[00:00:02] Speaker 03:
and you can leave that material with the clerk.

[00:00:45] Speaker 03:
okay the next case for argument if you could keep your voices down the next case for argument is fifteen two oh four eight mode over interactive versus phillips electronics

[00:01:23] Speaker 00:
Mr. Schmidt, I think we're all ready.

[00:01:26] Speaker 00:
Good morning, and since I am from Hawaii, aloha.

[00:01:31] Speaker 00:
I'm Mr. Schmidt and I represent MODA International.

[00:01:33] Speaker 00:
Let me just address a couple points, if I could please.

[00:01:37] Speaker 00:
First, the core of the appeal is the court's error in granting a motion to dismiss with factual issues clearly before the court.

[00:01:49] Speaker 00:
While MODA noted

[00:01:52] Speaker 00:
in its second amendment complaint that was suspicious of the fact that Phillips Electronics was using its technology and its products in the summer of 2008.

[00:02:03] Speaker 00:
At the hearing level, the court was required to listen to Moda's representation that it was not until late 2010, early 2011,

[00:02:19] Speaker 00:
that it had all the understanding that it needed to understand that Phillips was infringing upon its patents.

[00:02:28] Speaker 04:
Before I get to that, I do have a question about that.

[00:02:32] Speaker 04:
As I understand it, if we find that the trial court was correct on the statute of limitations issues, wouldn't that control all of the claims?

[00:02:44] Speaker 04:
In other words, wouldn't the statute of limitations bar

[00:02:47] Speaker 04:
apply even to the claims that the court found to be preempted?

[00:02:53] Speaker 00:
That's true for almost all the claims, Your Honor, except if you were to remand and we were still to have a breach of contract claim, which did not relate to a trade secret, we would still have, under Hawaii law, a six-year statute, which would, if the court also agreed that it related back,

[00:03:18] Speaker 00:
we would still have a breach of contract claim, which I believe is countable.

[00:03:22] Speaker 00:
We would still have that claim.

[00:03:23] Speaker 00:
I don't understand.

[00:03:23] Speaker 00:
Related back to which complaint?

[00:03:26] Speaker 00:
To the 2012 complaint.

[00:03:28] Speaker 00:
The first complaint.

[00:03:29] Speaker 00:
The first complaint.

[00:03:30] Speaker 00:
Which only had patent infringement.

[00:03:33] Speaker 00:
It was.

[00:03:34] Speaker 00:
Moda at the time was looking at a pure patent infringement case, and it did not realize that it had significant hearings it had to go through to prove patent infringement.

[00:03:46] Speaker 00:
So by the time we came on board in summer of 2011, it knew that it did not have those funds to go to those hearings and prevail.

[00:03:57] Speaker 00:
You mean like Markman hearings?

[00:03:59] Speaker 00:
Yes, ma'am.

[00:04:01] Speaker 00:
The cost would have been more than Moda had at hand.

[00:04:04] Speaker 02:
You're saying by 2011 it knew that it wasn't going to pursue the patent infringement action it filed in 2012?

[00:04:13] Speaker 02:
No, Your Honor.

[00:04:15] Speaker 02:
by 2014 when we became involved.

[00:04:18] Speaker 02:
Oh, 2014.

[00:04:19] Speaker 02:
I'm sorry.

[00:04:19] Speaker 02:
I thought you said 2011.

[00:04:20] Speaker 02:
No.

[00:04:21] Speaker 00:
In 2011, it knew of all the elements that it needed to prove the patent infringement case.

[00:04:28] Speaker 04:
OK.

[00:04:28] Speaker 04:
So let's start with relation back then, because I think that's important, because you'd have to have relation back in order to still have a contact plate.

[00:04:38] Speaker 04:
So my problem is that the relation back

[00:04:44] Speaker 04:
In order to relate back, it's got to arise the same transaction or occurrence.

[00:04:50] Speaker 04:
And here, what you're saying is that their current production of product, the original claim, infringes the claims of our patents.

[00:05:01] Speaker 04:
That was what your original claim was, as opposed to a claim that ultimately gets asserted that says your conduct back in the day

[00:05:12] Speaker 04:
was fraudulent and deprived us of other opportunities.

[00:05:17] Speaker 04:
How is that the same transaction or occurrence?

[00:05:21] Speaker 00:
OK.

[00:05:21] Speaker 00:
So the same transaction or occurrence is Phillips acquiring basically the cookbook to produce the product and the samples back in 2001.

[00:05:35] Speaker 00:
When it did not return those until much later, and it then became clear in 2010, 2011,

[00:05:42] Speaker 00:
that its conduct way back when in keeping that it did not return the technology.

[00:05:49] Speaker 00:
It may have physically given back the sample.

