Citations
- 745 F. Supp. 2d 1119
Full opinion text
MEMORANDUM & ORDER
MAKILYN HALL PATEL, District Judge.
Plaintiff DocMagic, Inc. (“DocMagic”), a corporation providing online loan document preparation services, brought this action against defendant Ellie Mae, Inc. (“Ellie Mae”), a corporation providing various types of software and services to mortgage professionals. DocMagic’s first amended complaint alleges that Ellie Mae unlawfully denied DocMagic access to Ellie Mae’s online transaction network, and used DocMagic’s proprietary information to create a competing document preparation service. On the basis of these allegations, DocMagic asserts thirteen claims for relief for antitrust violations, trademark infringement, copyright infringement, interference with contractual relationships, breach of contract, trade secret misappropriation and unfair competition. In response, Ellie Mae filed a first amended counterclaim alleging that DocMagic unlawfully accessed Ellie Mae’s computer system, and used Ellie Mae’s proprietary software to create a new program that permits DocMagic to interact directly with Ellie Mae customers without using Ellie Mae’s online transaction network. Ellie Mae asserts nine counterclaims, including copyright infringement, computer fraud, breach of contract, interference with contractual relationships and unfair competition. Before the court are the parties’ cross-motions to dismiss. Ellie Mae moves to dismiss DocMagic’s complaint in its entirety, and DocMagic moves to dismiss Ellie Mae’s first through fifth and seventh through ninth counterclaims. Having considered the parties’ arguments and submissions, and for the reasons discussed below, the court enters the following memorandum and order.
BACKGROUND
I. Loan preparation
A brief description of how loans are prepared electronically is necessary to understand the factual background to this case. The process of loan preparation typically begins when a loan originator, such as a mortgage broker or a lender, enters data about the prospective loan into a computer program known as a loan origination system (“LOS”). Docket No. 38 (First Am. Compl. (“Compl.”)) ¶¶ 29-30. The advantage of using an LOS is that once the information has been entered into the LOS, the LOS can provide that data in an electronic format to compatible computer programs, making it unnecessary to engage in the time-consuming and error-prone process of manually re-keying the loan information. Id. ¶ 30. Large lenders, like Bank of America and Wells Fargo, develop their own proprietary LOSs. The rest of the market uses third-party LOSs, which are produced by a number of different companies. Id. ¶¶ 102,104.
Settlement service providers, or “vendors,” can use the electronically-stored data in the LOS to perform the various tasks necessary to actually prepare a loan. The services provided by these vendors include, for example, document preparation services, appraisals, credit reports, fraud reports, flood information and title and escrow services. Id. ¶¶ 20, 95. However, a vendor will only be able to use the data in the LOS if the LOS and the vendor’s own programs are compatible.
In order to connect a loan originator to a vendor and ensure that the loan originator’s LOS is compatible with the vendor’s programs, corporations have set up online transaction networks. These networks permit loan originators to find and hire vendors providing the services they need. Id. ¶ 20. A network can also automatically convert the data in the loan originator’s LOS into a format that the vendor can use. Id. ¶¶ 21-22. A single network can be used by many different LOSs made by different software companies, id. ¶¶ 32-33, and can connect those LOSs to many different vendors. Loan originators usually can join and use a network for free, whereas vendors typically pay a fee to the network operator for every transaction the vendor completes over the network.
If a LOS and/or a vendor are not connected to a network, it is more difficult to achieve compatibility between the LOS and the vendor’s programs. To achieve compatibility without using a network, the LOS can be equipped with a software development kit (“SDK”), a program which retrieves data that has been entered into the LOS and converts it into a format usable by the vendor. Id. ¶ 67. The vendor can then provide an adapter program that will transfer the data from the SDK into the vendor’s programs, thus creating a bridge from the LOS, to the SDK, to the adapter program, to the vendor’s services. Id. ¶ 68.
