Photonic Technologies Co., Ltd. v. Eliyan Corporation

Background

Plaintiff PhotonIC Technologies Co., Ltd. ("PhotonIC") and Defendant Eliyan Corporation ("Eliyan") are semiconductor companies that entered into a development agreement effective December 1, 2025 ("Development Agreement"). The Development Agreement governed the development, ownership, delivery, and licensing of semiconductor intellectual property for test chips. PhotonIC agreed to provide Eliyan with certain technology meeting set specifications, and Eliyan was required to pay within thirty days of receiving an invoice if deliverables were accepted.

PhotonIC alleged it provided confidential and proprietary information, including its schematic database, by December 22, 2025. Eliyan subsequently rejected the deliverables as nonconforming and sought to unwind the agreement. On February 14, 2026, PhotonIC sent a formal demand letter seeking payment of $1,100,000. Eliyan responded reasserting its right to reject deliverables and reserving the right to seek rescission. After further correspondence, Eliyan did not pay.

Eliyan filed suit against PhotonIC in this court on June 10, 2026, asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud and intentional misrepresentation, and declaratory relief (the "Eliyan Action," Case No. 5:26-cv-5629-BLF). PhotonIC filed its own suit against Eliyan on June 25, 2026, asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, declaratory relief, unjust enrichment, fraud, and misappropriation of trade secrets under the Defend Trade Secrets Act ("DTSA") (the "PhotonIC Action").

Magistrate Judge Susan Van Keulen issued Orders to Show Cause in all three actions (including a sealed action that was later closed) noting that the claims appeared to arise from the same December 2025 Development Agreement, and asking whether PhotonIC's claims were compulsory counterclaims that should be asserted in the Eliyan Action. The parties agreed on consolidation but disagreed on which party should be plaintiff. Eliyan then moved to dismiss the PhotonIC Action.

Judicial Notice

Both parties requested judicial notice of court documents from the related actions. The court granted both requests, noting that public court records are proper subjects of judicial notice, though they cannot be noticed for the truth of matters asserted in them.

Legal Standard

The court applied the standard for dismissal under Federal Rule of Civil Procedure 12(b)(6) — failure to state a claim — which requires taking all factual allegations as true and construing them in favor of the non-moving party. A complaint must contain sufficient factual matter to state a plausible claim for relief.

Analysis

Which Action Has Priority Under Rule 13

Federal Rule of Civil Procedure 13(a) requires a defendant, in its responsive pleading, to assert any claim it has against the opposing party that arises out of the same transaction or occurrence as the opposing party's claim. These are called "compulsory counterclaims." Federal courts will not permit a separate action to proceed on claims that should have been brought as compulsory counterclaims in an earlier action.

PhotonIC argued that the Eliyan Action was an "anticipatory suit" — one filed preemptively to gain a tactical advantage — and that under the Ninth Circuit's "first-to-file" rule, the court should decline to give the Eliyan Action priority. The court rejected this argument on two grounds. First, the "first-to-file" rule is a doctrine of federal comity that permits a district court to decline jurisdiction when a complaint has already been filed in another district — it does not apply when both actions are in the same court. Second, even if it applied, the anticipatory-suit exception is animated by concerns about forum-shopping, which are not implicated when both suits are filed in the same district. The court also declined to apply the exception as a matter of discretion, noting it was too early in the litigation to evaluate the anticipatory nature of Eliyan's claims, especially since Eliyan was the first party to allege a breach.

Whether PhotonIC's Claims Are Compulsory Counterclaims

PhotonIC conceded that its first through fifth claims (breach of contract, breach of implied covenant, declaratory relief, unjust enrichment, and fraud) were compulsory counterclaims in the Eliyan Action. The only disputed question was whether the sixth claim — for misappropriation of trade secrets under the DTSA — was also compulsory.

The Ninth Circuit applies a "logical relationship" test: a compulsory counterclaim is one that arises from the "same aggregate set of operative facts" as the opposing party's claim. The court found that PhotonIC's DTSA claim alleged that Eliyan misappropriated PhotonIC's schematic database through use that exceeded the scope of, and continued after termination of, the license granted by the Development Agreement. Because Eliyan's alleged post-termination retention of the database could only be unlawful if the Development Agreement was first found to have been terminated by breach or repudiation, the DTSA claim necessarily required interpretation of the same Development Agreement at issue in the other claims. The court concluded all six of PhotonIC's claims were compulsory counterclaims that must be pursued in the Eliyan Action.

Appropriate Remedy

PhotoNIC argued for consolidation under Rule 42(a) rather than dismissal, while simultaneously asking to be designated as plaintiff with Eliyan's claims proceeding as counterclaims. The court rejected this as self-contradictory — PhotonIC could not invoke Rule 42 to sidestep Rule 13 for its own benefit and then reassert Rule 13 against Eliyan. The court found dismissal of the PhotonIC Action appropriate because PhotonIC would need to re-file its claims as counterclaims in the Eliyan Action regardless of which procedural route was used.

Leave to Amend

The court denied leave to amend, finding amendment futile because PhotonIC's claims must proceed as compulsory counterclaims in the Eliyan Action and cannot be salvaged by amendment in this separate lawsuit.

Order

The court granted Eliyan's motion to dismiss without leave to amend in this action, but without prejudice to PhotonIC reasserting its claims as counterclaims against Eliyan in Case No. 5:26-cv-5629-BLF (the Eliyan Action). PhotonIC was ordered to file its claims as counterclaims in the Eliyan Action. The Orders to Show Cause in both actions were discharged, and the clerk was directed to close the PhotonIC Action.