Dental Shopper vs. Carter
GRANT the Motion for Summary Adjudication by Defendant Bruce Carter as to the 1st Cause of Action for Misappropriation of Trade Secrets (statutory) and 2nd Cause of action for Misappropriation of Trade Secrets (common law). Bruce Carter did not misappropriate any trade secrets. Fact #11 & evidence cited therein).
It is doubtful that the information that Bruce Carter allegedly took was a “trade secret.” However, even assuming that there was a “trade secret,” the undisputed facts establish that Carter, not Plaintiff, was the owner of the “trade secrets.” Plaintiff paid only a commission to Carter as an independent contractor based on collections for advertising. Plaintiff did not compensate Carter for the effort and expense to develop the information. Plaintiff has not cited any legal authority for its assumption that information Carter obtained through his own efforts and expense became the property of Plaintiff, merely because the information was collected, in a broad sense, “on behalf of Plaintiff.”
Plaintiff does not dispute that Defendant was an independent contractor. (Fact #1 and evidence submitted in support). Plaintiff has not contradicted that, Defendant, as an independent contractor, was paid by commission based on actual collections for actual advertising. (Declaration of Carter ¶¶ 7 & 8, and Exhibits II and JJ). Plaintiff presents no evidence to contradict Carter’s declaration that he was the person responsible at all times for identifying and developing relationships with the advertisers. (Declaration of Carter ¶ 16). Plaintiff has not contradicted Carter’s testimony that Plaintiff never paid him for his efforts to locate and attract customers. (Declaration of Carter, ¶24, 8:25-27). The Opposition does not refer to any effort or expense that Plaintiff incurred to develop and maintain a customer list, but rather, refers to testimony by Mr. Carter about what he did to build and maintain the contact list. (Opposition, 3:8-20).
A cause of action for misappropriation of trade secrets requires a showing that the employer expended time and effort to identify customers with particular needs or characteristics. (Opposition, 2:17-24, citing Courtesy Temporary Service v. Camacho, 222 Cal.App.3d at 1287. Plaintiff has presented no evidence that Plaintiff expended time or effort. Rather, it presents only a conclusory statement that the information about advertisers was “assembled over the last 21 years at considerable time and expense to the Daily Shopper.” (Declaration of Uso, 18:23-24). That statement is merely a conclusion without foundation.
Cases discussing misappropriation of customer lists and information generally involve employees who were given access to confidential information by their employer, and not independent contractors who compiled information through their own efforts, and were not provided with information by the employer.
Also, Dr. Uso argues that Carter could not have built Dental Trader so quickly without using confidential information. However, the California courts have expressly rejected the “inevitable disclosure” doctrine, because it has the practical effect of barring former employees from competing with the former employer, as they have every right to do. Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443. Even if the customer list were the employer’s trade secrets, compiled by the effort and expense of the employer, it is not illegal for a former employer to use that list to send an announcement of new affiliation. Hilb, Rogal and Hamilton Ins. Services (1995) 33 Cal.App.4th 1812, 1821.
The Court notes that there is some controversy among panels of the Court of Appeal whether an employee has the right to solicit customers with whom the employee has dealt personally. Compare Moss, Adams & Co. v. Shilling (1986) 179 Cal.App.3d 124, 128-130, with American Credit Indemnity Co. v. Sacks (1989) 213 Cal.App.3d 634. In the context of this case, involving an independent contractor who exerted his own efforts to compile information, the position in Moss, Adams is the better approach. Having obtained information solely through his own efforts, and there being no confidentiality or non-competition agreement, Mr. Carter had a right to use of the information he had developed personally in order to compete once he left Dental Shopper.
Objections to Declaration of Uso:
Defendant has objected to many parts of the Declaration of Madrid Uso, Jr., on the grounds of hearsay as to what he was told by others, argumentative, and lacks foundation. As to the portions of the declaration discussing trade secrets, the objections are sustained. The declaration fails to present any facts showing that Dr. Uso has personal knowledge of facts that would support the conclusion that the customer list and customer information were trade secrets, or that Plaintiff incurred any expense to compile the information.