II. DocMagic, Ellie Mae and their contractual agreements
Ellie Mae is a LOS developer, and the creator of a LOS called Encompass. Docket No. 35 (First Am. Counterclaim (“Counterclaim”)) ¶ 6. According to Doc-Magic, Ellie Mae’s share of the third-party LOS market, defined below, is greater than 50%, and probably greater than 60%. Compl. ¶ 105. Ellie Mae is also the owner and operator of ePASS, an online transaction network of the type described above. Id. ¶ 20. According to DocMagic, Ellie Mae’s share of the network market, also defined below, is as much as 60%. Id. ¶ 99. Ellie Mae also developed a SDK for Encompass, called Encompass SDK, capable of making Encompass compatible with vendors who are not on ePASS. Id. ¶ 67.
DocMagic is a vendor providing loan document preparation services (“DPS”). Id. ¶ 15.
In November 2003, Ellie Mae and Doc-Magic entered into an agreement, known as the “Bridge Agreement,” by which Doc-Magic became one of the vendors on ePASS. Id. ¶38; Docket No. 44 (King Dec.), Exh. H (Electronic Bridge Agreement Between Ellie Mae and Participator (“Bridge Agreement”)). In exchange for access to the network, DocMagic agreed to pay a fee of between one and three dollars, depending on volume, per transaction that it made over ePASS. Bridge Agreement, Exh. A § 2(b). DocMagic also agreed to provide Ellie Mae with proprietary information about DocMagic’s document preparation program, so that Ellie Mae could connect DocMagic’s program to Ellie Mae’s network and ensure compatibility between the LOSs accessing ePASS and DocMagic’s program. Id. § 1. The Bridge Agreement acknowledged that each party would have access to the other’s proprietary customer information, and provided that neither party would disclose such proprietary information or use it for any purpose outside those contemplated by the agreement. Id. § 10.4. The Bridge Agreement stated that it would automatically renew every year, unless terminated upon notice given 120 days prior to the beginning of the next automatic renewal. Id. § 9.2.
In September 2006, Ellie Mae and Doc-Magic also entered into a Reseller Agreement. Compl. ¶ 41; King Dec., Exh. G (Reseller Agreement). Under the Reseller Agreement, Ellie Mae became a non-exclusive reseller of certain DocMagic document preparation services, which Ellie Mae was authorized to re-brand with Ellie Mae trademarks. Reseller Agreement § 1. The Reseller Agreement also acknowledged that each party would disclose proprietary information to the other, and required each party not to disclose the other’s proprietary information, or use it outside of the purposes of the agreement. Id. § 7.3. Like the Bridge Agreement, the Reseller Agreement automatically renewed every year unless terminated upon notice given 120 days before the next renewal date. Id. § 9.1. The Reseller Agreement also provided that if it was terminated without cause, it would be followed by a sixty-day transition period during which the re-branded services would remain available to Ellie Mae customers, and DocMagic would refrain from marketing its services to Ellie Mae customers. Id. § 9.4(a).
On April 27, 2009, Ellie Mae sent Doc-Magic notice terminating the Reseller Agreement, effective on August 30, 2009. King Dec., Exh. A. On April 28, 2009, DocMagic likewise sent Ellie Mae notice terminating the Reseller Agreement, effective September 1, 2009. Id., Exh. B. On May 21, 2009, Ellie Mae sent DocMagic notice terminating the Bridge Agreement, effective August 30, 2009. Id., Exh. D.
The parties’ characterization of why these contracts were terminated, and of the events that followed, diverge dramatically. Under DocMagic’s version of the story, Ellie Mae stole DocMagic’s document preparation software and used it to create a competing product. DocMagic then alleges that Ellie Mae attempted to drive DocMagic out of the document preparation business by denying DocMagic access to customers using the Encompass LOS, forcing DocMagic off ePASS and forbidding Encompass users from connecting to DocMagic through the Encompass SDK. Ellie Mae contends, on the other hand, that DocMagic refused to negotiate reasonable fees to be a part of ePASS; rather than pay those reasonable fees, Ellie Mae alleges that DocMagic illegally accessed and copied Ellie Mae’s software in order to write an adapter program that would connect DocMagic to Encompass users for free.
