Murj, Inc. v. Rhythm Management Group, Inc.

Background

Murj alleged that it created proprietary software, called the Murj Platform, that helps medical providers monitor and manage data from implantable cardiac devices. Rhythm provides clinical diagnostic services involving that type of patient data.

The parties entered into two license agreements, sales orders, and related terms and conditions. Those agreements authorized Rhythm to use the Murj Platform for specified internal business purposes. They also included a confidentiality clause covering the software and other defined confidential information, as well as a clause prohibiting reverse engineering and certain other uses of the platform.

Murj alleged that Rhythm later developed a competing product, the Rhythm Platform. According to Murj, the competing platform had similar functions, user-interface elements, wording, layouts, designs, phrases, alert signals, category names, and other features. Murj asserted claims for breach of contract, specific performance, and declaratory and injunctive relief.

Rule 12(b)(6) standard

Rhythm moved to dismiss all claims under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not adequately state a legal claim. The court was required to accept well-pleaded factual allegations as true and determine whether they plausibly supported relief.

Breach-of-contract claim

Under California law, a breach-of-contract claim requires allegations showing a contract, the plaintiff’s performance or an excuse for nonperformance, the defendant’s breach, and resulting damages. Rhythm did not dispute Murj’s allegations about the contract or Murj’s performance. It challenged the allegations of breach and damages.

Confidentiality clause

The court held that Murj adequately pleaded a breach of the confidentiality clause. The agreements defined confidential information to include the software application, which Murj identified as the Murj Platform. Murj alleged that Rhythm had access to the platform as a customer, that the Rhythm Platform had visual and functional similarities resulting from copying, and that Rhythm offered the competing platform to medical providers or clinics.

The court concluded that these allegations gave Rhythm fair notice of the boundaries of the contract claim and permitted a reasonable inference that Rhythm had disclosed Murj’s confidential information through the competing platform.

Reverse engineering clause

The court held that Murj did not adequately plead a breach of the reverse engineering clause. The complaint alleged that Rhythm had access to the Murj Platform and that the two platforms had visual and functional similarities. But, in the court’s view, those allegations suggested development of a competing product without sufficiently explaining how Rhythm reverse engineered the Murj Platform. More detailed allegations were required to make that theory plausible.

Damages

The court also held that Murj failed to adequately plead damages. Murj alleged that it suffered damages in an amount to be determined at trial and that Rhythm’s conduct caused those damages, but it did not explain how the alleged breach caused the damages or identify a specific amount lost. The court therefore found that Murj had not pleaded a cognizable theory of damages or adequately supported its allegation that the amount in controversy exceeded $75,000.

Because damages are an element of a California breach-of-contract claim, the court dismissed that claim with leave to amend.

Specific performance and declaratory or injunctive relief

The court explained that specific performance is a remedy for breach of contract, not an independent cause of action under California law. It likewise stated that declaratory and injunctive relief are remedies rather than independent claims. However, because Murj had adequately alleged a confidentiality-based breach theory apart from the damages problem, and because the court granted leave to amend, it found dismissal of these other claims premature and unnecessary at that time.

Disposition

The court granted Rhythm’s motion to dismiss with leave to amend. It ordered Murj to file an amended complaint by December 8, 2021.