[00:05:52] Speaker 02:
As I understand your complaint, it did not, the 2012 complaint, it didn't recite this story about the exchange of the cookbook and the memorandum of understanding and the NDA and all of that.

[00:06:04] Speaker 02:
That's correct.

[00:06:05] Speaker 02:
Instead, the 2012 complaint looked more something akin to Form 18 where it was

[00:06:11] Speaker 02:
just the barest of components of being able to allege a patent infringement complaint alone.

[00:06:19] Speaker 02:
So I guess the concern I have is how you're able to rely on the relation back doctrine when there aren't actual facts in your Form 18 style original complaint that conjures up the notion that there was this relationship that was going on between the two parties back in 2001.

[00:06:39] Speaker 00:
for the patent infringement case, all of the various contracts between the parties, the MOU, the NDA, the exchange of samples, the on-site review of materials, that wasn't needed for that.

[00:06:54] Speaker 00:
But it was certainly encompassed by it.

[00:06:56] Speaker 00:
Because those facts, that conduct, is how Phillips acquired the technology.

[00:07:04] Speaker 00:
So on the notice pleading that was required at the outset,

[00:07:09] Speaker 00:
That was alleged.

[00:07:11] Speaker 00:
That core conduct was alleged.

[00:07:12] Speaker 04:
But infringement is a strict liability tort, essentially.

[00:07:17] Speaker 00:
It is.

[00:07:18] Speaker 00:
But you didn't plead willful infringement.

[00:07:22] Speaker 00:
No, we didn't, Your Honor, because they were looking at what were the core assertions that need to be made against Phillips.

[00:07:33] Speaker 00:
But the issue for the relation back is that it's that core conduct.

[00:07:38] Speaker 00:
It's not different conduct.

[00:07:39] Speaker 00:
It's that same core conduct because Philips acquired access to the Moda technology by way of that exchange, the MOU, the NDA, the exchange of samples, all that was encompassed by what they did.

[00:07:54] Speaker 00:
You're correct.

[00:07:55] Speaker 00:
It wasn't explicitly planned.

[00:07:57] Speaker 00:
But it's the same core conduct.

[00:07:59] Speaker 00:
And that's the issue.

[00:08:01] Speaker 03:
Can I just get some clarification?

[00:08:02] Speaker 03:
It seems to me the discussion now on what you've been trying to do more recently

[00:08:07] Speaker 03:
is to, your main allegation deals with dismissed business opportunities?

[00:08:13] Speaker 00:
It's several things, Your Honor.

[00:08:17] Speaker 00:
What we believe happened is two major things.

[00:08:21] Speaker 00:
Phillips, which is an international and well-known producer of electronics goods, basically did a head fake to Moda.

[00:08:31] Speaker 00:
Hey, let's take your stuff.

[00:08:32] Speaker 03:
Well, I'm not going to let you argue the merits of your case here.

[00:08:34] Speaker 03:
I don't really need to know.

[00:08:35] Speaker 03:
But you're trying to amend your complaint.

[00:08:41] Speaker 03:
There's nothing I could say in the complaint that really had anything to do with setting the basis for damages for missed opportunities, right?

[00:08:49] Speaker 03:
There's no reference in anything you've filed so far that deals, that even alleges.

[00:08:55] Speaker 03:
And we would have otherwise, during the interim period,

[00:08:59] Speaker 03:
been able to get contracts with X, Y, and Z, and we were precluded from doing that because we were misled by Phillips.

[00:09:05] Speaker 03:
Any of that in the complaint?

[00:09:06] Speaker 00:
Yes, Your Honor.

[00:09:07] Speaker 00:
The fraud and business opportunities would have been damages under counts four and count six.

[00:09:20] Speaker 00:
And I think the eSmart case is critical on that.

[00:09:23] Speaker 00:
It shows us that the cost for that missed opportunity in and of itself

[00:09:28] Speaker 00:
is a damage, and that we don't need to allege damages in the complaint.

[00:09:33] Speaker 00:
No, did you allege missed opportunities?

[00:09:36] Speaker 00:
Yes, Your Honor, in counts.

[00:09:37] Speaker 00:
You want to give me the unfair competition, Your Honor?

[00:09:48] Speaker 00:
One of the damage zero would be the missed opportunity.

[00:09:51] Speaker 03:
You've got to give me a page number in the appendix.

[00:10:00] Speaker 00:
If I could look in the rebuttal time, Your Honor, I believe it's in the second minute complaint, and I believe that's Dock number 131, but let me make sure I have the page.

[00:10:11] Speaker 00:
I believe it's page 27, but I'll check when I have time.