III. DocMagic’s version of events
DocMagic begins by alleging that Ellie Mae purchased a DPS vendor called Online Documents, and then used DocMagic’s proprietary information (to which Ellie Mae had access under the Bridge and Reseller Agreements) in combination with Online Documents’ technology to effectively copy DocMagic’s software and services. Compl. ¶¶ 48-50, 53-58.' Specifically, Doc-Magic claims that Ellie Mae’s new DPS, Ellie Mae Docs, intentionally copied the “structures, workflows, and data ... screens, terminology, and overall look and feel of the DocMagic software,” id. ¶ 50, and in particular, the organization and presentation of the DocMagic document audit report, including the use of the terms “WARNING” and “FATAL” to point out errors in the data provided, id. ¶¶ 51-57, 170. According to DocMagic, Ellie Mae next terminated the Reseller Agreement so that Ellie Mae could replace the re-branded DocMagic services, available to loan originators accessing ePASS, with Ellie Mae’s own services. Id. ¶¶ 60-62. According to DocMagic, Ellie Mae then terminated the Bridge Agreement so that DocMagic would not be able to access ePASS and compete with Ellie Mae’s DPS available on ePASS. Id. DocMagic alleges that Ellie Mae’s stated reason for terminating the Bridge Agreement, that the fees set by the Bridge Agreement were too low, was a pretext for Ellie Mae’s anti-competitive larger plan of forcing DocMagic out of the document preparation market. Id. ¶¶ 62-65. DocMagic finally alleges that having ejected DocMagic from ePASS, Ellie Mae began preventing Encompass LOS users from accessing Doc-Magic by means of the Encompass SDK. Id. ¶¶ 70-73. DocMagic had created an adapter program, DocMagic XL, that could transfer data from various LOSs’ SDKs to DocMagic’s document preparation programs. Id. ¶ 68. This adapter program permitted users of Ellie Mae’s Encompass LOS who had also licensed the Encompass SDK to connect to DocMagic’s DPS without DocMagie being on ePASS. Id. ¶ 69. According to DocMagie, however, Ellie Mae used various means to prevent Encompass users from connecting to DocMagie via the Encompass SDK, including threatening litigation against Encompass users, refusing to license the SDK to customers whom it believed would use the SDK to connect to DocMagie, persuading its customers not to use DocMagie via the SDK, intentionally disabling certain features of the SDK and changing the SDK license agreement. Id. ¶¶ 70-71. Doc-Magic alleges that based on this conduct, Ellie Mae “has been able to obtain a market share of the [DPS mjarket at least equivalent to its LOS [mjarket [s]hare,” or about 60%. Id. ¶ 110; see also id. ¶ 105 (alleging that Ellie Mae’s LOS market share is approximately 60%).
IV. Ellie Mae’s version of events
Ellie Mae’s counterclaim tells a very different story. It begins by denying any wrongdoing in the termination of the Bridge Agreement. Instead, Ellie Mae alleges that after sending the termination notice to DocMagie, it attempted to renegotiate a new bridge agreement with Doc-Magic, but was rebuffed. Counterclaim ¶ 18. Then, according to Ellie Mae, Doc-Magic devised an illegal way for it to connect to Encompass customers for free, by bypassing ePASS. Ellie Mae alleges that after the termination of the Bridge Agreement, DocMagie used log-in credentials and license keys belonging to other Ellie Mae clients to obtain unauthorized access to Ellie Mae’s computers (specifically, the Encompass servers). Id. ¶¶ 19-20. Next, Ellie Mae alleges that DocMagie engaged in unauthorized use of the Encompass and Encompass SDK software, including using the Encompass SDK as a basis for creating the adapter program DocMagie XL. Id. ¶¶ 19-22. Ellie Mae also claims that DocMagie encouraged Encompass licensees to use the Encompass SDK and Doc-Magic XL to connect to DocMagic’s DPS, in violation of the licensees’ licenses, so that DocMagie would not have to join ePASS and pay Ellie Mae a transaction fee. Id. ¶¶ 76-78. Finally, Ellie Mae claims that DocMagie breached the Reseller Agreement by, inter alia, terminating for cause on a mere pretext to avoid the obligatory transition period; failing to notify Ellie Mae of scheduled downtimes; misusing Ellie Mae’s proprietary information; and failing to properly update and service the re-branded services. Id. ¶¶ 31-41, 85.
