Case Name: Venkat Konda v. Dejan Markovic, et al.

Case No: 19CV345846

I. Background
II.

Plaintiff Venkat Konda (“Plaintiff”) brings this action against Dejan Markovic (“Markovic”), Cheng C. Wang (“Wang”), Flex Logix Technologies, Inc. (“Flex Logix”), the Regents of the University of California (“UC”), and Munger, Tolles & Olson, LLC (“Munger, Tolles”) for damages associated with misappropriation of intellectual property.

According to the allegations of the first amended complaint (“FAC”), Plaintiff founded Konda Tech to develop semiconductor devices known as Field Programmable Gate Arrays (“FPGA’s”). (FAC, ¶¶ 2, 29.) In 2009, he was introduced to Markovic, a professor at UCLA who offered him funding for his work. (Id. at ¶ 30.) Plaintiff sent Markovic his business plan, but when he visited UCLA to present the plan, Markovic told him that UCLA does not fund technologies built outside of UCLA. (Ibid.) Nonetheless, Plaintiff presented his business plan to members of UCLA’s Institute for Technology Advancement (“UCLA/ITA”) and also to some of Markovic’s students.

Thereafter, Markovic sought to use Plaintiff’s intellectual property, and he and Wang submitted a funding proposal using some of the technology. (FAC, ¶¶ 35, 37.) The funding proposal was rejected, but they persisted in efforts to implement Plaintiff’s IP without authorization. (Id. at ¶ 38.) Unbeknownst to Plaintiff, they founded Hierlogix to commercialize Plaintiff’s technology. (Id. at ¶ 39.) Plaintiff believes this was done using the confidential presentation he provided to Markovic. (Id. at ¶ 41.)

In the ensuing years, though they spoke on occasion and he presented himself as an advisor, Markovic never told Plaintiff that he and his students continued to use Plaintiff’s IP, including as part of Wang’s Ph.D. dissertation. (FAC, ¶ 45.) Plaintiff was also unaware that they had formed a new company, Flex Logix, or that it was an FPGA startup and they actively concealed this from him. (Id. at ¶¶ 48, 51, 54.) It wasn’t until 2015, during a meeting with another professor, that Plaintiff learned Flex Logix was implementing his technology, which he was able to confirm on its website. (Id. at ¶¶ 62, 63.) He subsequently learned of Hierlogix, the predecessor to Flex Logix, and its connection to UCLA/ITA. (Id. at ¶ 71.)

Though he expressed his concerns regarding plagiarism and misappropriation of his technology, authorities at UCLA did not agree with his position. (FAC, ¶¶ 73, 75.) Instead, the CEO of Flex Logix, Geoff Tate (“Tate”), threatened to ruin Plaintiff’s career if he filed a lawsuit, and on one occasion, the CEO tried to interfere in one of Plaintiff’s business relationships. (Id. at ¶¶ 77, 78.) Attempts at settling the dispute have been unsuccessful. (Id. at ¶ 79.)

As a result of the foregoing, Plaintiff brings the FAC alleging causes of action for: (1) unfair business practices; (2) fraud – intentional misrepresentation; (3) fraud – concealment; (4) misappropriation of trade secrets; and (5) ongoing conspiracy.

Before the Court is a demurrer brought collectively by defendants Markovic and Wang (collectively, “Defendants”) and a demurrer brought by Flex Logix.

III. Judicial Notice
IV.

In support of their demurrer , Defendants request judicial notice of four court records, pursuant to Evidence Code section 452, subdivision (d), which allows a court to take judicial notice of records of any court of record of the United States. Specifically, they request judicial notice of: (1) a complaint filed in federal district court, case number 5:18-CV-7581; (2) an amended complaint in the same proceeding; (3) a sworn declaration by Plaintiff filed in that same case; and (4) the original complaint filed in the present matter.

While the court make take judicial notice of court records it does not take judicial notice of the truth of the facts as stated, but may take notice that documents “say what they say.” (Hamilton v. Greenwich Investors XXVI, LLC (2011) 195 Cal.App.4th 1602, 1608, fn. 3.)

Plaintiff does not oppose the request, and the matters are proper subjects for judicial notice, so the request is granted.

Consequently, Defendants’ request for judicial notice is GRANTED.

V. Defendants’ Demurrer
VI.

Defendants demur to all five causes of action. While they filed a notice of demurrer, it fails to state the grounds upon which the demurrer is brought. (See Code Civ. Proc., § 430.60 [A demurrer shall distinctly specify the grounds upon which any of the objections to the complaint… are taken. Unless it does so, it may be disregarded].) The demurrer also fails to specify whether the grounds are brought as to the entire complaint, or to specified causes of action, and thus does not conform to the requirements of California Rules of Court, rule 3.1320, subdivision (a). Nonetheless, the Court will exercise its discretion and consider the merits of the demurrer, as the grounds can be ascertained by the arguments.

