SkinMedica, Inc. v. Histogen Inc.

869 F.Supp.2d 1176

SKINMEDICA, INC., Plaintiff.

v. HISTOGEN INC.; Histogen Aesthetics LLC; Gail K. Naughton, Defendants.and Related Counterclaims.

Case No. 09–CV–122 JLS (RBB).

United States District Court, S.D. California.

April 23, 2012.

Alexander Enrico Long, Stephen P. Swinton, Latham and Watkins, San Diego, CA, Lorelei Westin, Peter R. Munson, Wilson, Sonsini, Goodrich and Rosati, San Diego, CA, for Plaintiff and Counter Defendants.

Erin Paige Gibson, DLA Piper LLP, San Diego, CA, Randall Evan Kay, Jones Day, San Diego, CA, for Counter Claimants and Defendants.

[REDACTED] ORDER

JANIS L. SAMMARTINO, District Judge.

Presently before the Court are several motions for summary judgment of various claims and counterclaims brought by both parties, as well as SkinMedica's motion for final judgment under Rule 54(b), and Histogen's motion for attorneys' fees. Having considered the parties' arguments and the law. the Court rules as follows:

1. SkinMedica's motion for partial summary judgment (ECF No. 196) is GRANTED.

2. Histogen's motion for summary judgment (ECF No. 211) is DENIED.

3. SkinMedica's motion for final judgment (ECF No. 237) is DENIED.

4. Histogen's motion for attorneys' fees (ECF No. 287) is DENIED.

BACKGROUND

Plaintiff SkinMedica is a privately held company that develops and sells products for treating dermatologic conditions and diseases affecting skin appearance. SkinMedica sells its products primarily to dermatologists and plastic surgeons. Among SkinMedica's products is its TNS(C) (for Tissue Nutrient System) line of anti-aging products. The main ingredient in the TNS line of products is NouriCel(C). ( See FAC ¶ 25, ECF No. 31.)

NouriCel was originally developed by Advanced Tissue Science. Inc. (“ATS”). In 2002. ATS filed for bankruptcy. In 2003. through the ATS bankruptcy proceedings. SkinMedica claims to have acquired all of the assets, “including the trade secrets and know-how.” related to NouriCel through an Asset Purchase Agreement (“APA”). ( See FAC ¶¶ 8–10.) The APA gave SkinMedica the rights to U.S. Patent Nos. 6,372,494 (the '494 patent) and 7,118,746 (the '746 patent), asserted in this lawsuit. ( See FAC ¶¶ 16–17.)

Defendant Gail Naughton was the co-founder. President. Chief Operating Officer, and Chief Scientific Officer at ATS. (FAC ¶ 10.) She was also the lead named inventor on the '494 and '746 patents. (FAC Exs. A, B.) Naughton left ATS shortly after it filed for bankruptcy. She is now the Chief Executive Officer and Chairman of the Board of Directors for Defendant Histogen. (FAC ¶ 4.)

During her tenure at ATS. Naughton and her colleagues experimented with NouriCel, ultimately discovering that NouriCel could possibly stimulate hair growth. By September 2002. Naughton presented a confidential report on NouriCel's hair growth potential to ATS's Scientific Advisory Board (“SAB Report”). In her official capacity as Vice Chairman of ATS. Naughton claims to have been authorized to discuss the contents of the SAB Report with outside parties. including a former ATS employee no longer under a confidentiality agreement, and competing pharmaceutical companies.

Beginning in 2004, Naughton and Histogen began filing patent applications for “conditioned medium” research similar to the NouriCel research Naughton performed at ATS. However, as of January 2009, the U.S. Patent and Trademark Office and the European Patent Office had rejected all of these claims in light of prior art.

In October 2008, SkinMedica became aware that Histogen planned to launch a line of skin care products based on a conditioned medium called ReGenica that sounded similar to SkinMedica's NouriCel technology. On January 22, 2009. SkinMedica filed the instant lawsuit against Naughton, Histogen, and Histogen Aesthetics (collectively, “Histogen”). Histogen filed counterclaims for a declaration of patent noninfringement and unfair competition under California statutory law and common law, (ECF No. 35.) And each side asserts various affirmative defenses to the other's claims. ( Id.; ECF No. 40.)

On November 21, 2011, 830 F.Supp.2d 986 (S.D.Cal.2011), the Court granted Histogen's motion for partial summary judgment of noninfringement of both the '494 and the '746 patents. (ECF No. 228.) Thus, SkinMedica's remaining claims are for misappropriation of trade secrets, breach of contract, imposition of constructive trust, and unfair competition. Histogen now moves for summary judgment of the first three of these claims, and for an award of attorneys' fees for its defense of SkinMedica's infringement claims. SkinMedica moves for partial summary judgment of Histogen's unfair competition counterclaims, as well as for final judgment as to noninfringement under Federal Rule of Civil Procedure 54(b).