LEGAL STANDARD
Pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed against a defendant for failure to state a claim upon which relief can be granted against that defendant. A motion to dismiss under Rule 12(b)(6) “tests the legal sufficiency of a claim.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir.2001). “Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.1990). A motion to dismiss should be granted if a plaintiff fails to plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). This “plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, — U.S.—,—, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955). “Determining whether a complaint states a plausible claim for relief ... [is] a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 1950.
“[A]llegations of material fact are taken as true and construed in the light most favorable to the nonmoving party.” Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996). The court need not, however, accept as true pleadings that are no more than legal conclusions or the “formulaic recitation of the elements of a cause of action.” Iqbal, 129 S.Ct. at 1949-50 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955); Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir.2001); Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir.1994). “[A] court may take judicial notice of ‘matters of public record,’ ” Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir.2001) (quoting Mack v. South Bay Beer Distrib., 798 F.2d 1279, 1282 (9th Cir.1986)), and may also consider “documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading” without converting a motion to dismiss under Rule 12(b)(6) into a motion for summary judgment, Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994), overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir.2002). “The district court will not accept as true pleading allegations that are contradicted by facts that can be judicially noticed or by other allegations or exhibits attached to or incorporated in the pleading.” 5C Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1363 (3d ed. 2004). DISCUSSION
I. Ellie Mae’s motion to dismiss
Ellie Mae moves to dismiss all of the claims that DocMagic asserts in its complaint. The court addresses each claim for relief in turn
A. First through fourth claims for relief: the antitrust claims
DocMagic’s first through fourth claims seek relief for alleged anticompetitive activities engaged in by Ellie Mae in violation of section 2 of the Sherman Act, 15 U.S.C. § 2. Section 2 provides that “[e]very person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony .15 U.S.C. § 2. A private right of action for violations of section 2 is provided in 15 U.S.C. section 15. In this case, all four of DocMagic’s claims against Ellie Mae are for attempting to monopolize the DPS market. An attempted monopolization claim requires showing three elements: (1) specific intent to monopolize; (2) anticompetitive conduct; and (3) a dangerous probability that the defendant will achieve monopoly power. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456, 113 S.Ct. 884, 122 L.Ed.2d 247 (1993).
DocMagic’s first, third and fourth antitrust claims allege discrete types of anticompetitive conduct. The first claim is for monopoly leveraging, based on DocMagic’s allegations that Ellie Mae used monopoly power in the “upstream” markets for LOSs and loan preparation networks to attempt to acquire monopoly power in the DPS market. The third claim is for refusal to deal, based on DocMagic’s allegations that Ellie Mae refused to give DocMagic access to ePASS and prevented Encompass users from connecting to DocMagic’s services. Finally, the fourth claim is for denial of access to an essential facility, based on Ellie Mae’s alleged exclusion of DocMagic from ePASS.
