Stemcell Technologies Canada Inc. v. StemExpress, LLC

Background

Stemcell Technologies Canada Inc. and StemExpress, LLC disputed their supply agreement and the use of confidential information. The claims addressed trademark rights, alleged interference with customer contracts, breach of contract, breach of the implied duty of good faith and fair dealing, unfair competition, and alleged misappropriation of trade secrets. Both sides moved for summary judgment, which asks whether the evidence requires judgment for one side without a trial.

StemExpress’s motion

- Claim 3, Lanham Act Section 38: The court granted summary judgment for StemExpress. Stemcell did not provide evidence that Dyer intended to defraud the Patent and Trademark Office or identify anything false in the trademark application. The court said evidence that Dyer later received better information did not show an intent to defraud when she filed the application. - Claim 4, declaratory relief concerning trademark rights: The court dismissed the claim as moot because StemExpress disclaimed any trademark rights in “leukopak,” including under state law. - Claim 5, intentional interference with contracts: The court granted summary judgment for StemExpress. Stemcell relied on an executive’s statement that she was informed and believed StemExpress had approached at least three Stemcell customers and that the customers then stopped, paused, or failed to begin purchasing from Stemcell. The court found the statement inadmissible hearsay as presented, and Stemcell did not explain how it could be offered in admissible form. The court also found that the record did not identify the customers or the contract terms, leaving a jury to speculate about whether StemExpress intended to interfere with the contracts. - Claims 6 and 9, breach of contract and breach of the implied covenant: Stemcell advanced three theories: breach of confidentiality, failure to use commercially reasonable efforts to supply products on time, and improper splitting of leukopak collections. The court granted summary judgment for StemExpress on the first two theories because the claimed damages would be consequential damages barred by Section 13.1 of the Supply Agreement. The court allowed the improper-splitting theory to proceed. The contract amendment was ambiguous about whether a “full collection” leukopak was defined by a specified cell count or merely had to meet that count to be satisfactory. A jury could find that StemExpress breached the agreement by effectively selling large half collections at full-collection prices. - The court rejected StemExpress’s statute-of-limitations argument as a basis for summary judgment because the argument was not presented clearly enough. - Claims 7 and 8, unfair competition: The court denied summary judgment to the extent these claims relied on the surviving breach-of-contract claim.

Motion for relief concerning discovery

StemExpress had been ordered to produce customer lists so Stemcell could identify common customers. The court granted StemExpress’s motion for relief as to Interrogatories 10 and 11. The court denied the motion as to Interrogatory 4 because the trade-secrets claim was going to trial.

Stemcell’s motion

The court denied Stemcell’s motion for summary judgment in its entirety on StemExpress’s claims.

For Claims 1 and 2, alleging breach of contract and breach of the implied covenant, the court found evidence that Stemcell had access to StemExpress’s facilities, processes, and documentation and apparently set up Canventa as a competitor. A reasonable jury could conclude that Stemcell used StemExpress’s confidential information to develop products more quickly or produce higher-quality products, thereby breaching the contract or the implied covenant.

The court rejected Stemcell’s argument that the Uniform Trade Secrets Act displaced the contract claims. The court explained that the statute preserves contractual remedies and that the cited cases concerned displacement of tort claims, not agreements protecting confidential information.

For Claim 3, misappropriation of trade secrets, the court denied summary judgment. It held that the required specificity for identifying trade secrets depends on the facts and that StemExpress’s evidence identified records and operating procedures that could embody trade secrets. A jury could find that StemExpress had not identified its trade secrets adequately, but it could also find that StemExpress possessed trade secrets in its batch records and operating procedures.

The court also concluded that the Supply Agreement’s bar on consequential damages did not require summary judgment for Stemcell. The court gave two reasons: California law may not allow a contract to exempt a party from responsibility for its own fraud or violation of law, and StemExpress had identified possible theories of direct damages. Those theories involved either the value of the bargain StemExpress allegedly lost or unjust-enrichment damages based on Stemcell’s alleged use of the information.

Disposition

StemExpress’s motion for summary judgment on Stemcell’s claims was granted in part and denied in part. Stemcell’s motion for summary judgment on StemExpress’s claims was denied in its entirety. The court also granted in part and denied in part StemExpress’s motion for relief concerning the specified interrogatories. Vince Chhabria signed the order as United States District Judge.