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Spark Connected, LLC v. Semtech Corporation

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

September 10, 2019

SPARK CONNECTED, LLC, KEN MOORE, EMANUEL STINGU, And RUWANGA DASSANAYAKE, Plaintiffs and Counter-Defendants,
v.
SEMTECH CORPORATION, Defendant and Counter-Plaintiff.

          MEMORANDUM OPINION AND ORDER

          KIMBERLY C. PRIES'/JOHNSON UNITED STATES MAGISTRATE JUDGE.

         Before the Court is Defendant and Counter-Plaintiff Semtech Corporation's (“Semtech”) Motion for Preliminary Injunction (the “Motion”) (Dkt. 14), to which Plaintiffs and Counter-Defendants Spark Connected, LLC (“Spark”), Ken Moore (“Moore”), Emanuel Stingu (“Stingu”), and Ruwanga Dassanayake (“Dassanayake”) (collectively, “Counter-Defendants”) filed a response (Dkt. 34), and Semtech filed a reply (Dkt. 92). In accordance with the provisions of 28 U.S.C. § 636(c), the parties consented to proceed before the undersigned “for the limited purpose of deciding Semtech's Motion for Preliminary Injunction.” See Dkt. 162.

         For the reasons explained below, Semtech's Motion (Dkt. 14) is DENIED.

         I. BACKGROUND

         A. FACTUAL BACKGROUND

         1. Moore, Stingu, and Dassanayake's Employment at Semtech

         Triune Systems, L.L.C. (“Triune”) was a startup company operating in the wireless power technology industry. See Dkt. 101 at 1. Moore held an ownership interest in Triune and was employed as Vice President of Marketing and Applications. See Dkt. 77 at 2; Dkt. 97 at 3; Dkt. 101 at 2. Stingu was employed at Triune in a programming and engineering role. See Id. On March 4, 2015, Semtech acquired Triune through a Purchase Agreement. See Dkt. 97 at 3; Dkt. 49-05. Under the terms of the Purchase Agreement, Moore received a portion of the sale proceeds. Id. Additionally, the Purchase Agreement included a provision that “owners” and “seller parties” would not compete with Semtech for five-years, beginning on the closing date, March 4, 2015. See Dkt. 49-05. After the acquisition, Moore and Stingu continued working on the development of wireless power technology for Semtech. See Dkt. 97 at 3; Dkt. 101 at 2. In August 2015, Semtech hired Dassanayake as a Senior Product Marketing Specialist, working on Semtech's wireless power projects. See Dkt. 79 at 2; Dkt. 99 at 2. As a condition of employment with Semtech, Moore, Stingu, and Dassanayake each signed an Employee Confidentiality Agreement and Proprietary Rights Assignment (together, the “Confidentiality Agreements”), in which they agreed not to use or disclose Semtech's “Confidential Information.”[1] See Dkt. 97 at 3; Dkt. 49-06; Dkt. 49-07; Dkt. 49-08.

         In May 2017, Semtech terminated Moore's employment. See Dkt. 97 at 4. Upon termination, Moore signed a Separation and General Release Agreement (the “Moore Separation Agreement”), in which Moore received severance and, in exchange, agreed to, inter alia, “continue to comply with the terms and conditions of employee confidentiality, trade secret, inventions assignment, or similar agreements. . . .” See Dkt. 49-11.

         On May 29, 2019, without giving prior notice to his supervisors, Stingu took time off work, allegedly to marry his long-time partner. Dkt. 101 at 3-4. Stingu asserts entitlement to the time off, in part, because he had accrued twenty-two vacation days. See Dkt. 101 at 3-4. On May 30, 2017, Semtech contacted Stingu to inquire when Stingu planned to return, see Dkt. 94-6; Dkt. 94-7, to which Stingu stated he was uncertain. See Dkt. 94-2. On June 12, 2017, before Stingu returned to work, Stingu's employment with Semtech was terminated. Dkt. 101 at 6.[2] After Stingu's termination, Stingu returned several devices containing Semtech's information, including a laptop, hard drive, flash drive, and smartphone. See Dkt. 101 at 7. Stingu did not, however, give Semtech his personal solid-state drive, which Stingu had used in his Semtech laptop. See Id. Counsel for Stingu and Semtech “engaged in months of back-and-forth communications about a protocol for inspecting” the solid-state drive without reaching an agreement. See id. Thereafter, Stingu refused to provide the drive for Semtech's inspection. See Id. Due to the dispute over the solid-state drive, no post-termination agreements were reached between Semtech and Stingu. See Id. After Stingu's termination, Stingu contacted Moore regarding employment. See Dkt. 101 at 8.