The allegations in the first, third and fourth claims render the second claim, for attempted monopolization generally, entirely redundant. In DocMagic’s complaint, the second claim merely incorporates the allegations in the first claim for relief. In addition, DocMagic has not identified any theory of attempted monopolization, other than monopoly leveraging, refusal to deal and denial of access to an essential facility, upon which the second claim could rest. The second claim for relief therefore marshals no new factual allegations nor any new legal theories upon which DocMagic could obtain relief. Federal Rule of Civil Procedure 12(f) permits the court to strike from a complaint any “redundant ... matter.” Fed. R. Civ. P 12(f). The second claim for relief meets that standard. Accordingly, as a threshold matter, the second claim for relief, for attempted monopolization, is dismissed without leave to amend.
The arguments for dismissal of the remaining three antitrust claims requires much lengthier discussion. Ellie Mae raises four arguments for dismissal of Doc-Magic’s claims. Firstly, Ellie Mae argues that DocMagic has not pled facts sufficient to establish the existence of an upstream network market or a downstream DPS market. Secondly, Ellie Mae argues that even if such markets exist, DocMagic has not pled facts showing that Ellie Mae has monopoly power in the LOS market or the network market, or a dangerous probability of achieving monopoly power in the DPS market. Thirdly, Ellie Mae argues that all of DocMagic’s antitrust claims depend on Ellie Mae’s refusal to deal, and that Ellie Mae’s alleged conduct does not as a matter of law constitute a refusal to deal. Fourthly, Ellie Mae argues that DocMagie lacks standing to bring any antitrust claims, because DocMagie only alleges harm against itself and not against the market as a whole.
Contrary to Ellie Mae’s contentions, DocMagie has pled facts sufficient to establish the existence of the alleged markets. DocMagic’s antitrust claims all falter, however, because of DocMagic’s failure to plead facts showing that Ellie Mae has a dangerous probability of achieving monopoly power in the DPS market. Because each of DocMagic’s remaining antitrust claims necessarily depends on Ellie Mae’s attempted monopolization of the DPS market, each requires adequate allegations of a dangerous probability of monopoly power in the DPS market. Since DocMagic’s complaint falls short in that regard, DocMagic’s first, third and fourth claims are dismissed with leave to amend.
1. The alleged markets
In order to state an antitrust claim, a plaintiff must identify a relevant market within which the defendant has market power. Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1044 (9th Cir.2008), cert, denied, — U.S.—, 129 S.Ct. 2788, 174 L.Ed.2d 290 (2009). The relevant market need not be pled with specificity. Id. at 1045. “An antitrust complaint therefore survives a Rule 12(b)(6) motion unless it is apparent from the face of the complaint that the alleged market suffers a fatal legal defect.... [T]he validity of the ‘relevant market’ is typically a factual element rather than a legal element .... ”
In support of its claims, DocMagie alleges the existence of three relevant product markets: the LOS market, the network market and the DPS market. Compl. ¶¶ 94-110. Ellie Mae raises three arguments, none of which carry the day, for why DocMagic’s allegations identifying relevant markets are insufficient.
Firstly, Ellie Mae contends that DocMagie has not sufficiently alleged the geographic scope of any of the three markets. Geographic scope, covering the “area of effective competition,” is an important factor in identifying the relevant market. See Tanaka v. Univ. of S. Cal., 252 F.3d 1059, 1063 (9th Cir.2001). Doc-Magic has alleged that the geographic scope of each of these markets is the United States, and has supported this allegation with further factual allegations. Compl. ¶ 94; see also id. ¶¶ 18, 99, 105. Although DocMagie has also alleged that some DPS vendors do not operate nationwide, id. ¶ 127, there is no contradiction between the existence of a national DPS market and the simultaneous existence of local DPS markets that compete only at the regional level. DocMagic’s allegations of geographic scope are therefore sufficient to survive Ellie Mae’s motion to dismiss.