Interference with Prospective Advantage:
GRANT the Motion for Summary Adjudication as to the Fourth Cause of Action for Interference with Prospective Advantage. The Opposition fails to present admissible evidence that Mr. Carter performed a wrongful act, separate and independent of the act of interference itself, to interfere with a prospective economic advantage.
The moving papers establish that Mr. Carter’s use of the customer lists and information he had compiled over the years as an independent contractor was not a misappropriation of trade secrets. Soliciting a competitor’s customers is not a wrongful act, but rather, is a legitimate act of competition. Della Penna v. Toyota Motor Sales (1995) 11 Cal.4th 376.
Interference with Contract:
GRANT the Motion for Summary Adjudication as to the Third Cause of Action for Intentional Interference with Contract. Unlike interference with prospective advantage, interference with contract does not require a showing of wrongful conduct independent of the act of interference itself. See Della Penna, 11 Cal.4th at 392.
However, the competition privilege is a valid defense to a claim for interference with contract, because a competitor has a right to solicit another firm’s customers so long as it does not use illegal means to do so. In order to overcome the competition privilege, the Plaintiff must present evidence that the Defendant’s conduct was wrongful or illegal. San Francisco Design Center v. Portman Companies (1995) 41 Cal.App.4th 29, 42. As stated therein:
in the absence of prohibition by statute, illegitimate means, or some other unlawful element, a defendant seeking to increase his own business may cut rates or prices, allow discounts or rebates, enter into secret negotiations behind the plaintiff’s back, refuse to deal with him or threaten to discharge employees who do, or even refuse to deal with third parties unless they cease dealing with the plaintiff, all without incurring liability.’
Defendant has fulfilled his burden to show that any interference with contracts between customers and Dental Shopper was the result of legitimate competition. Plaintiff has referred to only one customer, Cirrus, who was given free advertising for a short time, but the same evidence shows that Cirrus continued to advertise in Dental Shopper while its contract was in effect. (Exhibit W, Deposition of Carter, 184:10-17). There was no inducement to breach the contract as a result of the free advertising, because the advertiser did not terminate the contract. Plaintiff acknowledges that it was out of business by early November of 2004 because virtually all advertisers had terminated their relationship. Offering a free ad to one advertiser did not cause the other advertisers to terminate their relationship, and/or cause Plaintiff to go out of business.
Offering free “reader ads” to dentists did not interfere with any contracts.
The Opposition cites authorities for the proposition that an action for interference with contract is not necessarily barred by the fact that a contract can be terminated at will. However, the validity of those earlier authorities is in question as a result of a recent decision by the California Supreme Court, Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1150-1151. Offering better financial terms to induce cancellation is a legitimate form of competition. Id.
No evidence has been presented regarding competition through illegal or unfair means. Mr. Carter has testified that he did not actively solicit former advertisers of Plaintiff, but merely announced his new business. (Declaration of Carter, ¶42, 17:3-5; Exhibit B to Opposition). He never asked anyone to cancel a contract with Plaintiff or to discontinue advertising with Plaintiff, and that customers made their own decisions whether to change their business. (Declaration of Carter, ¶44, 18:1-16). Plaintiff has not presented evidence to refute Mr. Carter’s explanation. In Opposition, Plaintiff bases its conclusion that there was an interference with contract based on the fact that certain customers terminated their contracts with Plaintiff and started to advertise with Defendant. (Declaration of Uso, ¶30, 7:9 to 8:15). However, the fact that advertisers terminated their contracts does not constitute evidence that overcomes the competition privilege.
The fact that Defendant used his experience and knowledge to prepare a competing publication that was similar to Plaintiff’s does not support a claim for intentional interference, because a former employee has a right to use his training and experience in order to compete. Metro Traffic Control v. Shadow Traffic Network (1994) 22 Cal.App.4th 853 [allegations that former employees used same “style” of doing business did not support claim for interference.]
