Philips N. Am., LLC v. Summit Imaging Inc.

PHILIPS NORTH AMERICA, LLC, et al., Plaintiffs, v. SUMMIT IMAGING INC., et al., Defendants.

CASE NO. C19-1745JLR

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE

March 30, 2020

ORDER

I. INTRODUCTION

Before the court is Defendants Summit Imaging Inc. ("Summit") and Lawrence R. Nguyen (collectively, "Defendants") Federal Rule of Civil Procedure 12(b)(6) motion to dismiss. (Mot. (Dkt. # 26); see also Reply (Dkt. # 29).) Plaintiffs Philips North America LLC, Koninklijke Philips N.V., and Philips India Ltd. (collectively, "Philips") oppose the motion. (Resp. (Dkt. # 28).) The court has reviewed the motion, the parties' submissions in support of and in opposition to the motion, the relevant portions of the record, and the applicable law. Being fully advised, the court GRANTS in part and DENIES in part Defendants' motion to dismiss.¹

II. BACKGROUND

Philips manufactures, sells, and services medical imaging systems—including ultrasound systems, computed tomography scanners, positron emission tomography scanners, X-ray machines, magnetic resonance scanners, and nuclear medicine scanners—for hospitals and medical centers. (See Am. Compl. (Dkt. # 23) ¶¶ 1, 21.) The vast majority of the allegations in the complaint relate to Philips' ultrasound imaging devices. Philips sells and services ultrasound imaging devices under the "CX," "HD," "ClearVue," "Sparq," "VISIQ," "Xperius," "Affiniti," and "EPIQ" brand names (collectively, the "Ultrasound Systems"). (Id. ¶ 23.) In addition to the Ultrasound Systems, Philips manufactures and sells related ultrasound hardware devices. (See id.) The Ultrasound Systems are driven by one of two software platforms that Philips developed and owns: (1) Philips Voyager Platform and (2) Philips Common Platform. (See id. ¶¶ 26-27, 29.)

Each Ultrasound System Philips sells includes certain software and hardware features that may only be used when Philips enables a particular licensable feature for the specific Ultrasound System. (Id. ¶ 33.) For each Ultrasound System, Philips enablesonly the licensed features and tools that their customers purchased for that specific system, and only the specific authorized users of the machine can access the enabled features and software options. (Id.) Philips has registered the copyright in the software for the different Ultrasound Systems they sell (see id. ¶ 30, Ex. A), and allege that they "use[] multiple layers of technological controls to protect" their copyrighted works from unauthorized access (see id. ¶ 32). Philips alleges that their software and access control systems are trade secrets and that those systems contain other trade secret information. (See, e.g., ¶ 134.)

Philips alleges that Summit hacks into Philips' software and alters the Ultrasound Systems using a program Summit developed called Adepto in order to enable features or options for which Philips' customers have not paid Philips. (See id. ¶¶ 4-6.) Philips claims that Summit trains its customers on how to circumvent Philips' access controls. (See id. ¶ 7.) Summit allegedly advertises that its Adepto tool is a "legal solution" or a "legal alternative" to working with Philips in order to enable additional features and options. (See id. ¶ 8.) Mr. Nguyen is the "principal owner, Governor, Chief Executive Officer, and Chief Technology Officer of Summit." (Id. ¶ 14.) Philips alleges that Mr. Nguyen designed, directed, and carried out Summit's hacking scheme. (See, e.g., id. ¶¶ 39, 42, 53, 59, 62-63, 89-100.)

Philips brings seven causes of action against Defendants: (1) circumventing a technological measure in violation of the Digital Millennium Copyright Act ("DMCA"), 17 U.S.C. § 1201; (2) modifying copyright management information ("CMI") in violation of the DMCA, 17 U.S.C. § 1202; (3) trade secret misappropriation in violation of theDefend Trade Secrets Act ("DTSA"), 18 U.S.C. § 1836; (4) trade secret misappropriation in violation of the Washington Uniform Trade Secrets Act ("UTSA"), RCW ch. 19.108; (5) false advertising in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); (6) unfair competition in violation of the Washington Consumer Protection Act ("CPA"), RCW 19.86.020 et seq.; and (7) copyright infringement in violation of the Copyright Act, 17 U.S.C. §§ 101, 501. (See Am. Compl. ¶¶ 73-218.)