[00:10:14] Speaker 02:
I seem to recall your complaint alleging that Moda was actively pursuing business relationships with a lot of different parties, not just Phillips.

[00:10:24] Speaker 02:
And then the MOU made it very clear to both parties that

[00:10:29] Speaker 02:
MOU was not binding and not exclusive.

[00:10:33] Speaker 02:
So I guess what I'm trying to figure out is that based on the documents at hand, there's nothing that's specifically directing the parties towards some exclusive relationship where MoDA is binding itself in a way that it's denying itself from dealing with other potential parties in terms of engaging in some joint venture.

[00:10:58] Speaker 02:
everything seemed to be pointing to the opposite.

[00:11:02] Speaker 02:
Am I wrong about that?

[00:11:03] Speaker 02:
Just slightly, Your Honor.

[00:11:05] Speaker 00:
Okay.

[00:11:08] Speaker 00:
When Moda came out with its technology, it went to a lot of producers, and all these deal with speakers, and it's the size of the speaker that's really at what's at issue here.

[00:11:20] Speaker 00:
So they had gone to Detroit and Chrysler was interested, and they said, yes, but we don't produce this stuff.

[00:11:25] Speaker 00:
Someone's got to produce it.

[00:11:27] Speaker 00:
Microsoft said, yeah, we'd love to have little speakers inside our laptops and desktops, because that would really enhance our product.

[00:11:38] Speaker 00:
But you've got to find a producer.

[00:11:39] Speaker 00:
So Modo went out.

[00:11:42] Speaker 00:
It was in PST.

[00:11:44] Speaker 00:
And Phillips said, hey, we'll go 50-50 with this on this.

[00:11:49] Speaker 00:
You give us your technology, we'll manufacture it for you.

[00:11:52] Speaker 00:
Look at all these opportunities.

[00:11:53] Speaker 00:
And so it was kind of like dating.

[00:11:56] Speaker 00:
They just couldn't go out to a lot of other manufacturers while they were still sharing their technology with Phillips.

[00:12:04] Speaker 00:
Now, maybe that was naive.

[00:12:05] Speaker 00:
Maybe that was bad business sense on their part.

[00:12:09] Speaker 00:
But that's a factual determination that we need to show with respect to damages at the time of trial.

[00:12:26] Speaker 03:
Will you enter your rebuttal?

[00:12:27] Speaker 03:
You want to save it and go from the other side?

[00:12:30] Speaker 03:
I don't have anything further to add.

[00:12:33] Speaker 03:
We'll save your rebuttal.

[00:12:42] Speaker 01:
Good morning.

[00:12:43] Speaker 01:
May I please the court?

[00:12:44] Speaker 01:
I represent Appellee Phillips.

[00:12:46] Speaker 01:
At the core of this dispute is the fact that

[00:12:51] Speaker 01:
The second amended complaint pleads misappropriation of trade secrets that happened 13 years ago.

[00:12:56] Speaker 01:
And they tried to amend their complaint in 2014.

[00:12:59] Speaker 01:
It's too late.

[00:13:00] Speaker 01:
The district court found that it's too late because, first of all, two of the counts are preempted.

[00:13:05] Speaker 01:
The other two are time barred.

[00:13:06] Speaker 01:
To your question, Judge O'Malley, they're all time barred.

[00:13:09] Speaker 04:
Well, let me ask you this.

[00:13:12] Speaker 04:
If, in fact, in the original complaint there is an allegation of deliberate knowing and willful infringement, because there actually is.

[00:13:20] Speaker 04:
There is.

[00:13:21] Speaker 04:
And the facts that would show the deliberate willful and knowing infringement are that, in fact, we had this business relationship, and that's how you got this information.

[00:13:32] Speaker 04:
Wouldn't that arise out of the same facts and circumstances?

[00:13:36] Speaker 01:
No, Your Honor.

[00:13:39] Speaker 01:
This is a question of whether the complaint relates back.

[00:13:42] Speaker 01:
First, and very importantly and dispositively, the issue of relation back was waived.

[00:13:48] Speaker 01:
We specifically addressed in our motion to dismiss below

[00:13:52] Speaker 01:
the relation back doctrine.

[00:13:53] Speaker 01:
We said this does not relate back.

[00:13:56] Speaker 01:
Moda did not respond to that argument.

[00:13:58] Speaker 01:
They only raised relation back for the first time on reconsideration.

[00:14:01] Speaker 01:
The district court found you cannot raise new arguments on reconsideration.

[00:14:06] Speaker 02:
Didn't the district court address it then on recon?

[00:14:08] Speaker 01:
And then it continued to in the alternative address it.

[00:14:10] Speaker 01:
Now to get to the merits of that issue.

[00:14:12] Speaker 02:
But it didn't quite come so strongly out and say this is waived.

