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Quintel Technology, Ltd. v. Huawei Technologies USA, Inc.

United States District Court, E.D. Texas, Sherman Division

January 17, 2018

QUINTEL TECHNOLOGY, LTD. Plaintiff,
v.
HUAWEI TECHNOLOGIES USA, INC., ET AL. Defendants.

          Magistrate Judge, Craven

          ORDER ADOPTING REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

          AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE

         Came on for consideration the report of the United States Magistrate Judge in this action, this matter having been referred to the United States Magistrate Judge pursuant to 28 U.S.C. § 636. On December 13, 2017, the Magistrate Judge issued a Report and Recommendation, recommending Defendants' Motion for Summary Judgment on Statute of Limitations, Preemption, and Preclusion (Dkt. #141) be granted in part and denied in part. Specifically, the Magistrate Judge recommended Quintel's breach of contract claim based on failure to destroy documents and unfair competition by misappropriation claim be dismissed with prejudice. Otherwise, the Magistrate Judge recommended Defendants' motion be denied.

         Quintel Technology Ltd. (“Quintel”) filed objections to the parts of the Report and Recommendation which recommend dismissal of Quintel's breach of contract claim against Defendants Huawei Technologies USA, Inc., FutureWei Technologies, Inc., and Huawei Technologies Co., Ltd.'s (collectively, “Huawei”) based on Huawei's failure to destroy documents and Quintel's unfair competition by misappropriation claim. Defendants filed a response to Quintel's objections.

         Defendants also filed objections to parts of the Report and Recommendation. According to Defendants, Quintel's claims for misappropriation of trade secrets and unjust enrichment are time-barred, and Quintel's claims for promissory estoppel and unjust enrichment are precluded by the existence of a valid contract. Quintel filed a response to Defendants' objections.

         The Court conducts a de novo review of the Magistrate Judge's findings and conclusions.

         BACKGROUND

         On May 15, 2015, Quintel filed the above case against Huawei and Zhengxiang Ma (together with Huawei, “Defendants”). In its First Amended Complaint (“FAC”) filed December 1, 2015, Quintel asserted the following claims against Defendants: (1) breach of contract; (2) misappropriation of trade secrets; (3) unfair competition by misappropriation; (4) common law fraud and fraud in the inducement; (5) promissory estoppel; (6) unjust enrichment; (7) accounting; and (8) correction of patent inventorship-35 U.S.C. § 256.[1]

         Defendants moved for summary judgment dismissing Quintel's claims for misappropriation of trade secrets (Count II), unfair competition by misappropriation (Count III), promissory estoppel (Count V), and unjust enrichment (Count VI) in their entirety and one of the bases for Quintel's claim for breach of contract (Count 1). Defendants' motion raises the following issues: statute of limitations, preclusion, and copyright preemption. Specifically, Defendants argue the statute of limitations on Quintel's misappropriation of trade secrets, unfair competition by misappropriation, and unjust enrichment claims have expired, as well as Quintel's breach of contract claim based on alleged failure to destroy materials. Additionally, Defendants assert Quintel's quasi-contractual promissory estoppel and unjust enrichment claims are precluded by Quintel's breach of contract claim. Finally, Defendants assert Quintel's claim of unfair competition by misappropriation is preempted by copyright law.

         REPORT AND RECOMMENDATION

         On December 13, 2017, the Magistrate Judge issued a Report and Recommendation, recommending Defendants' motion be granted as to Quintel's breach of contract claim based on failure to destroy documents and unfair competition by misappropriation claim. Otherwise, the Magistrate Judge recommended Defendants' motion be denied.