Unfair Business Practices:
GRANT the Motion for Summary Adjudication by Defendant Bruce Carter to the 5th Cause of Action for unfair business practices. For the reasons stated above, Defendant has shown that he competed with Plaintiff through legitimate means. Legitimate competition cannot be declared “unfair” for purposes of a cause of action under Business and Professions Code § 17200 merely because the Plaintiff considers the loss of business to Defendant to be “unfair.” Cel-Tech Communications v. Los Angeles Cellular Telephone (1999) 20 Cal.4th 163, 180.
B & P Code § 17043:
GRANT the Motion for Summary Adjudication by Defendant Bruce Carter to the 6th Cause of Action for violation of Business and Professions Code § 17043. The act of giving free space to dentists in order to promote use of the publication and promote the sale of advertising is not the sale of goods or services under cost. Western Union Financial Services v. First Data Corp (1993) 20 Cal.App.4th 1530. The practice of offering products free or below cost in order to attract other and more lucrative business (such as, offering free cell phones in return for cell phone service contracts, or offering free goods for the first 100 customers on a given day) is a common and legitimate practice. See, Cel-Tech Communication v. Los Angeles Cellular (1999) 20 Cal.4th 163 [selling telephones below cost in order to sell service contracts was not an unfair business practice.]
Defendant’s offers of “free” services does not approach the level of “under cost” sales discussed in Fisherman’s Wharf Bay Cruise v. Superior Court (2003) 114 Cal.App.4th 309, in which a business offered below cost tickets to wholesale buyers that were subsidized by retail sales, in order to prevent competition through wholesale buyers. Offering free ads up to 20 lines to dentists who do not pay for the publication does not affect the cost of advertising by advertisers, and there was a legitimate business purpose. The one free add by Cirrus in the August 2004 edition has not been shown to substantially increase the cost of the publication.
As Defendant points out in its papers, Defendant was entitled to compete with Plaintiff by offering similar incentives to dentists, if by doing so it would attract advertisers. However, Plaintiff acknowledges that it lost its advertisers even before Defendant offered free “reader’s ads” to the dentists.
GRANT the Motion for Summary Adjudication as to the cause of action for Common Law Unfair Competition. Common law unfair competition requires a showing that there is a likelihood of confusion in the relevant public. California Western School of Law v. California Western University (1981) 125 Cal.App.3d 1002, 1009. When there is no likelihood of confusion in the relevant market, there is no unfair competition. Cowles Magazines v. Elysium (1961) 255 Cal.App.2d 731.
It is undisputed that the two publications had a limited circulation to dentists in California, that the publications were sent to the dentists free of charge, and that the “circulation” of the publications was not affected by the existence of a competing publication. The “product” or “service” that Plaintiff and Defendant actually sold was advertising space to businesses targeting dentists as potential customers. The relevant market or public for purposes of unfair competition, therefore, was the advertisers. No evidence has been submitted that there was any confusion or likelihood of confusion among the advertisers as to which publication they were dealing with, or that the name of Defendant’s publication had any effect on the loss of advertising.
Also, Dr. Uso has testified that virtually all advertisers had left Dental Shopper within two weeks (Declaration of Uso ¶ 26). Confusion of names could not have caused any damages to Dental Shopper, which lost its source of income before Dental Trader was published in mid-August..
The phrases “Dental Shopper” and “Dental Trader” are not so similar that a likelihood of confusion can be inferred merely by similarity. The term “dental” is a generically descriptive term referring to the types of products advertised. The terms “shopper” and “trader” are common and standard terms for catalogues and publications, and it is not unusual to have two publications addressed to certain kinds of products named “shopper” and “trader.”
GRANT the Motion for Summary Adjudication as to punitive damages. No evidence has been presented that Defendant committed fraud, malice or oppression when competing with Plaintiff. No evidence has been presented of any intentional misrepresentation with intent to deceive. No evidence has been presented of an intent to injure or despicable conduct that might constitute “malice.” No evidence has been presented of despicable conduct for purposes of “oppression.” The evidence has shown that Mr. Carter merely resigned from an economic relationship he no longer believed to be in his best interests, and successfully established a competing company. (Separate Statement, Fact ## 70-73). An intent to successfully compete for the same business is not the kind of “intent to harm” that supports punitive damages.
Defendant to give notice and prepare an appropriate (proposed) judgment.