[00:14:18] Speaker 02:
Oh, by the way, I have some thoughts.

[00:14:21] Speaker 02:
I thought the district court said it more like, this could be waived.

[00:14:25] Speaker 02:
This could be grounds for waiver.

[00:14:27] Speaker 02:
But in any event, this doesn't relate back.

[00:14:30] Speaker 02:
Is that a better way of reading the recon decision?

[00:14:33] Speaker 02:
I don't think so, Your Honor.

[00:14:34] Speaker 01:
The district court gave two alternative bases to deny the motion for reconsideration.

[00:14:39] Speaker 01:
The first was, this is not appropriate for reconsideration.

[00:14:42] Speaker 01:
This should have been raised earlier.

[00:14:44] Speaker 01:
The second was, and this goes to the substance of your question, the original complaint

[00:14:49] Speaker 01:
does not provide adequate notice to us, Phillips, that this was an allegation.

[00:14:54] Speaker 01:
The fact that there is a bare bones paragraph, and it is bare bones, that says that infringement has been willful suggests nothing in any way about a contract that existed, a relationship that existed, some opportunities that were missed, misappropriation of trade secrets.

[00:15:13] Speaker 01:
Moda has gone out of its way in its briefs to accentuate the difference between patented materials, which are public,

[00:15:19] Speaker 01:
and non-patented materials.

[00:15:21] Speaker 01:
The allegation that we willfully infringed a patent in no way puts us on notice that there's going to be an allegation, a breach of contract, trade secret, misappropriation, unfair competition, or fraud.

[00:15:33] Speaker 01:
So the court was in the second alternative ground correct in denying that motion.

[00:15:39] Speaker 01:
And very importantly, that issue has not been preserved for appeal.

[00:15:46] Speaker 01:
The relation-backed doctrine is one of many arguments and one of many reasons why this doesn't work.

[00:15:52] Speaker 04:
What do you mean that issue has not been preserved?

[00:15:54] Speaker 01:
It hasn't been preserved because it wasn't part of the original briefing.

[00:15:57] Speaker 01:
We opened the door and Moda did not respond to it.

[00:16:00] Speaker 04:
Meaning below?

[00:16:01] Speaker 01:
Below.

[00:16:02] Speaker 01:
Certainly it was raised in the previous hearing.

[00:16:04] Speaker 04:
Judge Chen's point is correct.

[00:16:06] Speaker 04:
We don't impose waiver in the lower court if the district court didn't impose waiver.

[00:16:13] Speaker 04:
So we'd have to read that to really be alternative findings.

[00:16:16] Speaker 04:
So assume we don't, and we're looking at the merits.

[00:16:21] Speaker 04:
Now, then it would be preserved for appeal, correct?

[00:16:24] Speaker 01:
That is correct.

[00:16:25] Speaker 01:
If, in fact, the district court had not said what it said and said, I'm finding that this should have been raised earlier, the fact that the district court went the extra mile and said, in addition, in case someone disagrees with me, here's the analysis of the merits shouldn't

[00:16:42] Speaker 01:
stop the court from recognizing that the district court in fact found that this is something that should have been raised.

[00:16:47] Speaker 01:
Do you happen to have the site to the recon decision?

[00:16:50] Speaker 01:
To the recon decision?

[00:16:51] Speaker 02:
Yeah.

[00:16:52] Speaker 02:
Where the district court said what you say it said.

[00:16:55] Speaker 02:
Sure.

[00:16:57] Speaker 01:
Let me just bring it up.

[00:17:04] Speaker 01:
So this is on JA 192 and 193.

[00:17:12] Speaker 01:
And it says, at the bottom of JA 192, as a threshold matter, in its opposition, Moda completely failed to address whether its contract and trade secret misappropriation claims relate back.

[00:17:25] Speaker 01:
This was raised only in Phillips' pleadings.

[00:17:28] Speaker 01:
And on the following page, on this basis alone, the court would be well within its discretion to deny reconsideration of this issue.

[00:17:36] Speaker 01:
It then goes forward and analyzes on the merits that issue.

[00:17:42] Speaker 02:
Do you understand how we might be able to read that first paragraph a bit ambiguously in the court merely recognizing that it had the discretion to kick out the issue, but then didn't actually act on that discretion instead when Ed did a review of the pleadings?

[00:17:59] Speaker 01:
I can see that reading.

[00:18:00] Speaker 01:
The language is a little bit ambiguous.

[00:18:02] Speaker 01:
When you look at the entirety of the reconsideration order,

[00:18:06] Speaker 01:
with many of the arguments that Moda raised for the first time on recon, virtually everything.

[00:18:11] Speaker 01:
This was the standard way that the court addressed it.