         With regard to whether Quintel's claims for misappropriation, unfair competition by misappropriation, and unjust enrichment are barred by limitations, the Magistrate Judge could not conclude as a matter of law that the discovery rule should not apply and Quintel's claims should be barred by the statutes of limitations. The Magistrate Judge recognized circumstances may exist where the issuance of a patent may suffice to place a party on constructive notice of its injury. However, relying on Versata Software, Inc. v. Internet Brands, Inc., 2012 WL 588790, at *1 (E.D. Tex. Feb. 22, 2012) (J. Bryson, sitting by designation), the Magistrate Judge held there are “countervailing circumstances” in this case to consider, such as the parties' non-disclosure agreement (“NDA”) and the summary judgment evidence that Defendants reaffirmed their good-faith dealing with Quintel (Dkt. #187 at p. 29). The Magistrate Judge agreed with Quintel that whether the publication of the non-provisional patent application provided constructive notice is a question of fact to be decided by the jury, especially given that the parties were operating under an NDA. (Dkt. #18 7 at p. 31) (citing Raytheon Co. v. Indigo Sys. Corp., 688 F.3d 1311, 1317-18 (Fed. Cir.2012) (reversing grant of summary judgment on statute of limitations grounds where the district court resolved factual questions against the plaintiff in concluding the plaintiff “should have acquired and disassembled the [defendant's] camera before March 2004”)).

         According to the Magistrate Judge, the summary judgment evidence also reveals a material fact issue regarding Quintel's assertion of fraudulent concealment. Finding a fact issue as to when Quintel could have discovered the alleged fraud through the exercise of reasonable diligence, the Magistrate Judge denied Defendants' motion for summary judgment regarding limitations as to Quintel's claims for misappropriation, unfair competition by misappropriation, and unjust enrichment. However, the Magistrate Judge recommended Quintel's breach of contract claim for failure to destroy documents be dismissed as time-barred. The Magistrate Judge specifically noted this recommendation does not affect the other bases of Quintel's breach of contract claim, including that Defendants breached the NDA confidentiality obligations (Dkt. #187 at p. 36).

         Regarding preclusion of Quintel's quasi-contractual claims of promissory estoppel and unjust enrichment, the Magistrate Judge recommended this part of Defendants' motion be denied at that time, specifically leaving the decision to the undersigned as to the proper timing of dismissal of Quintel's quasi-contractual claims (Dkt. #187 at p. 40). Finally, the Magistrate Judge found Quintel's unfair competition by misappropriation claim preempted by federal copyright law and recommended that part of Defendants' motion for summary judgment be granted (Dkt. #187 at p. 46).

         OBJECTIONS

         Defendants filed objections to the Report and Recommendation. Defendants object to the Magistrate Judge's finding that Defendants are not entitled to summary judgment on statute of limitations grounds for the misappropriation, unfair competition by misappropriation, and unjust enrichment claims. Specifically, Defendants assert that neither the discovery rule nor the doctrine of fraudulent concealment can be applied to toll the running of the statute of limitations after May 5, 2011, and these claims are time-barred. Defendants also object to the Magistrate Judge's recommendation that Quintel's claims for promissory estoppel and unjust enrichment be denied at this time.

         Quintel filed objections to the parts of the Report and Recommendation which recommend dismissal of Quintel's breach of contract claim based on Huawei's failure to destroy documents and Quintel's unfair competition by misappropriation claim. Regarding the first issue, Quintel states Section 5 of the NDA required Huawei to destroy any Quintel confidential documents upon written request. According to Quintel, the 2011 email chain relied upon by the Magistrate Judge is ambiguous as to whether Huawei would comply with Quintel's written request, and Quintel should have an opportunity to present its evidence to the jury as to when it should have known that Huawei breached Section 5 of the NDA. Regarding the second issue, Quintel asserts the Magistrate Judge erred in recommending dismissal of its unfair competition by misappropriation claim.

         APPLICABLE LAW

         Summary judgment is appropriate when the movant is able to demonstrate that the pleadings, affidavits, and other evidence available to the court establish there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The movant bears the initial burden to demonstrate the absence of any material fact. Celotex v. Catrett, 477 U.S. 317, 332 (1986). If the movant meets that burden, the nonmovant must point to admissible evidence demonstrating there is a genuine issue for trial. Fed.R.Civ.P. 56(e). In assessing the proof, the court views the evidence in the light most favorable to the nonmovant. Matshusita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986).

