Beijing Neu Cloud Oriental System Technology Co. v. International Business…

Background

Neu Cloud brought one claim under the federal Defend Trade Secrets Act, alleging that the defendants misappropriated confidential customer information after the parties entered into an Original Equipment Manufacturer Agreement. The agreement allowed Neu Cloud to buy equipment from IBM for integration with Neu Cloud’s products. Neu Cloud alleged that it sent IBM China bid requests containing confidential customer information and that IBM later formed INSPUR, a separate joint venture that competed with Neu Cloud.

The defendants were IBM, IBM World Trade Corporation, and IBM China Company Limited. IBM World Trade Corporation was described as IBM’s wholly owned subsidiary. IBM China was described as a wholly owned subsidiary organized under Chinese law and headquartered in China. The defendants moved to dismiss for lack of subject-matter jurisdiction, lack of personal jurisdiction, and failure to state a claim.

Personal jurisdiction

The court granted the motion to dismiss IBM China for lack of personal jurisdiction. Neu Cloud argued that IBM China was IBM’s alter ego, meaning that IBM China was so controlled by IBM that the court could treat the two entities as one for jurisdictional purposes. The court held that allegations that IBM China was wholly owned and controlled by IBM were insufficient. The complaint did not allege that IBM China was merely a shell for IBM.

Subject-matter jurisdiction

The court denied the motion to dismiss for lack of subject-matter jurisdiction. The Defend Trade Secrets Act requires the alleged trade secrets to be related to interstate or foreign commerce. The court held that Neu Cloud had adequately alleged this requirement at the pleading stage because it claimed that the information was included in bid requests for specialized products, including IBM Power Systems products, that moved between the United States and China.

Failure to state a claim

The court granted the motion to dismiss for failure to state a claim as to all defendants. First, it found the claim time-barred under the OEM Agreement. The agreement imposed a two-year limit on claims arising from or related to the agreement. Neu Cloud’s complaint stated that it discovered the alleged misappropriation no earlier than September 26, 2018, but did not file suit until September 10, 2021. Because the complaint alleged that the information was provided under and as part of the OEM Agreement, the court held that the alleged misappropriation was related to that agreement and subject to its two-year limit.

Second, the court held that Neu Cloud had not adequately pleaded the existence of a trade secret. The complaint referred generally to “customer information” and repeated the statutory requirements without providing enough detail about what the information contained, how the customer lists were developed, or how their value came from being secret.

Third, the court held that Neu Cloud had not adequately pleaded misappropriation by IBM World Trade Corporation. The complaint contained no allegations specific to that entity and alleged only that all IBM defendants benefited from INSPUR’s use of the information.

Fourth, the court held that the claim against IBM China lacked the territorial connection required by the Defend Trade Secrets Act. The complaint did not identify an act in furtherance of the alleged misappropriation that occurred in the United States. The court rejected Neu Cloud’s argument that general Internet use in emails between the companies was enough, noting that the complaint did not suggest that a discrete act in furtherance of the alleged misappropriation occurred in the United States.

Disposition

The court granted the motion to dismiss for lack of personal jurisdiction as to IBM China, denied the motion to dismiss for lack of subject-matter jurisdiction, and granted the motion to dismiss for failure to state a claim as to all defendants. Neu Cloud was allowed to file an amended complaint by April 11, 2022, if it could cure the defects identified in the opinion.