Defendants state that each cause of action “fails to state requisite facts,” and the demurrer is at other points based on statutes of limitation and preemption arguments. Thus, presumably they demur on the ground of failure to state sufficient facts to state a cause of action, pursuant to Code of Civil Procedure section 430.10, subdivision (e). (See Washington Mutual Bank v. Superior Court (2002) 95 Cal.App.4th 606, 612 [preemption is a pure legal issue properly handled by general demurrer]; see also Bainbridge v. Stoner (1940) 16 Cal.2d 423, 431 [statute of limitations is an argument for failure to state sufficient facts, not a separate ground for a demurrer].)

A. Legal Standard
B.

A demurrer tests the legal sufficiency of a pleading, but not the truth of a plaintiff’s allegations or the accuracy with which he or she describes the defendant’s conduct. (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958; citing Committee on Children’s Television Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213.) A demurrer reaches only to the contents of the pleading and such matters subject to judicial notice. (Code Civ. Proc. § 430.30, subd. (a); South Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732, citations omitted.) “It is not the ordinary function of a demurrer to test the truth of the [ ] allegations, or the accuracy with which [they] describe the defendant’s conduct” and the facts alleged are deemed to be true, however improbable. (Align Technology, Inc. v. Tran, supra, 179 Cal.App.4th 949, 958.)

C. Preemption
D.

Defendants demur to the first, second, third and fifth causes of action on the basis that the California Uniform Trade Secrets Act (“CUTSA”) preempts causes of action based on the misappropriation of confidential, trade secret information.

CUTSA, or Civil Code sections 3426 through 3426.11, “provides the exclusive civil remedy for conduct falling within its terms, so as to supersede other civil remedies ‘based upon misappropriation of trade secret.’” (Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 236, citing Code Civ. Proc., § 3426.7, subds. (a), (b), and disapproved on another ground Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310; “Silvaco”.) Thus, the question for each cause of action is whether it is “based on the same nucleus of facts as the misappropriation of trade secrets,” and is thus superseded by CUTSA. (K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 958.)

The first cause of action is for unfair business practices pursuant to Business and Professions Code Sections 17200 et seq., commonly referred to as the “UCL.” “CUTSA bars UCL claims sounding in misappropriation of trade secrets.” (Silvaco Data Systems v. Intel Corp., supra, 184 Cal.App.4th 210, 241.)

Here, the UCL cause of action exclusively refers to the “disregard of Konda Tech’s intellectual property rights” (FAC, ¶ 82.), “misappropriated Konda Tech IP without attribution” (Id. at ¶ 83.), “misappropriated intellectual property” (Ibid), and “Defendants have systematically misappropriated Konda Tech IP” (Id. at ¶ 84.). Likewise, it alleges that Plaintiff was “deprived of customer licensees and revenue” and that Defendants have taken credit for the breakthroughs in technology…” (Id. at ¶ 85.) Thus, as pleaded, the UCL cause of action is based on the same nucleus of facts as the misappropriation of trade secrets cause of action, and is preempted by CUTSA.

In opposition, Plaintiff cites the Silvaco case, to argue that a UCL cause of action is not preempted by CUTSA. However, his citation from Silvaco states “[t]he UCL claim – which… does not appear to depend on theft of a trade secret” is not preempted by CUTSA. Thus, unlike here, the pleading in Silvaco alleged other causes of action outside of the trade secret allegations, and the UCL claim survived demurrer. Therefore, this citation is not helpful to Plaintiff.

Thus, the demurrer to the first cause of action on the basis of preemption will be sustained.

Likewise, while the second and third causes of action allege fraud – intentional misrepresentation, and concealment – they are entirely based on the misappropriation and unauthorized use of Plaintiff’s technology. The misrepresentations are based on Defendants’ statements regarding possible funding for Plaintiff’s technology, which led him to disclose his “confidential and proprietary business plan.” (FAC, ¶¶ 96, 97, 98.) Another alleged misrepresentation was that Plaintiff’s technology would only be used “for academic purposes” when in fact it was “intended to form the groundwork… to start up Hierlogix and its successor Flex Logix.” (Id. at ¶ 100.) It is also alleged that Markovic acted as an advisor when “in truth he was extracting technical and business information…” (Id. at ¶ 104.) It goes on to allege “Defendants used the proprietary and confidential information provided by Dr. Konda…” (Id. at ¶ 105.) The concealment cause of action also alleges the concealed and unauthorized use of Plaintiff’s technology in all of its substantive allegations. (FAC, ¶¶ 112, 113, 114, 115, 116, 117, 118, 119, 120, 121.)