[00:18:13] Speaker 01:
Said, this should have been raised before, but here, let me address it on the merits.

[00:18:18] Speaker 01:
I could see how you could read it both ways.

[00:18:19] Speaker 01:
We think it's, in view of how the court approached this, clear that the court was denying it on two different bases.

[00:18:26] Speaker 01:
But it doesn't matter to us.

[00:18:27] Speaker 01:
On the merits, we think it's not a close case.

[00:18:30] Speaker 01:
On the merits, there is nothing in that original complaint that suggests in any way

[00:18:36] Speaker 01:
that we should have been on notice that there would have been a breach of contract, fraud, misappropriation claim.

[00:18:42] Speaker 01:
It's just not there.

[00:18:44] Speaker 01:
We cited cases, many cases on this point, that just because there's some interrelationship between the facts, the key is there has to be an interrelationship between the facts that are pled in the original complaint and the facts that are pled in the later complaint.

[00:19:02] Speaker 01:
In this case, the facts that are pled in the original case

[00:19:05] Speaker 01:
have nothing to do with any of this.

[00:19:07] Speaker 01:
The only facts, it's not even a fact, the only allegation in the original complaint that could be pointed to is this allegation of willfulness.

[00:19:15] Speaker 01:
But there are no backup paragraphs that say, here's why it was willful.

[00:19:19] Speaker 01:
It could have been willful, for instance, because we knew about the patent.

[00:19:22] Speaker 01:
It could have been willful for any other number of reasons.

[00:19:24] Speaker 01:
But there's nothing in the complaint that suggests that it was willful on the basis of the facts that form the basis of their new complaint.

[00:19:32] Speaker 01:
So for that reason, the relation back issue for both of those rounds is a non-starter.

[00:19:37] Speaker 01:
With respect to the preemption issue, the key here, and I think the court is there, but the key here is take out the trade secret misappropriation facts and what's left.

[00:19:47] Speaker 03:
Can I just ask you about why that matters?

[00:19:49] Speaker 03:
I mean, your view of the statute of limitations, is that dispositive then of whether we're looking at three years versus six years, and does it really matter based on your theory?

[00:20:00] Speaker 01:
I'm sorry.

[00:20:01] Speaker 03:
Why are we arguing about, what is the gravamen of the preemption decision here?

[00:20:06] Speaker 03:
Is it a statute of limitations question?

[00:20:08] Speaker 01:
No, it's an alternate ground.

[00:20:10] Speaker 01:
The first two grounds, the fraud claim and unfair competition, you don't have to reach the statute of limitations question on those because they're preempted.

[00:20:21] Speaker 01:
That's the end of the story.

[00:20:22] Speaker 01:
Now, with respect to that preemption question, if we were to lose the preemption question, those claims should have been dismissed anyway because of statute of limitations, if that answers the question.

[00:20:34] Speaker 01:
With respect to the preemption, take out the trade secret misappropriation basis and see what's left and see whether it states a claim.

[00:20:40] Speaker 01:
Now, counsel just pointed you to the unfair competition claim.

[00:20:44] Speaker 01:
The unfair competition claim, which I have a flag on here, in the Second Amendment Complaint is at JA 37.

[00:20:52] Speaker 01:
JA37, as you can see, is three paragraphs that have zero factual allegations.

[00:20:58] Speaker 01:
They simply point back and say, because of all the things that we've said before, we also have an unfair competition claim.

[00:21:05] Speaker 01:
There's absolutely nothing in there that provides any basis for an independent basis or an independent cause of action.

[00:21:12] Speaker 01:
In fact, MODA admits in its brief that its unfair competition claim is based entirely on the fraudulent misrepresentation claim.

[00:21:20] Speaker 01:
So we go back to the fraud claim.

[00:21:23] Speaker 01:
The fraud claim is contained, it's a JA 30 through JA 34.

[00:21:31] Speaker 01:
And when pressed in its briefs, Moda points to paragraphs 54, 57, and 59 as somehow showing an independent cause of action apart from the misrepresentation or the misappropriation.

[00:21:45] Speaker 01:
But there's nothing in those paragraphs that has anything other than misappropriation.

[00:21:49] Speaker 01:
Their fraud claim is this.

[00:21:51] Speaker 01:
We

[00:21:52] Speaker 01:
allegedly fraudulently told them that we were interested.

[00:21:57] Speaker 01:
They gave us confidential information.

[00:21:59] Speaker 01:
Then we made products with that confidential information.

[00:22:02] Speaker 01:
They should have shared in the profits.

[00:22:04] Speaker 01:
That is their fraud claim in these paragraphs.

[00:22:08] Speaker 02:
That's it.