         Throughout 2017, other Semtech employees who worked in Semtech's wireless power department were terminated or resigned, and over time, the department shrank. See Dkt. 208. For example, after Moore and Stingu were terminated, Semtech did not hire employees to replace them. See, for example, Dkt. 99 at 3. Dassanayake, on behalf of Semtech, cancelled a customer contract to provide wireless power technology because Semtech's current staff could not complete Semtech's obligations under the contract. See id.; see also Dkt. 99 at 6-9 (Dassanayake alleges he was informed Semtech was exiting the wireless power business).

         Between September 28, 2017, and January 2018, Dassanayake sent emails containing Semtech customer contact information and PowerPoint presentations to his personal Hotmail account. See Dkt. 99 at 6; Dkt. 14 at 15-16; Dkt. 50-1; Dkt. 50-3; Dkt. 95-12. On January 23, 2018, Semtech terminated Dassanayake. See Dkt. 99 at 8. After Dassanayake's termination, he entered into a Separation and General Release Agreement (the “Dassanayake Separation Agreement”) in which he accepted severance in exchange for, inter alia, ongoing confidentiality obligations. See Dkt. 51-06.

         2. Formation of Spark

         In May 2017, Moore began working with a business partner to develop a connected smartwatch company under the business name of “Spark.” See Dkt. 97 at 7-8. Moore also explored working with Infineon Technologies AG (“Infineon”), a wireless charging company. See id. After Stingu's termination, Stingu began working with Moore at Spark. See Dkt. 101 at 8. Ultimately, Moore and Stingu decided not to enter the connected smartwatch industry; thereafter, Spark's owners and employees split the company. See Dkt. 97 at 11-12. Moore and Stingu retained the “Spark” company name and began working on wireless power in earnest, while the remaining partners exited the business. See id. Spark officially formed as an LLC in September 2017. See Dkt. 97 at 11.

         Prior to Dassanayake's termination from Semtech, Dassanayake's name was listed as a member of Spark on Spark's LLC registration, as well as certain marketing materials.[3] See Dkt. 97 at 11; Dkt. 99 at 5. Although the parties dispute when Dassanayake began working with Spark, Dassanayake admits to joining Spark after his termination from Semtech. See Dkt. 99 at 1.

         Semtech learned of Spark's work in wireless power as early as November or December of 2017, from a Semtech customer who was working with Spark. See Dkt. 97 at 14; Dkt. 95-8 at 11. Around the same time, Semtech warned another wireless power company about the “legal risk” in working with Spark. See id.

         In March 2018, approximately nine (9) months prior to requesting an injunction in this case, Spark and Semtech both attended the Applied Power Electronic Conference (“APEC”), at which Moore demonstrated wireless power prototypes. See Dkt. 97 at 13; see also Dkt. 184 at 57. Moore's demonstration was witnessed by Semtech employees. See id.; see also Dkt. 184 at 130 (photos taken by Semtech employees of the demonstration led Semtech employees to conclude Spark had a fully functional product at APEC). Moore testified that Spark's wireless power prototypes at APEC were still in the testing phase and were not yet ready for use by customers. See also Dkt. 97 at 13 (“At the time of this demonstration, the only code for wireless charging that Stingu had written at Spark was very rudimentary.”). Semtech alleges that Moore “used the exact same demonstration as Semtech” to demonstrate Spark's wireless charging products at APEC. See Dkt. 16 at 11; Dkt. 14 at 18.

         Following APEC, on May 31, 2018, Semtech internally discussed warning a key Semtech customer “not to engage with Spark Connected” because of “IP infringement.” See Dkt. 95-19; Dkt. 95-20. Thereafter, on August 8, 2018, Spark sent a cease-and-desist letter to Semtech, demanding Semtech cease from making false statements regarding Spark and/or Moore. See Dkt. 94-6; Dkt. 97 at 14-15. On September 4, 2018, Semtech sent a cease-and-desist letter to Spark, alleging that Moore was prohibited from working in the wireless power industry. See Dkt. 95-21.