As a result, the second and third causes of action sound exclusively in the misappropriation of Plaintiff’s trade secrets, and rely on the same nucleus of facts, and as pleaded are preempted by CUTSA. In fact, in opposition, Plaintiff merely revives his citation to Silvaco with respect to the UCL cause of action in that case, and therefore does not offer substantive support for his position that the fraud causes of action are not preempted.

The fifth cause of action alleges ongoing conspiracy. This cause of action alleges that UC and Flex Logix “are responsible for all acts done as part of the conspiracy” incorporating all the other allegations of wrongdoing in the complaint. (FAC, ¶¶ 147, 148, 149, 150.) As a result, the FAC alleges a conspiracy involving misuse and misappropriation of Plaintiff’s trade secrets. Therefore, the cause of action is preempted by CUTSA, and the demurrer will be sustained.

Consequently, Defendants’ demurrer to the first cause of action on the ground of failure to state sufficient facts is SUSTAINED, without leave to amend , on the basis of preemption.

Defendants’ demurrer to the second cause of action on the ground of failure to state sufficient facts is SUSTAINED, without leave to amend, on the basis of preemption.

Defendants’ demurrer to the third cause of action on the ground of failure to state sufficient facts is SUSTAINED, without leave to amend, on the basis of preemption.

Defendants’ demurrer to the fifth cause of action on the ground of failure to state sufficient facts is SUSTAINED, without leave to amend, on the basis of preemption.

E. Statute of Limitations
F.

Defendants also demur to the fourth cause of action for misappropriation of trade secrets on the ground of failure to state sufficient facts based on the statute of limitations.

An action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. (Civ. Code, § 3426.6.) “[T]he first discovered (or discoverable) misappropriation of a trade secret [ ] commences the limitation period.” (Glue-Fold, Inc. v. Slautterback Corp. (2000) 82 Cal.App.4th 1018, 1026, emphasis added.)

The FAC expressly states that Plaintiff first discovered unauthorized use of his technology by Defendants in 2010 when “Markovic told [him]… that his students, including Defendant Wang, were implementing Konda Tech…” (FAC, ¶ 38.) It is further alleged that Plaintiff “told him to stop” but that Markovic told him that as a university professor, he could implement any publicly available technology. (Ibid.) Thereafter, Plaintiff told Markovic that without a license, Plaintiff did not agree that “he or UCLA had a right to implement” Plaintiff’s technology. (Ibid.)

As pleaded, then, the first discovered misappropriation of Plaintiff’s trade secrets by Defendants was in 2010, so the complaint filed in 2019 is untimely, and a demurrer based on the statute of limitations will be sustained.

In opposition, Plaintiff contends that he discovered the misappropriation in December 2015, thus the complaint filed here in the present action in April 2019 would still be untimely by his own admission. Plaintiff appears to argue his cause of action was tolled based on the federal complaint and his late discovery of wrongful conduct by Markovic and Wang. He argues that “Dr. Konda dismissed his Federal lawsuit without prejudice.” (Pl. Opp. to Dem., p. 7:5-6.) While Defendants’ request for judicial notice of the pleadings in the federal lawsuit is granted, neither party has sought judicial notice of the dismissal, nor has either party sufficiently discussed or substantiated arguments regarding the tolling effect of the federal lawsuit. While the Court does not necessarily see how this abrogates the earlier, 2010 discovery of the misappropriation, it will grant Plaintiff leave to amend the fourth cause of action, as cure may be possible.

Consequently, Defendants’ demurrer to the fourth cause of action, on the ground of failure to state sufficient facts is SUSTAINED, with 10 days leave to amend, on the basis of the statute of limitations.

VII. Flex Logix’s Demurrer
VIII.

Flex Logix demurs to the first and fifth causes of action on the ground that each “fails to allege facts” sufficient or “required”, presumably pursuant to Code of Civil Procedure section 430.10, subdivision (e).

A. First Cause of Action
B.

Flex Logix demurs to the first cause of action for unfair business practices based on the litigation privilege, the failure to adequately plead the cause of action, and also on the basis of standing.

1. Litigation Privilege
2.

Flex Logix first argues that the UCL cause of action is barred by the litigation privilege. The allegation in this cause of action against Flex Logix states its CEO, Tate, made threats to Plaintiff to “destroy Konda Tech.” (FAC, ¶ 86.) Flex Logix argues that because the alleged statement was made during settlement negotiations, they are protected by the litigation privilege.

Civil Code section 47, subdivision (b) states that a privileged publication is one made in any judicial proceeding. The privilege has been held to have “broad application” to any communication and bars all torts arising from the communications, other than malicious prosecution. (Gene Thera, Inc. v. Troy & Gould Professional Corp. (2009) 171 Cal.App.4th 901, 909, citation omitted.) Communications “directed toward settlement of a pending lawsuit” or an anticipated lawsuit are similarly protected by the privilege. (Id. at 910; see also Komarova v. national Credit Acceptance, Inc. (2009) 175 Cal.App.4th 324, 336 [communications with “some relation to an anticipated lawsuit” are within the privilege].)