III. ANALYSIS

Pursuant to Rule 12(b)(6), Defendants move to dismiss the following claims for failure to state a claim: Philips' DMCA claims, DTSA claim, UTSA claim, false advertising claim, CPA claim, and any portion of their copyright infringement claim that alleges contributory copyright infringement. (See Mot. at 5-24.) The court sets forth the applicable legal standard before addressing Philips' causes of action in turn.

A. Legal Standard

Rule 12(b)(6) provides for dismissal for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). When considering a motion to dismiss under Rule 12(b)(6), the court construes the complaint in the light most favorable to the nonmoving party. Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). The court must accept all well-pleaded facts as true and draw all reasonable inferences in favor of the plaintiff. Wyler Summit P'ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir. 1998). The court, however, is not required "to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9thCir. 2001). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir. 2010). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 677-78. "A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'. . . Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. at 678 (quoting Twombly, 550 U.S. at 555, 557).

B. Summit's Motion to Dismiss

1. Circumventing a Technological Measure

Defendants argue that Philips' claim for circumventing a technological measure in violation of the DMCA, 17 U.S.C. § 1201 should be dismissed because Philips failed to "allege sufficient facts supporting that a technological measure that effectively controls access to a copyrighted work has been circumvented." (See Mot. at 13.) The Ninth Circuit explains that § 1201 of the DMCA sets forth "two distinct types of claims." MDY Indus., LLC v. Blizzard Entm't, Inc., 629 F.3d 928, 944 (9th Cir. 2010); see also 17 U.S.C. § 1201. "First, § 1201(a) prohibits the circumvention of any technological measure that effectively controls access to a protected work and grants copyright owners the right to enforce that prohibition." Id. Section 1201(a)(1)(A) contains a general prohibition against "circumventing a technological measure that effectively controlsaccess to a work protected under [the Copyright Act]," see 17 U.S.C. § 1201(a)(1)(A), while § 1201(a)(2) prohibits trafficking in technology that circumvents a technological measure that "effectively controls access" to a copyrighted work, see 17 U.S.C. § 1201(a)(2). "Second, and in contrast to § 1201(a), § 1201(b)(1) prohibits trafficking in technologies that circumvent technological measures that effectively protect 'a right of a copyright owner.'" MDY Indus., LLC, 629 F.3d at 944 (quoting 17 U.S.C. § 1201(b)(1)). In other words, § 1201(a) is focused on prohibiting "circumvention of technologies designed to prevent access to a work" while § 1201(b) "prohibits trafficking in devices that facilitate circumvention of measures that protect against copyright infringement." See id. at 944, 946 (citations omitted). Although Philips' response to Defendants' motion fails to explicitly state whether Philips' first cause of action alleges a § 1201(a) claim, a § 1201(b) claim, or both (see, e.g., Resp. at 8 (concluding that "the [complaint] provides Defendants with sufficient notice of facts supporting Plaintiffs' DMCA Section 1201 claims" without detailing what subsection of § 1201 those claims are filed under)), the complaint appears to plead claims under both § 1201(a)(1) and (a)(2).² (See Am. Compl. ¶¶ 85, 88 (citing 17 U.S.C. § 1201(a)(1)-(2)).)

Philips has sufficiently pleaded that their Ultrasound Systems are protected by "a technological measure that effectively controls access to a work" under §§ 1201(a)(1) and (a)(2). Under § 1201(a), "a technological measure 'effectively controls access to a work'if the measure, in the ordinary course of its operation, requires the application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the work." 17 U.S.C. § 1201(a)(3)(B). The complaint identifies "multiple layers of technological controls" that Philips employs on their Ultrasound Systems "to protect Philips' copyright-protected works from unauthorized access." (See Am. Compl. ¶ 32.) Specifically, the complaint identifies the following technological measures: (1) user-specific codes; (2) user-specific hardware keys; (3) machine-specific codes and hardware keys; (4) software files with licensed features and optional add-on controls; (5) machine-specific configuration files that control compatibility between the systems and software and/or the systems and replacement parts; and (6) software disabling if a user attempts to make use of an unlicensed feature. (See Am. Compl. ¶¶ 31-35, 71-72.)

The complaint also explains how these technological measures work. (See id.) User-specific...