[00:22:08] Speaker 02:
Part of their claim also rests on they lost business opportunities with other companies because they spent so much time

[00:22:16] Speaker 02:
engaged with you, it denied them abilities to make business arrangements with others.

[00:22:22] Speaker 01:
That is not in their complaint.

[00:22:23] Speaker 01:
That is completely made up.

[00:22:25] Speaker 02:
But that's part of their theory.

[00:22:26] Speaker 01:
That's their new theory.

[00:22:28] Speaker 01:
There's no question about that.

[00:22:29] Speaker 01:
They are now forced to come up with a new theory.

[00:22:32] Speaker 01:
The question of preemption asks, look at the complaint, remove the misappropriation stuff, and have you stated a claim?

[00:22:39] Speaker 01:
Not, can you come up with a claim?

[00:22:41] Speaker 01:
That's a different question.

[00:22:42] Speaker 01:
If they had originally filed a claim back in 2012,

[00:22:46] Speaker 01:
where they had included those allegations, then we would have a different conversation.

[00:22:52] Speaker 01:
They still have statute of limitations issues.

[00:22:54] Speaker 01:
But putting that aside, the only paragraph that they point to is paragraph 14 of their complaint as supposedly, this is on JA16, as supposedly disclosing or alleging this missed opportunity theory.

[00:23:13] Speaker 01:
That's it.

[00:23:14] Speaker 01:
And there's absolutely nothing in that

[00:23:16] Speaker 01:
that suggests that they lost opportunities, all of the stuff that we just heard that Microsoft and Chrysler and all of these opportunities that they couldn't pursue because of our relationship, it's simply not in here.

[00:23:29] Speaker 01:
Now I am not saying that they needed to plead specific customers that they lost or specific opportunities, but they need to say that they were harmed by this.

[00:23:39] Speaker 01:
And the only statement of harm in the entire complaint is paragraph 59.

[00:23:45] Speaker 01:
That is the only place where they say that our alleged misrepresentations caused them harm.

[00:23:51] Speaker 01:
And the harm that they allege is they didn't get the share in the profits of our products.

[00:23:56] Speaker 01:
There is nowhere even a glint of a suggestion that they missed opportunities.

[00:24:02] Speaker 01:
That's all in the papers.

[00:24:04] Speaker 01:
Now they're stuck with this complaint.

[00:24:06] Speaker 01:
The district court properly found that they had waived their

[00:24:12] Speaker 01:
request for leave to amend and properly, apart from that, agreed with us that they shouldn't have leave to amend because it's not timely and it would be futile.

[00:24:21] Speaker 01:
They're stuck with this complaint.

[00:24:23] Speaker 01:
This complaint does not state a basis independent of misappropriation for the fraud claim.

[00:24:33] Speaker 01:
I was going to move on to the leave to amend issue.

[00:24:35] Speaker 04:
I just have one problem with the whole approach.

[00:24:39] Speaker 04:
I've never seen a circumstance where you

[00:24:42] Speaker 04:
where you can say, well, there's a choice of law problem here, but we don't have to choose.

[00:24:47] Speaker 04:
As long as we both agree that we don't have to choose, then the court can just take whatever it wants, one from column A, one from column B. I mean, it seems to me that it's a pretty easy analysis, that the contract clearly has to be analyzed under California law.

[00:25:01] Speaker 04:
And all the other claims would seem to be under Hawaii law.

[00:25:05] Speaker 01:
We agree.

[00:25:06] Speaker 01:
The contract claim, I was very surprised to hear counsel referring to Hawaii contract limitations because the contract says on its face, which was submitted for the first time in opposition to our motion to dismiss, California law applies.

[00:25:18] Speaker 01:
The breach of contract statute of limitations is what governs here.

[00:25:21] Speaker 01:
And that is four years in California, not six years.

[00:25:24] Speaker 01:
With respect to everything else, Hawaii is probably the right law.

[00:25:28] Speaker 01:
Everybody agreed, however.

[00:25:30] Speaker 01:
When they say everything else, what would those items be?

[00:25:34] Speaker 01:
the trade fair misappropriation, fraud, and unfair competition.

[00:25:39] Speaker 01:
Those are all Hawaii law.

[00:25:40] Speaker 01:
Well, I think, let me put it this way, it's not briefed, the court didn't decide, and the parties haven't taken a position.

[00:25:48] Speaker 01:
So it is a question that has not been actually decided by anyone or advocated by anyone.

[00:25:53] Speaker 01:
I think there's a very good basis to come to the conclusion that you came to, Judge, which is that

[00:26:01] Speaker 01:
Hawaii seems like the naturally right conclusion for those.

[00:26:06] Speaker 01:
I guess the point that everybody has agreed on is that with respect to preemption, the laws have developed identically and for all intents and purposes are the same for the issues presented here.