         DE NOVO REVIEW

         Defendants' Objections

         Whether Quintel's claims for misappropriation, unfair competition, and unjust enrichment are barred by limitations

         The Court first considers whether the Magistrate Judge erred in finding Defendants are not entitled to summary judgment on statute of limitations grounds regarding Quintel's claims for misappropriation, unfair competition by misappropriation, and unjust enrichment. In Texas, the statute of limitations is three years for misappropriation of trade secrets and unfair competition. Tex. Civ. Prac. & Rem. Code § 16.010. The statute of limitations for unjust enrichment claims is two years. Target Strike, Inc. v. Marston & Marston, Inc., 524 F. App'x 939, 944 n.7 (5th Cir. 2013).

         Defendants' patent applications were filed on May 5, 2011, and Quintel filed this lawsuit on May 5, 2015, four years to the date of filing. Defendants contend publication of the patent application disclosed reliance on the provisional application, which included a Quintel slide as part of the submission, and put Quintel, a sophisticated patent applicant, on constructive notice of its claims as of May 5, 2011. Quintel argues the discovery rule and fraudulent concealment toll the statutes of limitations. As noted above, Defendants assert that neither the discovery rule nor the doctrine of fraudulent concealment can be applied to toll the running of the statute of limitations after May 5, 2011, and these claims are time-barred.

         Under Texas law, “the party asserting a limitations defense bears the burden of proof to not only establish the applicability of the limitations statute, but also prove when the opponent's cause of action accrued in order to demonstrate the bar of limitations.” Hernandez v. Frazier, No. CV SA-l1-CV-9-DAE, 2014 WL 1390887, at *3 (W.D. Tex. Apr. 9, 2014) (citing Intermedics v. Grady, 683 S.W.2d 842, 845 (Tex. App. 1984)). “‘Generally, a cause of action accrues, and the statute of limitations begins to run, when facts come into existence that authorize a claimant to seek a judicial remedy.'” Dell Computer Corp. v. Rodriguez, 390 F.3d 377, 389 (5th Cir. 2004) (quoting Willis v. Donnelly, 118 S.W.3d 10, 28 (Tex. App.-Hous. [14 Dist.] 2003, no pet.) (citing Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 514 (Tex. 1998))). Stated differently, a claim accrues and the limitations period begins to run “when a wrongful act causes some legal injury, even if the fact of injury is not discovered until later, and even if all resulting damages have not yet occurred.” S.V. v. R.V., 933 S.W.2d 1, 3 (Tex.1996).

         However, under the Texas discovery rule, the limitations period does not begin to run “until the plaintiff knew or, exercising reasonable diligence, should have known of the facts giving rise to a cause of action.” Target Strike, 524 F. App'x at 944 (emphasis in original) (quoting HECI Exploration Co. v. Neel, 982 S.W.2d 881, 886 (Tex.1998)). “The Texas Supreme Court has sought to limit the application of the discovery rule and, to that end, has stated that it should only apply where the nature of the injury is inherently undiscoverable and where the injury itself is objectively verifiable.[2] Target Strike, 524 F. App'x at 944 (citing HECI, 982 S.W.2d at 886).

         Under Texas law, fraudulent concealment is an equitable doctrine that tolls the statute of limitations. Seatrax, Inc. v. Sonbeck Int'l, Inc., 200 F.3d 358, 366 (5th Cir. 2000). “Where a defendant is under a duty to make disclosure but fraudulently conceals the existence of a cause of action from the party to whom it belongs, the defendant is estopped from relying on the statute of limitations until the party learns of the right of action or should have learned thereof through the exercise of reasonable diligence.” Id. (quoting Borderlon v. Peck, 661 S.W.2d 907, 908 (Tex. 1983)). Mere concealment is insufficient to establish fraudulent concealment. See In the Matterof Placid Oil Co.,932 F.2d 394, 399 (5th Cir. 1991). Thus, there must have been a duty, on Defendants' part, to disclose their alleged acts of misappropriation. The party asserting the fraudulent concealment defense to the statute of limitations bears the burden of showing that the ...


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