Fibrogen, Inc. v. Hangzhou Andao Pharm.

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FIBROGEN, INC., Plaintiff, v. HANGZHOU ANDAO PHARMACEUTICAL LTD., et al., Defendants.

No. 22-cv-07148-AMO

United States District Court, N.D. California

March 20, 2024

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS RE: DKT. NOS. 31, 78, 105

ARACELI MARTINEZ-OLGUIN UNITED STATES DISTRICT JUDGE

This case is about former employees' use of an employer's intellectual property. Defendants Hangzhou Andao Pharmaceutical Ltd., Kind Pharmaceuticals LLC, Dr. Dong Liu and Dr. Shaojiang Deng's motion to dismiss was heard before this Court on August 17, 2023. Also pending before the Court is Defendants' motion for sanctions. Having read the papers filed by the parties and carefully considered their arguments therein and those made at the hearing, as well as the relevant legal authority, the Court hereby GRANTS IN PART AND DENIES IN PART the motion to dismiss and TERMINATES the motion for sanctions, subject to resubmission, for the following reasons.

I. Background^[1]

Plaintiff FibroGen, Inc. (“FibroGen”) is a biopharmaceutical company that develops and commercializes therapeutics. Compl. (ECF 1, 101) ¶ 2. Defendants Dr. Dong Liu and Dr. Shaojiang Deng (“Individual Defendants”) are former FibroGen employees. Compl. ¶¶ 6-8. Liu worked for FibroGen from 2006 to 2015 as a scientist in the Pharmacology Group. Compl. ¶ 30.

Deng worked for FibroGen from 2004 to 2019 as a scientist in the Medicinal Chemistry Group. Compl. ¶ 44. In 2013, while employed at FibroGen, Liu founded Kind Pharmaceuticals LLC (“Kind”), a biopharmaceutical company that develops small molecule therapeutics, and named himself CEO. Compl. ¶ 7. Liu left FibroGen in 2015 to focus on Kind. Compl. ¶ 7. Deng remained employed at FibroGen until 2019 (when he joined Kind) and supplied Liu with confidential information about FibroGen's HIF-PHI compounds that Kind used in its patents. Compl. ¶¶ 8-11.

Kind filed a patent and patent applications which contain FibroGen's proprietary HIF-PHI compounds: PCT Application No. WO2018/205928 (WO'928), filed on May 8, 2018; U.S. Patent No. 11,021,478 (the '478 patent), filed November 7, 2019, and issued on June 1, 2021; and U.S. Patent National Phase Application No. 17/239,362 (the '362 application) (a continuation of the '478 patent), filed April 23, 2021. Compl. ¶¶ 11, 64-67, 72. WO'928, the '478 patent, and the '362 application describe four compounds which overlap with compounds FibroGen conceived and developed, but did not patent, in 2008. Compl. ¶¶ 11, 65-77. Deng developed the four HIF-PHI compounds in 2008 along with Wen-Bin Ho, another scientist at FibroGen. Compl. ¶¶ 68, 74-77. Liu and Deng were aware of FibroGen's work with these compounds, Compl. ¶¶ 31, 45, and Liu had access to the compound library, Compl. ¶ 32. The '478 patent contains fifteen claims; one claim - claim 14 - contains 64 compounds, four of which FibroGen conceived of in 2008. Compl. ¶ 69; ECF 1-5 at 128:35-135:25.

Liu and Deng signed a Confidentiality Agreement (“Agreement”) with FibroGen when they began employment. Compl. ¶¶ 35-37, 48-51. Upon resigning from FibroGen, they certified that they complied with the terms of the Agreement and that they did not have any of FibroGen's confidential information in their possession. Compl. ¶¶ 41-42, 54-55. The Agreement, governed by California law, states that employees to assign all “Inventions” to FibroGen, which are defined as:

[A]ny and all inventions, discoveries, concepts and ideas, whether patentable or not . . . resulting from work performed by Employee for the Company, performed during Employee's regular working hours, utilizing equipment, supplies, facilities or CONFIDENTIAL INFORMATION of the Company, which (i) relate to the actual or demonstrably anticipated research or development of the company, or

(ii) are made or conceived or reduced to practice by Employee individually or in conjunction with others during either Employee's employment at the Company; or

(iii) based on or related to CONFIDENTIAL INFORMATION, within one (1) year after termination of employment.

ECF 101-1 (Agreement) §§ 1(b), 5, 11(e). The Agreement also prohibits employees from disclosing confidential information (i.e., inventions, patent applications, trade secrets, and “any other information of value relating to the business and/or field of interest of the Company”). Id. §§ 1(a), 3.

