*965I. INTRODUCTION
Plaintiff ChromaDex, Inc. ("ChromaDex"), brings this action for breach of contract, fraudulent deceit, misappropriation of trade secrets in violation of California Civil Code §§ 3426 et seq. , and misappropriation of trade secrets in violation of
II. BACKGROUND
"ChromaDex is Elysium's sole supplier of the two active ingredients in Elysium's only product: a dietary supplement named 'Basis.' Specifically, ChromaDex supplies Elysium with NIAGEN®, a patented, proprietary health ingredient that is comprised of nicotinamide riboside ('NR'), and pTeroPure®, a patented, proprietary health ingredient made of pterostilbene, in return for product payments and sales royalties for NIAGEN." (FAC ¶ 2.) ChromaDex is apparently the sole commercial supplier of NR. ( CC ¶ 4.) Elysium began discussions with ChromaDex to obtain a supply of NR in the summer of 2013. (Id. ¶ 42.) Elysium expressed concern regarding ChromaDex's "onerous" terms, such as "upfront cash payments, minimum purchase commitments, royalties and even equity positions from businesses seeking to use ChromaDex as a source for the supply of [NR]." (Id. ¶ 43.) After negotiating and exchanging draft agreements in November and December 2013, (id. ¶¶ 43-54), the parties entered into a NIAGEN (NR) Supply Agreement on February 3, 2014, a Trademark License and Royalty Agreement on February 3, 2014, and a pTeroPure (pterostilbene) Supply Agreement on June 26, 2014. (FAC ¶¶ 16-18;
According to ChromaDex, ChromaDex and Elysium's commercial arrangement was "expanding but unremarkable" prior to June 2016. (Id. ¶ 20.) Then, in the first quarter of 2016, Elysium ordered nearly double the amount of NIAGEN it had ordered in all of 2015, and in the second quarter of 2016, Elysium first raised concerns about pricing under the NIAGEN Supply Agreement. (Id. ¶¶ 20-21.) Elysium allegedly refused or ignored ChromaDex's offers to resolve its concerns, however. (Id. ¶ 21.) On June 28, 2016, "without any prior discussion or advance notification, Elysium submitted two extraordinarily large purchase orders for NIAGEN and pTeroPure."
*966(Id. ¶ 22.) These orders were approximately four times larger than any previous orders and more than double the sum of all Elysium's prior orders. (Id. ) They also included a demand for two products at less than half of the previously agreed upon price. (Id. )
ChromaDex set up a call with Elysium about the price of these orders on June 30, 2016, and Elysium allegedly stated that because it was "ramping up," Elysium expected to use all of its ordered products over the next few months and would placе additional large orders in the third and fourth quarters of 2016. (Id. ¶¶ 24-27.) Based on this representation, ChromaDex offered Elysium a discounted price for NIAGEN, which Elysium was "not entirely satisfied with" but accepted. (Id. ¶¶ 27-29.) ChromaDex alleges that Elysium "intended to induce ChromaDex to inadvertently supply large amounts of NIAGEN and pTeroPure to Elysium at grossly discounted prices." (Id. ¶ 23.) ChromaDex filled the orders on July 1 and August 9, 2016, and sent Elysium invoices totaling $2,983,350. (Id. ¶¶ 30-31.)
On August 10, 2016, however, Elysium informed ChromaDex that it would not pay the past due invoices until other concerns raised on the June 30, 2016, call were resolved according to Elysium's terms. (Id. ¶ 34.) Elysium has allegedly refused to pay the amount due or engage in discussions about a resolution. (Id. ¶ 38.) Elysium apparently has not ramped up its business or placed additional orders with ChromaDex as promised. (Id. ¶ 42.) ChromaDex further alleges that Elysium's false promises were motivated by the fact that it "was seeking financing during the middle of 2016 and at least into November 2016, [and] has been able to improve its balance sheet by continuing to sell its product for millions of dollars in revenue without paying ChromaDex a dime for the supply, likely engaging in fictional book keeping and deceiving potential or actual investors about Elysium's financial condition." (Id. ¶ 43.)
Accordingly, Elysium has allegedly breached the pTeroPure Supply Agreement by failing to pay 30% of the amount due within 30 days of the date of the invoices and the remainder within 60 days of the date of the invоices, and it has allegedly breached the NIAGEN Supply Agreement by failing to pay the amount due within 30 days of the invoice. (Id. ¶¶ 45-56.) Under the terms of the Royalty Agreement, Elysium has also breached its obligation to pay royalties to ChromaDex based on its net sales of its product containing NIAGEN and to furnish quarterly reports detailing such royalties. (Id. ¶¶ 57-67.) ChromaDex estimates these royalties will amount to no less than $1 million. (Id. ¶ 67.)
