reaching the 22 same conclusion). ORDER - 30 1 PTP nevertheless asserts that it may bring a private cause of action based on a 2 Wisconsin Court of Appeals decision. (See Resp. at 31-32 (citing Reusch, 610 N.W. 2d 3 at 176-77).) In Reusch, the Wisconsin Court of Appeals concluded without analysis of 4 statutory language or framework that “a private remedy” was available for any person 5 “sustaining a pecuniary loss resulting from unfair competitive or trade practices.” 6 Reusch, 610 N.W. 2d at 177. PTP asserts that in the absence of a decision from the 7 Wisconsin Supreme Court on this issue, the court is bound by the decision of the inferior 8 state court in Reusch. (See Resp. at 32.) The court disagrees. 9 “When interpreting state law, federal courts are bound by decisions of the state’s 10 highest court. ‘In the absence of such a decision, a federal court must predict how the 11 highest state court would decide the issue using intermediate appellate court decisions, 12 decisions from other jurisdictions, statutes, treatises, and restatements as guidance.’” 13 Ariz. Elec. Power Coop., Inc. v. Berkeley, 59 F.3d 988, 991 (9th Cir. 1995) (quoting In re 14 Kirkland, 915 F.2d 1236, 1239 (9th Cir. 1990)). In the absence of convincing evidence 15 that the state supreme court would decide differently, “a federal court is obligated to 16 follow the decisions of the state’s intermediate courts.” Kirkland, 915 F.2d at 1239. 17 Here, the court finds convincing evidence sufficient to warrant a departure from 18 Reusch. First, unlike the federal district court in Emergency One, the Reusch court does 19 not address any of the general statutory framework or the particular limitations contained 20 in Section 100.20(5). See Reusch, 610 N.W. 2d at 176-77. Instead, the Reusch court 21 arrives at its conclusion that a general “private remedy” is “available to any person 22 sustaining a pecuniary loss resulting from unfair competitive or trade practices” in a ORDER - 31 1 conclusory manner. Compare Reusch, 610 N.W. 2d at 177, with Emergency One, 23 F. 2 Supp. 2d at 971-72. Moreover, the Wisconsin legislature’s 2017 amendment of Section 3 100.20(5) to add a right of action for the violation of another particular statutory 4 provision (Section 100.70) evinces the Wisconsin legislature’s intent not to provide a 5 general private right of action. 14 The amendment to include a cause of action for a 6 violation of Section 100.70 would be unnecessary if, as the Reusch court concluded, the 7 statue already provided for a general private right of action. See Reusch, 610 N.W. 2d at 8 177. Accordingly, the court declines to follow Reusch, grants PTP’s motion on this 9 claim, and dismisses PTP’s claim for unfair competition under Section 100.20 of 10 Wisconsin law (see Compl. ¶¶ 72-77) without leave to amend and with prejudice. 15 11 IV. CONCLUSION 12 Based on the foregoing analysis, the court GRANTS in part and DENIES in part 13 Avalara’s motion to dismiss (Dkt. ## 8, 9). Specifically, the court GRANTS Avalara’s 14 motion to dismiss PTP’s claims for patent infringement and for unfair competition under 15 // 16 17 18 14 The pre-November 28, 2017, version of Section 100.20(5), stated as follows: Any person suffering pecuniary loss because of a violation by any other person of any order issued under this section may sue for damages therefor in any court of competent jurisdiction and shall recover twice the amount of such pecuniary loss, together with costs, including a reasonable attorney’s fee. 19 Wis. Stat. Ann. § 100.20(5) (1997). 20 21 22 15 Because there is no general private right of action under Section 100.20(5), the court concludes that any amendment of PTP’s claim under Section 100.20(1t) would be futile. Accordingly, the court grants dismissal of this claim without leave to amend. See Cervantes, 656 F.3d at 1041 (explaining that dismissal without leave to amend is proper when amendment would be futile). ORDER - 32 1 Wis. Stat. § 100.20 (see Compl. ¶¶ 55-60, 72-77) and DENIES the remainder of 2 Alavara’s motion. The court DISMISSES WITH PREJUDICE and without leave to 3 amend PTP’s claims for patent infringement and unfair competition. 4 Dated this 27th day of September, 2019. 5 6 A 7 JAMES L. ROBART United States District Judge 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 ORDER - 33
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