FibroGen brought this lawsuit against Defendants Hangzhou Andao Pharmaceutical Ltd. and Kind Pharmaceuticals LLC (collectively, “Kind”), and Dr. Dong Liu and Dr. Shaojiang Deng (“Individual Defendants”) (all collectively, “Defendants”) alleging eight causes of action based on Defendants' use of FibroGen's four HIF-PHI compounds: correction of inventorship; declaration of patent ownership; breach of contract and breach of implied covenant of good faith and fair dealing; and inducing breach of Liu's and Deng's confidentiality agreements. Compl. ¶¶ 78-158. Defendants filed a motion to dismiss on February 7, 2023, seeking to dismiss the complaint in its entirety. Motion (ECF 31, 98).

II. LEGAL STANDARD

Federal Rule of Civil Procedure 8(a) requires that a complaint contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” A defendant may move to dismiss a complaint for failing to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6). “Dismissal under Rule 12(b)(6) is appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). To survive a Rule 12(b)(6) motion, a plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when a plaintiff pleads “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Courts do not “accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (citation omitted).

III. DISCUSSION

Defendants seek to dismiss each of the eight counts in FibroGen's complaint: (1) Correction of Inventorship; (2) Declaration of Patent Ownership; (3) Breach of Contract and (4) Breach of the Implied Covenant of Good Faith and Fair Dealing (against Liu); (5) Breach of Contract and (6) Breach of the Implied Covenant of Good Faith and Fair Dealing (against Deng); (7) Inducing Breach of the Liu Confidentiality Agreement; and (8) Inducing Breach of the Deng Confidentiality Agreement. The Court considers each argument in turn.

A. Improper Inventorship - Correction of Patent Ownership (Count I)

As a general matter, patents must list all the true inventors. Trovan, Ltd. v. Sokymat SA, Irori, 299 F.3d 1292, 1301 (Fed. Cir. 2002). Under 35 U.S.C. § 256, when a person is erroneously named or not named in an issued patent, a court may order correction of the patent on notice and hearing of all parties concerned. Section 256 “provides a cause of action to interested parties to have the inventorship of a patent changed to reflect the true inventors of the subject matter claimed in the patent.” CODA Dev. S.R.O. v. Goodyear Tire & Rubber Co., 916 F.3d 1350, 1358 (Fed. Cir. 2019) (citing Fina Oil & Chem. Co. v. Ewen, 123 F.3d 1466, 1471 (Fed. Cir. 1997)). “Section 256 addresses two types of inventorship errors - misjoinder and nonjoinder.” CODA, 916 F.3d at 1358. “Misjoinder is the error of naming a person as an inventor who is not an inventor; nonjoinder is the error of omitting an inventor.” Id. Section 256 allows “complete substitution of inventors” through claims of nonjoinder and misjoinder together. Id. (citation omitted).

“The inventors named in an issued patent are presumed correct.” Univ. of Pittsburgh of Commonwealth Sys. of Higher Educ. v. Hedrick, 573 F.3d 1290, 1297 (Fed. Cir. 2009) (“Hedrick”). To overcome that presumption, a party must allege that “the persons to be removed did not contribute to the invention of any of the allowed claims.” Id. To state a claim for complete substitution of inventors under Section 256, a plaintiff must plausibly allege facts demonstrating that (1) the erroneously omitted inventor conceived the invention claimed in the patent and (2) the named inventor(s) on the patent did not conceive the invention. See CODA, 916 F.3d at 1358-59. FibroGen brings both claims of misjoinder and nonjoinder to remove Liu and add Deng and Ho to the '478 patent. The Court addresses each claim in turn.

1. Misjoinder

FibroGen brings a claim of misjoinder against Liu, alleging that he was not involved in conceiving or developing FibroGen's HIF-PHI compounds. Compl. ¶¶ 79, 86. Defendants argue that the misjoinder claim as to Liu fails because 1) FibroGen has failed to allege that Liu did not conceive of any of the various inventions claimed in the '478 patent, including any of the many other compounds that FibroGen does not claim it invented, and 2) even if someone may have separately invented the four overlapping compounds, that alone does not show that Liu did not also invent them. Motion at 30.^[2] The Court agrees with Defendants.

FibroGen alleges that Liu was not involved in conceiving or developing FibroGen compounds. Compl. ¶¶ 30-33, 79-80. FibroGen argues that “the Complaint makes clear that Dr. Liu would have been incapable of inventing such compounds and therefore could not plausibly have contributed to the inventions claimed in the '478 patent.” Response (ECF 102) at 26. However, the Complaint simply alleges that Liu did not invent the...