Elysium also allegedly conspired with two ChromaDex employees, Mark Morris (Vice President of Business Development) and Ryan Dellinger (Director of Scientific Affairs), to steal ChromaDex's "confidential and proprietary information" to injure ChromaDex for Elysium's benefit. (Id. ¶¶ 68-72.) Morris allegedly informed Elysium of ChromaDеx's "confidential business dealings and information ChromaDex had acquired about one or more potential partners" on or around April 28, 2016. (Id. ¶ 73.) "On or around May 25, 2016, Morris made an unusual request for the contact information for one of ChromaDex's research partners from Dellinger, which Dellinger provided. Less than a month later, on or around June 24, 2016, Dellinger was contacted by that ChromaDex partner, who informed him that he had been contacted by Elysium. Dellinger encouraged that ChromaDex partner to talk with Elysium and did not inform anyone at ChromaDex about Elysium's activity." (Id. ¶ 74.) Morris resigned from ChromaDex on *967July 16, 2016, and shortly thereafter joined Elysium. (Id. ¶ 75.) Dellinger resigned from ChromaDex the same day Elysium notified ChromaDex that it would not pay the past due invoices (August 10, 2016), and joined Elysium soon aftеr. (Id. ¶ 76.) ChromaDex alleges that Morris and Dellinger disclosed additional proprietary and confidential business information, but the full extent is not now known and "can only be uncovered through discovery." (Id. ¶ 77.)
Based on these allegations, ChromaDex brings claims for breach of the pTeroPure supply agreement, breach of the NIAGEN supply agreement, breach of the Royalty agreement, fraudulent deceit, and misappropriation of trade secrets under both state and federal law. (Id. ¶¶ 79-121.)
Elysium's counterclaims, in turn, stem from its allegations that "ChromaDex has committed patent misuse and engaged in unfair competition by leveraging its market power in the supply of [NR] to impose conditions on its custоmers that impermissibly broaden the scope of the patent grant with anticompetitive effect." ( CC ¶ 6.) ChromaDex's market power apparently comes from, among other things, patents it has in-licensed relating to NR, including U.S. Patent Nos. 8,383,086 ("the '086 patent"), 8,197,807 ("the '807 patent"), 8,106,184 ("the '184 patent"), 8,114,626 ("the '626 patent"), and 7,776,326 ("the '326 patent"), which are assigned to third parties and exclusively licensed to ChromaDex. (Id. ¶¶ 32, 35-36.)
Elysium alleges that ChromaDex has conditioned its sale of NIAGEN on purchasers' agreement to license ChromaDex trademarks and pay substantial royalties as a result. (Id. ¶ 6.) Elysium claims that ChromaDex conditioned the execution of the NIAGEN Supply Agreement on Elysium's simultaneous execution of the License and Rоyalty Agreement, "which forces Elysium to pay a substantial royalty to ChromaDex on all Elysium products containing ingredients supplied by ChromaDex under the [NIAGEN] Supply Agreement, even if Elysium does not use, and does not want to use, any ChromaDex marks." (Id. ) "Not only is the royalty obligation unconnected to use of ChromaDex's trademarks, but the royalty rate also changes for reasons unrelated to use of any trademarks. Instead, for example, the royalty rate increases as Elysium's annual worldwide net sales of products containing ingredients supplied by ChromaDex increases," which provides "additional means for ChromaDex to protect its market power in [NR], unlawfully extend ChromaDex's patent monopoly, and adversely affect competition." (Id. ¶¶ 57, 59.)
Elysium claims that to induce Elysium to sign the License and Royalty agreement, ChromaDex falsely insisted that all of its NR customers must sign similar agreements. (Id. ¶ 7.) "In reliance on ChromaDex's false representation that it required all of its customers to execute trademark license and royalty agreements, Elysium concluded that the issue was non-negotiable, and instead focused its efforts on negotiating the other provisions of the [NIAGEN] Supply Agreement." (Id. ¶ 51.)