[00:26:18] Speaker 01:
And with respect to statutes of limitations, there are differences in the statutes of limitations.

[00:26:22] Speaker 01:
And we've pointed those out in our briefs, but they don't matter to the resolution of the case.

[00:26:29] Speaker 01:
With respect to the, you know, I want to move to the statute of limitation in the discovery rule, because this is really important, and to me is the crux of the case.

[00:26:38] Speaker 01:
The Supreme Court in California, in the Jolly case, has already decided that when you have a suspicion of wrongdoing, that triggers the statute of limitations.

[00:26:51] Speaker 04:
Does it say what kind of wrongdoing?

[00:26:52] Speaker 04:
I mean, 2008, they had a suspicion of infringement, right?

[00:26:57] Speaker 04:
Did they necessarily have a suspicion of fraudulent wrongdoing or breach of contract?

[00:27:03] Speaker 01:
Well, yes, they did, because they admitted it in their opposition to their motion to dismiss on JA99.

[00:27:09] Speaker 01:
They said Mr. Perazzo, at that time, suspected that we had our technology in their products.

[00:27:17] Speaker 01:
But the case law is very clear on this point.

[00:27:20] Speaker 01:
The question what type of wrongdoing is explicitly answered by Jolly and by the Fox case.

[00:27:25] Speaker 02:
I thought you said that

[00:27:27] Speaker 02:
Hawaii trade secret law applies.

[00:27:30] Speaker 02:
So why are we talking about a California Supreme Court case?

[00:27:33] Speaker 01:
Those cases were adopted by the Association of Homeowners in the Newman case.

[00:27:39] Speaker 02:
OK.

[00:27:40] Speaker 02:
Hawaii has adopted California state law.

[00:27:43] Speaker 01:
Exactly.

[00:27:44] Speaker 01:
115 Hawaii 232.

[00:27:45] Speaker 01:
They adopted the jolly suspicion of wrongdoing reasoning and holding.

[00:27:51] Speaker 01:
So the question is, what does wrongdoing mean?

[00:27:55] Speaker 01:
The Fox case is really important here.

[00:27:57] Speaker 01:
The Fox v. Ethicon case explicitly asks that and answers that question and says, we're not saying you have to suspect every element of a particular cause of action.

[00:28:07] Speaker 01:
No, no, no.

[00:28:08] Speaker 01:
You have to only suspect that any type of wrongdoing has happened, that you've been injured, and that injury has come from that wrongdoing.

[00:28:17] Speaker 01:
It is not explicitly nonspecific as to a particular cause of action.

[00:28:21] Speaker 01:
They declined in the Fox case to take that approach.

[00:28:26] Speaker 01:
The fact that they investigated a wrongdoing is proof positive that they in fact had a suspicion of a wrongdoing.

[00:28:32] Speaker 01:
We don't parse which wrongdoing.

[00:28:34] Speaker 01:
At that moment in time, they were under an obligation to investigate and sue or lose their rights.

[00:28:41] Speaker 01:
And that's exactly what the Supreme Court of California said.

[00:28:44] Speaker 01:
You cannot wait for the facts to come to you.

[00:28:46] Speaker 01:
Once you have a suspicion of wrongdoing, you have to proceed or lose your rights.

[00:28:51] Speaker 01:
And that's what happened.

[00:28:52] Speaker 02:
What if the person in Costco for

[00:28:55] Speaker 02:
Mota said to himself, hmm, I wonder if this is infringing our patent.

[00:29:04] Speaker 02:
And then he elects to go trying to investigate whether that's true.

[00:29:10] Speaker 02:
Would that wondering, in your view, be the same thing as satisfying the reasonable suspicion of a tort?

[00:29:19] Speaker 01:
Well, I think that would be a lot closer to a fact issue.

[00:29:22] Speaker 01:
The difference here is that that's not what the record is.

[00:29:24] Speaker 01:
The record here is explicitly Mr. Carazzo suspected that our products use the QT technology.

[00:29:32] Speaker 01:
That's on JA99 and in paragraph 22 of their second amendment complaint.

[00:29:37] Speaker 01:
There isn't this question about is the wondering really enough to have suspicion of wrongdoing.

[00:29:42] Speaker 01:
The language of the case has been admitted.

[00:29:44] Speaker 01:
It's all over Moda's brief.

[00:29:47] Speaker 01:
Moda agrees that the

[00:29:50] Speaker 01:
suspicion of wrongdoing existed in 2008, the only disagreement is what the legal impact of that suspicion is.

[00:29:57] Speaker 01:
Now, very importantly, this is critical and something that may be missed on first reading of the briefs.