A motion hearing was held on March 15, 2012, and the matters taken under submission.

ANALYSIS

1. Cross–Motions for Summary Judgment

A. Legal Standard

Federal Rule of Civil Procedure 56 permits a court to grant summary judgment where (1) the moving party demonstrates the absence of a genuine issue of material fact and (2) entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). “Material.” for purposes of Rule 56, means that the fact, under governing substantive law. could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir.1997). For a dispute to be “genuine.” a reasonable jury must be able to return a verdict for the nonmoving party. Anderson, 477 U.S. at 248, 106 S.Ct. 2505.

The initial burden of establishing the absence of a genuine issue of material fact falls on the moving party. Celotex, 477 U.S. at 323, 106 S.Ct. 2548. The movant can carry his burden in two ways: (1) by presenting evidence that negates an essential element of the nonmoving party's case; or (2) by demonstrating that the nonmoving party “failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof.” Id. at 322–23, 106 S.Ct. 2548.

Once the moving party establishes the absence of genuine issues of material fact, the burden shifts to the nonmoving party to set forth facts showing that a genuine issue of disputed fact remains. Celotex, 477 U.S. at 324, 106 S.Ct. 2548. The nonmoving party cannot oppose a properly supported summary judgment motion by “rest[ing] on mere allegations or denials of his pleadings.” Anderson, 477 U.S. at 256, 106 S.Ct. 2505. When ruling on a summary judgment motion, the court must view all inferences drawn from the underlying facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

B. SkinMedica's Motion for Summary Judgment

SkinMedica argues that Histogen's measure of damages under its two unfair competition counterclaims fails for three primary reasons.¹ First, nonrestitutionary disgorgement damages are not available under Cal. Bus. & Prof.Code § 17200 (“UCL” or “ section 17200”). Second. Histogen's common law unfair competition counterclaim fails because it does not allege “passing off” Third. SkinMedica argues Histogen's requested damages are too uncertain to be recoverable. ( See Pl.'s MSJ 1, ECF No. 219.) The Court addresses these arguments in turn.²

(i) Statutory UCL Claim

According to SkinMedica, restitution is the only measure of nonpunitive monetary relief available under the UCL, and Histogen has not and cannot claim damages in the form of restitution. In fact, SkinMedica points out that “damages” of any sort are not recoverable under the UCL. (Pl.'s MSJ 4–5.) Histogen counters that SkinMedica has mischaracterized Histogen's requested relief under the label of “lost profits” when in fact Histogen seeks “to recover its lost value as a result of SkinMedica's illegal and fraudulent business practices, which is a proper remedy under section I7200.” ³ (Def.'s Opp'n to Pl.'s MSJ 10, ECF No. 267.)

(a) Available Remedies under the UCL

SkinMedica is correct that damages are not available under the UCL; the available remedies are limited to restitution and injunctive relief. See Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1147, 131 Cal.Rptr.2d 29, 63 P.3d 937 (2003); Smit v. Charles Schwab & Co., Inc., 2011 WL 846697 at *9, 2011 U.S. Dist. LEXIS 25589 at *28 (N.D.Cal. Mar. 8, 2011). Courts are authorized to fashion remedies to prevent. deter, and compensate for unfair business practices. SeeCal. Bus. & Prof Code § 17203. To that end. California courts have found that injunctions are the proper remedy to combat unfair business practices, and that “[a]ctual direct victims of unfair competition may obtain restitution as well,” Korea Supply Co., 29 Cal.4th at 1152, 131 Cal.Rptr.2d 29, 63 P.3d 937.

In determining what fits into this narrow category of restitution, the object is “to restore the status quo by returning to the [actual direct victim] funds in which he or she has an ownership interest.” Feitelberg v. Credit Suisse First Boston, LLC, 134 Cal.App.4th 997, 1012, 36 Cal.Rptr.3d 592 (2005). Thus, “in the UCL context ... restitution means the return of money to those persons from whom it was taken or who had an ownership interest in it.” Id. at 1013, 36 Cal.Rptr.3d 592 (quoting Madrid v. Perot Systems Corp., 130 Cal.App.4th 440, 455, 30 Cal.Rptr.3d 210 (2005)). In order to constitute restitution, the victim must have at least an identifiable vested interest in the money he seeks to recover. Nat'l Rural Telecomm., 319 F.Supp.2d at 1080. The interest may not be contingent upon an uncertain future event. Id.

Disgorgement is a broader remedy than restitution, but it may sometimes include a restitutionary element. Id. Restitutionary disgorgement, which focuses on the victim's loss, may be recovered under the UCL. This is typified in situations “where the disgorged money or...