Elysium contends that ChromaDex also breached the NIAGEN Supply Agreement, under which Elysium is "entitled to receive pricing on [NR] that is at least as favorable as the price at which ChromaDex supplies [NR] or a substantially similar product to other purchasers, but never more than a certain maximum price" (the "MFN Provision"). (Id. ¶ 8.) On June 13, 2016, in response to a request from Elysium for information regarding ChromaDex's compliance with the MFN Provision, ChromaDex allegedly provided Elysium with a "manipulated and misleading Excel spreadsheet" which purported to "list the prices at which ChromaDex was selling *968[NR] to purchasers other than Elysium under various supply agreements." (Id. ¶ 12.) The spreadsheet was supposed to omit the identity of ChromaDex's other customers, but inadvertently included two tabs containing "unblinded" sheets, which listed additional customers that ChromaDex omitted from the "blinded" sheets, and purportedly showed that ChromaDex had agreed to sell NR to other purchasers at a price more favorable than the price given to Elysium. (Id. ¶ 13.) "On a June 30, 2016 phone call with two of Elysium's co-founders, Eric Marcotulli and Dan Alminana, [ChromaDex's CEO, Frank Jaksch] confirmed that other purchasers of [NR] had been paying a price substantially lower than Elysium had been paying, in violation of the MFN Provision." (Id. ¶ 14.) The spreadsheet also apparently revealed that not all ChromaDex customers were required to sign license and royalty agreements. (Id. ) "[A]t least one of these customers, in ChromaDex's own words, 'pre-dates Elysium.' " (Id. ¶ 68.) For this reason, Elysium submitted purchase orders for 3000 kg of NR and 580 kg of pterostilbene on June 30, 2016, "with the understanding that ChromaDex would promptly issue a refund or credit to Elysium on account of ChromaDex's breach of the MFN Provision." (Id. ¶ 15.)
After submitting the June 30 Purchase Orders, Elysium discovered that other products containing both NR and pterostilbene or NR and resveratrol, a product substantially similar to pterostilbene, were being sold on the market by other ChromaDex customers. (Id. ¶ 16.) ChromaDex was apparently even "actively recommending to other customers that they create such products to compete with Elysium's Basis, in violation of the Exclusivity Provision" in the NIAGEN Supply Agreement. (Id. ¶ 17.)
As a result, Elysium has counterclaimed for breach of the NIAGEN Supply Agreement, breach of the covenant of good faith and fair dealing relating to the NIAGEN Supply Agreement, fraudulent inducement relating to the License and Royalty Agreement, declaratory judgment of patent misuse, and unlawful and unfair business practices in violation of the UCL. (Id. ¶¶ 89-122.)
III. LEGAL STANDARD
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the claims asserted in the complaint. The issue on a motion to dismiss for failure to state a claim is not whether the claimant will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims asserted. Gilligan v. Jamco Dev. Corp. ,
However, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions."
*969Ashcroft v. Iqbal ,
IV. DISCUSSION
A. Motion to Dismiss Claims
Elysium moves to dismiss ChromaDex's fourth claim for fraudulent deceit and its fifth and sixth claims for misappropriation of trade secrets in violation of state and federal law. (Dkt. 30-1 at 2-3.)
1. Fraudulent Deceit
ChromaDex's fraudulent deceit claim is based on Elysium's alleged false promises and representations that (1) Elysium was ramping up its business and needed large volumes of NIAGEN and pTeroPure quickly, (2) Elysium would pay a discounted price for NIAGEN and work with ChromaDex to resolve Elysium's concerns about the NIAGEN Supply Agreement, and (3) Elysium emailed an estimate for royalties due with no intent to pay them, all "with the intent of inducing ChromaDex to provide [Elysium with unusually large supplies of NIAGEN and pTeroPure that would last it through any dispute with ChromaDex and which would also serve as leverage in any dispute." (FAC ¶¶ 94-100.) Elysium argues that this claim must be dismissed under the economic loss rule, (Dkt. 30-1 at 7), which generally bars tort claims based on contrаct breaches, and "requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise," Robinson Helicopter Co. v. Dana Corp. ,
ChromaDex maintains that its claim falls within a "black letter law exception" to the economic loss rule articulated in Robinson Helicopter that "a contract is not a license allowing one party to cheat or defraud another." (Dkt. 37 at 9 (citing Robinson Helicopter ,
*970Id. at 985-88,
The Robinson Helicopter exception does not apply in this case. ChromaDex does not allege that Elysium's actions caused ChromaDex to face any independent liability to third parties. ChromaDex's injury is simply economic harm resulting from the contract-namely, that Elysium owes it money that Elysium will not pay. Nor did Elysium's alleged misrepresentations change any terms material to the contract, as was the case in Robinson Helicopter . Elysium's purported statements werе simply reassurances and representations incidental to the contract to induce ChromaDex to fill orders that it was already obligated to fill under the agreements.