[00:30:04] Speaker 01:
If MODA is going to rely on the discovery rule, it must rely on something in the complaint.

[00:30:11] Speaker 01:
Fox states this explicitly.

[00:30:13] Speaker 01:
If you're going to rely on the discovery rule, you have to have pled facts as to when that discovery occurred,

[00:30:18] Speaker 01:
and why you couldn't have discovered it earlier.

[00:30:21] Speaker 01:
The only thing in the complaint that comes close to that is paragraph 22 that refers to this summer of 2008 Costco experience.

[00:30:29] Speaker 01:
So all of this notion that, oh, we discovered it later, that is absolutely irrelevant.

[00:30:34] Speaker 01:
It is the law in California.

[00:30:35] Speaker 01:
By the way, in the April case that Moda cites from 1983, it says the same thing.

[00:30:40] Speaker 01:
The Supreme Court of California and Hawaii have been very clear on this.

[00:30:45] Speaker 01:
You have to put it in your complaint.

[00:30:47] Speaker 01:
So the only date that they could possibly rely on for discovery is 2008.

[00:30:53] Speaker 01:
But that's already too late.

[00:30:54] Speaker 01:
They're now six years after that date for all the applicable statutes.

[00:30:58] Speaker 03:
Okay.

[00:30:58] Speaker 03:
We've exceeded your time.

[00:30:59] Speaker 01:
Thank you very much, Your Honor.

[00:31:06] Speaker 00:
Just one point, Your Honor.

[00:31:07] Speaker 00:
I believe that the three cases that are most relevant on the statute limitations are DirecTV,

[00:31:15] Speaker 00:
Thomas versus Kidani and the Yamaguchi case.

[00:31:19] Speaker 00:
And they clearly say that the plaintiff must have knowledge of all the elements of the claim.

[00:31:28] Speaker 00:
And at that point, that's when the statute of limitations starts to run.

[00:31:34] Speaker 00:
And that's all I have, John.

[00:31:36] Speaker 04:
Did you find that paragraph?

[00:31:36] Speaker 04:
Can you just respond to this JA-99?

[00:31:40] Speaker 04:
It is a pretty powerful paragraph where

[00:31:43] Speaker 04:
It says that he became suspicious of Phillips' use of the technology, and it said he understood that the samples, written descriptions, and explanations of the technology that PSD had allowed Phillips to keep in good faith gave Phillips all it needed to duplicate the motor technology and place it in Phillips' products.

[00:32:03] Speaker 04:
He said he needed to investigate after that, but still.

[00:32:06] Speaker 00:
He didn't make all that connection in the summer of 2008 while he was standing in Costco.

[00:32:11] Speaker 00:
When he's standing in Costco, he sees a Philips Hummel entertainment system, a boombox, that looks different than the ones they had had years before.

[00:32:24] Speaker 00:
The size of the speakers has been significantly reduced.

[00:32:27] Speaker 00:
But it's not as if he could buy that, take it home, take off the back and go, oh, there's something that says Modak QT Technology.

[00:32:36] Speaker 00:
What he then had to do was go out and reverse engineer that to see if that's

[00:32:41] Speaker 00:
his technology, and that took time, money, and effort.

[00:32:45] Speaker 00:
And that's why I say on the facts before the court at the motion to dismiss, at the standard that Judge Kern was supposed to be looking at, he should have given all the sway to Mr. Prato's testimony that it wasn't until December of 2010, early 2011 that he knew about that.

[00:33:08] Speaker 04:
And if factually... But at what point do you go from a suspicion to firm knowledge?

[00:33:14] Speaker 00:
Late to 2010, Your Honor.

[00:33:17] Speaker 04:
Right, but I thought the law is a suspicion of wrongdoing, not firm knowledge.

[00:33:23] Speaker 00:
It's an understanding of all the elements involved, not just a suspicion that, boy, that may be something that he needed to know and was told by counsel.

[00:33:35] Speaker 00:
that he needed to be able to draw the line between that boombox and his technology.

[00:33:40] Speaker 00:
And that took some looking at.

[00:33:42] Speaker 00:
It wasn't as if he looked at a pair of glasses and he goes, wow, that's my design.

[00:33:47] Speaker 00:
I could tell it's my design because that's what I drew.

[00:33:48] Speaker 00:
This is electronic technology that he had to reverse engineer to come to determination.

[00:33:56] Speaker 00:
And that took him some time and effort.

[00:33:59] Speaker 00:
Thank you.

[00:34:00] Speaker 03:
Thank you.

[00:34:01] Speaker 03:
I would thank both sides.

[00:34:02] Speaker 03:
The case is submitted.

[00:34:03] Speaker 03:
That concludes our proceedings.