Here, the parties are alleged to have engaged in settlement negotiations through attorneys from August, 2016 until April, 2017. (FAC, ¶ 76.) Further attempts to settle are alleged from September 2018 to December 2018. (Id. at ¶ 79.) Between these two periods, Plaintiff met with Tate, and Plaintiff “requested Mr. Tate to act fairly and resolve these issues immediately.” (Id. at ¶ 77.) At that point, Tate is alleged to have threatened Plaintiff stating that a Flex Logix board member “will ruin your career if you or Konda Tech files a lawsuit.” (Id. at ¶¶ 77, 78.) Thus, as alleged, the threats were “directed toward settlement of a pending or anticipated lawsuit.” The parties engaged in official settlement negotiations both before and after the communication happened. The threat was related to the consequences of any possible suit brought by Plaintiff. Consequently, the communications were made with some relation to an anticipated lawsuit, and cannot form the basis of the tort as pleaded.

In opposition, Plaintiff argues that “[t]here was no discussion of any of the causes of action alleged by Dr. Konda…” (See Pl. Opp. to Dem. P. 4:1-2.) Indeed, the FAC at that section states the parties were discussing “plagiarism” and “patent infringement.” (FAC, ¶ 77.) However, Plaintiff offers no substantive support for the proposition that for the litigation privilege to apply, the cause of action discussed must be in the current pleading under review.

Plaintiff also points out that another interaction is alleged in the FAC, between Tate and an executive from a competing FPGA manufacturer. (FAC, ¶ 80.) That conversation does not fall within the definition of a “communication with some relation to an anticipated lawsuit” and was not made between negotiating parties as alleged. Therefore, that conversation is not subject to the litigation privilege, and because a demurrer cannot be sustained as to a portion of a cause of action, the demurrer cannot be sustained on this basis alone. (Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal. App. 4th 1028, 1047; Elder v. Pacific Bell Telephone Co. (2012) 205 Cal.App.4th 841, 856, fn. 14.)

3. Failure to State Sufficient Facts
4.

Defendants go on to argue that the conversation between Tate and the executive of the competing manufacturer fails to state sufficient facts to support the cause of action for a UCL violation.

To be an actionable cause of action under the UCL, the unfair competition must involve acts or practices which are unlawful, or unfair, or fraudulent. (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.) Its intent is to “enjoin on-going wrongful business conduct.” (Ibid.)

As Flex Logix argues, the conduct alleged against Tate and Flex Logix does not rise to the level of “unlawful” or “unfair” business conduct. Tate is alleged to have observed Plaintiff talking to a competing FPGA manufacturer. (FAC, ¶ 80.) Tate later approached the same executive and asked for “contact information of your lawyers” stating “I think they shall talk together.” (Ibid.) It is also alleged that Tate told the executive that he saw him talking to Plaintiff earlier in the day and stated, “I wanted to tell you that what we have is something totally different from Konda claims. I hope you are not helping him in any way.” (Ibid.) This is insufficient to allege any unfair or wrongful business practice.

In opposition, Plaintiff’s argument adds facts regarding how the executive “perceived” the statements as a threat to not license Plaintiff’s technology. However, this is an unsupported inference that is not pleaded, and Plaintiff fails to demonstrate how Tate’s conduct supports a UCL cause of action.

Consequently, Flex Logix’s demurrer to the first cause of action is SUSTAINED, with 10 days leave to amend on the basis of failure to sufficiently plead the cause of action.

C. Fifth Cause of Action
D.

Flex Logix demurs to the fifth cause of action on the basis that civil conspiracy is not adequately pleaded, and that it is preempted by CUTSA. Given the Court’s analysis above, and the fact that Flex Logix advances arguments similar to those in Defendants’ demurrer, the demurrer will be sustained on the basis of CUTSA preemption.

As Flex Logix contends, CUTSA is the exclusive remedy for causes of action based on misappropriation of trade secrets. (Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 236, citing Code Civ. Proc., § 3426.7, subds. (a), (b), and disapproved on another ground Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310; “Silvaco”.) Whereas here, the same operative nucleus of facts is used as a basis for the conspiracy claim, as those used in the misappropriation cause of action, the demurrer must be sustained. (See K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 958.)

Consequently, Flex Logix’s demurrer to the fifth cause of action is SUSTAINED, without leave to amend on the basis that it is preempted by CUTSA. Plaintiff has failed to demonstrate how the FAC could be amended to state a cause of action for conspiracy.