ChromaDex also cites Erlich v. Menezes ,
2. Misappropriation of Trade Secrets
Elysium argues that ChromaDex has failed to allege the existence of a protectable trade secret, which is necessary for its trade secret misappropriation claims under the California Trade Secrets Act ("CUTSA") and the federal Defend Trade Secrets Act ("DTSA"). (Dkt. 30-1 at 10.) " 'Trade secret' means information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) Derives independent economic value, actual or potential, from not being generally known to the public or to *971other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."
The FAC alleges that the purported trade secrets "have tremendous economiс value from not being generally known in that their use has resulted and continues to result in retention and renewal of existing accounts and customers as well as referrals to other potential customers and accounts." (FAC ¶ 106.) ChromaDex further alleges that it undertook the following "reasonable efforts to ensure that its trade secret information remains secret by, among other things: (1) informing its employees of the restricted and prohibited use of the information and that it constitutes a trade secret; (2) making its employees with access to such information party to confidentiality agreements as conditions of their employment with ChromaDex; (3) [ ] restricting access to its trade secret infоrmation to only employees who have executed its confidentiality agreement and acknowledged and agreed to keep ChromaDex's trade secrets secret; and (4) employing policies restricting the dissemination and use of its proprietary information." (Id. ¶ 107.)
However, "courts are reluctant to protect customer lists to the extent they embody information which is 'readily ascertainable' through public sources, such as business directories." Morlife, Inc. v. Perry ,
*972B. Motion to Dismiss Counterclaims
ChromaDex moves to dismiss Elysium's third cоunterclaim for fraudulent inducement, fourth counterclaim for patent misuse, and fifth counterclaim under the UCL. (Dkt. 34-1 at 1.)
1. Fraudulent Inducement
ChromaDex argues that Elysium's fraudulent inducement claim fails under Federal Rule of Civil Procedure 9(b) because Elysium has not alleged facts demonstrating that Jaksch's representation that all of ChromaDex's customers who signed purchase agreements to obtain NR were also required to sign separate trademark license and royalty agreements was false when made . (Dkt. 34-1 at 7-8 (citing In re Stac Elecs. Sec. Litig. ,
ChromaDex argues that "Elysium relies only on a spreadsheet purportedly containing a contradictory statement that it received two and a half years after the alleged false statement." (Id. at 8 (emphasis in original).) Elysium counters that the allegations concerning the spreadsheet demonstrate that Jaksch's statement was false when made because it showed that at least one NR purchaser whose relationship with ChromaDex pre-dated Elysium's was not required to sign license and royalty agreement or pay royalties. (Dkt. 38 at 12; CC ¶ 65 - 69.) Elysium also alleged that Jaksch knew his statement was false, made it to induce Elysium to enter into the License and Royalty Agreement, (CC ¶¶ 107, 109), and that, when pressed for an explanation about the spreadsheet, Jaksch conceded in an email the next day that at least one ChromaDex customer had paid less per kilogram for NR than Elysium had paid and that this customer did not have a royalty agreement in place, (id. ¶ 70). Viewing such allegations light most favorable to Elysium, they support a plausible inference that Jaksch's statements were fraudulent when made.
ChromaDex also argues that Elysium fails to plead reliance with particularity. (Dkt. 34-1 at 9.) ChromaDex contends that the counterclaims preclude Elysium from plausibly alleging reliance because they demonstrate that "[n]egotiations regarding the NIAGEN Supply Agreement were protracted, beginning in 12 August 2013-four months before the alleged misrepresentation-and not concluded until early 2014," during which time "Elysium successfully rebuffed ChromaDex's request for equity, negotiated a favorable preferred pricing MFN provision, obtained a form of exclusivity, and secured other negotiation 'wins' in the parties' robust negotiation." (Id. at 9-10 (citing CC ¶¶ 43, 53 ).) ChromaDex contends that "Elysium does not allege that it would not have entered [into] the agreement but for the alleged false statement, or even that it would have been able to negotiate a deal that did not contain a royalty payment." (Dkt. 34-1 at 10.)