         B. PROCEDURAL HISTORY

         Counter-Defendants filed suit on October 17, 2018, “seeking a declaratory judgment that [Spark, Moore, Stingu, and Dassanayake] have not breached any agreements with [Semtech] and/or misappropriated trade secrets belonging to [Semtech].” See Dkt. 1. Semtech filed an Answer, which included affirmative defenses and counterclaims. See Dkt. 7. Semtech subsequently filed an Amended Answer, Affirmative Defenses, and Counterclaims (Dkt. 131). Semtech asserts counterclaims for: (1) violation of Federal Defend Trade Secrets Act, 18 U.S.C. § 1835, against all Counter-Defendants; (2) violation of the Texas Uniform Trade Secrets Act, Tex. Civ. Prac. & Rem. Code § 134A, against all Counter-Defendants; (3) breach of contract against Moore, pursuant to the Purchase Agreement; (4) breach of contract against Dassanayake, pursuant to “at least two separate agreements with clauses relating to the Trade Secrets and confidential information;” (5) breach of contract against Stingu, pursuant to an agreement signed “[d]uring the course of his employment with Semtech . . . relating to the Trade Secrets and confidential information;” and (6) breach of fiduciary duty under Texas common law against Dassanayake and Stingu.[4] See Dkt. 131.

         On November 21, 2018, Semtech filed the instant Motion for Preliminary Injunction. See Dkt. 14. Semtech asserts the Motion for Preliminary Injunction is warranted pursuant to its claims for: (1) breach of contract against Moore; (2) breach of contract under the Confidentiality Agreements against Moore, Stingu, and Dassanayake; and (3) misappropriation of trade secrets by all Counter-Defendants.[5] See Dkt. 14. The parties subsequently filed an agreed proposed briefing schedule, which the Court adopted (the “Briefing Schedule”). See Dkts. 30, 31. In accordance with the Briefing Schedule, Counter-Defendants filed a response on April 4, 2019 (Dkt. 92) and Semtech filed a reply on April 18, 2019 (Dkt. 122).[6] The Court held a two-day evidentiary hearing on May 29 and 30, 2019 (the “Hearing”). See Dkts. 157, 158. After the Hearing, the parties submitted additional evidence for the Court's consideration. See, for example, Dkts. 168, 170, 206, 208, 210, 229, 231.

         II. LEGAL STANDARD

         A party seeking a preliminary injunction must establish the following elements: (1) a substantial likelihood of success on the merits; (2) a substantial threat that plaintiffs will suffer irreparable harm if the injunction is not granted; (3) that the threatened injury outweighs any damage that the injunction might cause the defendant; and (4) that the injunction will not disserve the public interest. Nichols v. Alcatel USA, Inc., 532 F.3d 364, 372 (5th Cir. 2008). “The party seeking such relief must satisfy a cumulative burden of proving each of the four elements enumerated before a temporary restraining order or preliminary injunction can be granted.” Gonannies, Inc. v. GoAuPair.com, Inc., 464 F.Supp.2d 603, 607 (N.D. Tex. 2006) (citing Mississippi Power and Light Co. v. United Gas Pipe Line, 760 F.2d 618, 621 (5th Cir. 1985); Clark v. Prichard, 812 F.2d 991, 993 (5th Cir. 1987)). Thus, “if a party fails to meet any of the four requirements, the court cannot grant the temporary restraining order or preliminary injunction.” Id. “A preliminary injunction is an extraordinary remedy and should only be granted if the plaintiffs have clearly carried the burden of persuasion on all four requirements.” Id. Nevertheless, a movant “is not required to prove its case in full at a preliminary injunction hearing.” Fed. Sav. & Loan Ins. Corp. v. Dixon, 835 F.2d 554, 558 (5th Cir. 1985) (quoting Univ. of Tex. v. Camenisch, 451 U.S. 390, 395 (1981)). The decision whether to grant a preliminary injunction lies within the sound discretion of the district court. Weinberger v. Romero-Barcelo, 456 U.S. 305, 320 (1982).

         III. ANALYSIS

         Semtech argues it is entitled to injunctive relief on the basis of: (1) Semtech's claim for breach of the Purchase Agreement against Moore; (2) Semtech's claim for misappropriation of the Trade Secrets; and (3) Semtech's claim for breach of contract against all Counter-Defendants premised on breach of the Confidentiality Agreements. See generally Dkt. 14. Because Semtech has ...


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