However, for purposes of reliance under California law, Elysium need only allege that it would have behaved differently had it known the truth. Peel v. BrooksAmerica Mortg. Corp .,
2. Patent Misuse
ChromaDex argues that Elysium's fourth counterclaim for declaratory judgment of patent misuse arising from ChromaDex's alleged "tying of access to its patent rights to a rоyalty-bearing trademark license [which] impermissibly broadens the scope of those patent rights, with anticompetitive effect," is only an equitable defense, not an affirmative claim. (Dkt. 34-1 at 11 (citing CC ¶¶ 38, 113).) In response to Elysium's citing of case law demonstrating that a declaratory relief claim for patent misuse is permissible,
Elysium responds that "[a]ll that courts require for a declaratory judgment claim is the existence of a case or controversy." (Dkt. 38 at 14.) In MedImmune, Inc. v. Genentech, Inc. ,
ChromaDex next argues that the patent misuse counterclaim fails because ChromaDex's alleged conduct-that it conditioned access to its products (through an implied license) on the purchase from ChromaDex of a trademark license-does not amount to an illegal tying arrangement. (Dkt. 34-1 at 12-13.) ChromaDex asserts that the trademark rights under the express terms of the Trademark License and Royalty Agreement are "wholly optional" and Elysium need not use the trademarks, but instead must pay royalties on products sales "to compensate ChromaDex for that portion of the product purchase price that Elysium claimed it could not afford to pay upfront, when it placed a purchase order." (Id. at 13.) This argument fails because Elysium does not complain that it was forced to use the licensed trademarks, only that it was forced to buy the license for the trademarks in order to have access to NR. ( CC ¶¶ 6, 48.) This is suffiсient for a tying claim. Eastman Kodak Co. v. Image Tech. Servs. ,
Finally, ChromaDex argues that the tying allegations must fail because a trademark license is not a 'separate product' that can be tied to the patent rights, and "no tying arrangement can exist unless there is a sufficient demand for the purchase of [a trademark license for NIAGEN] separate from [the supply of NIAGEN] to identify a distinct product market in which it is efficient to offer [the trademark license] separately from [NIAGEN]." (Dkt. 34-1 at 14 (citing Jefferson Par. Hosp. Dist. No. 2 v. Hyde ,
3. UCL
ChromaDex argues that Elysium fails to adequately plead a violation of the UCL, (Dkt. 34-1 at 21-24), which is premised on three of ChromaDex's alleged acts: (1) "conditioning its supply of [NR] on the purchaser's agreement to license ChromaDex's trademarks," (CC ¶ 117); (2) "stepping up the royalty rates tied to its supply of [NR] as its patent and market power decreases," (id. ¶ 118); and (3) "breaches of the NR Supply, its active and deliberate concealment of those breaches from Elysium, and its attempt to defraud Elysium by its presentation to Elysium of the Fraudulent Spreadsheet," (id. ¶ 119). Elysium alleges that "ChromaDex has violated patent law and pоlicy by committing patent misuse as a consequence of one or more of these acts or practices" and that "[t]hese acts or practices constitute unlawful and/or unfair acts or practices under California's state law of unfair competition." (Id. ¶¶ 120-21.)
In Linear Tech. Corp. v. Applied Materials, Inc. ,
V. CONCLUSION
For the foregoing reasons, Defendant's motion to dismiss, (Dkt. 30), is GRANTED IN SUBSTANTIAL PART. Plаintiff's fourth claim for fraudulent deceit is DISMISSED WITHOUT LEAVE TO AMEND and its fifth and sixth claims for misappropriation of trade secrets in violation of state and federal law are DISMISSED WITH FOURTEEN DAYS'
*976LEAVE TO AMEND. Plaintiff's motion to dismiss, (Dkt. 34), is GRANTED IN PART. Defendant's fifth counterclaim under the UCL is DISMISSED WITHOUT LEAVE TO AMEND.
Notes
Having read and considered the papers presented by the parties, the Court finds this matter appropriate for disposition without a hearing. See Fed. R. Civ. P. 78 ; Local Rule 7-15. Accordingly, the hearing set for May 15, 2017, at 1:30 p.m. is hereby vacated and off calendar.
Since the Court finds that ChromaDex's claim is barred by the economic loss rule, it need not consider Elysium's arguments as to whether ChromaDex adequately pled justifiable reliance. (See Dkt. 30-1 at 9.)
Since the Court finds that ChromaDex has failed to allege the existence of a protectable trade secret, it need not consider Elysium's additional arguments as to whether these claims are sufficiently pled. (See Dkt. 30-1 at 11-21.)
See Dkt. 38 at 13-14 (relying on Inamed Corp. v. Kuzmak ,