Secondly, Ellie Mae argues that DocMagic’s factual allegations are not sufficient to plausibly show the existence of a market for networks. A product market consists of “commodities reasonably interchangeable by consumers for the same purposes.” United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 395, 76 S.Ct. 994, 100 L.Ed. 1264 (1956). Ellie Mae asserts that DocMagie has not alleged that reasonably interchangeable products compete within the network market. This argument rests largely on Ellie Mae’s factual assertion that only Encompass users can access ePASS, so that ePASS is not “reasonably interchangeable” with other networks. However, that assertion contradicts the allegations in the complaint. Compl. ¶¶ 32-33; see also id. ¶ 98 (alleging the existence of other competing networks). Likewise, Ellie Mae’s assertion that an adapter program such as DocMagic XL is reasonably interchangeable with a network, and so should be included in the alleged market, contradicts the complaint’s allegations that participation in the network provides benefits beyond mere connectivity. Id. ¶¶ 23-27. Finally, Ellie Mae’s factual contentions about the available network substitutes discussed in its SEC filing are not appropriate for resolution at the pleadings stage. Taking all of the factual allegations in the complaint as true, as the court must on Ellie Mae’s motion to dismiss, DocMagic has sufficiently pled the existence of a network market.
Thirdly, Ellie Mae suggests that DocMagic has failed to allege facts supporting the existence of a DPS market. DocMagic alleges that the DPS market consists of “online document preparation services to brokers and lenders using third-party LOS’s in conjunction with residential mortgage transactions.” Id. ¶ 108. Under this definition, the alleged DPS market includes document preparation services provided either to users of Ellie Mae’s Encompass LOS or to users of any other third-party LOS. DocMagic’s factual allegations describe the alleged market, the product which this market provides, and the competitors and customers in the market. Id. ¶¶ 15-18, 47-58, 94, 108-110, 126-31. These factual allegations are sufficient to plausibly support the existence of a market in which reasonably interchangeable DPS vendors compete.
2. Market power
As well as identifying a relevant market, a plaintiff bringing antitrust claims must allege that the defendant has market power within that market. Rick-Mik Enters., Inc. v. Equilon Enters. LLC, 532 F.3d 963, 972 (9th Cir.2008); Newcal, 513 F.3d at 1044. “Market power is the ability to raise price profitability by restricting output”; when a party has sufficient market power to exclude competition or control prices, that party possesses monopoly power. IIB Phillip E. Areeda et ah, Antitrust Law ¶ 501 (2007) (hereinafter Areeda). Market power need not be pled with specificity, and whether a defendant actually possesses market power is a factual question. Newcal, 513 F.3d at 1045, 1051. A plaintiff can show market power directly, by establishing that the defendant, by actually reducing its own output, raised market prices; or indirectly, by showing that the defendant has a dominant share of the market, that there are significant barriers to entry into that market, and that existing competitors cannot increase their production in the short run. Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421, 1434 (9th Cir.1995). To bring a claim for attempted monopolization, like those asserted by DocMagic, a plaintiff must show a “dangerous probability” that the defendant will achieve monopoly power. See Spectrum Sports, 506 U.S. at 456, 113 S.Ct. 884 (stating the elements of a claim for attempted monopolization). Doc-Magic does not allege that Ellie Mae has actually reduced output in order to raise prices in any of the three markets. Instead, it has attempted to allege facts sufficient to support an indirect inference that Ellie Mae possesses market power in the LOS, network and DPS markets.
DocMagic has provided sufficient factual allegations describing Ellie Mae’s position in the LOS and network markets to plausibly conclude that Ellie Mae has market power in both markets. Compl. ¶¶ 99, 105-07, 113-14, 143-44. Ellie Mae argues that DocMagic’s allegations are insufficient, because DocMagic has not alleged that Ellie Mae actually controlled prices or excluded competitors in the LOS and network markets. With respect to the LOS market, DocMagic has in fact alleged actual exclusion of competitors. Id. ¶ 114 (“Ellie Mae has imposed restrictions on its LOS customers that essentially lock them into the Encompass environment, thereby excluding legitimate competition from LOS companies----”). In any event, DocMagic is not required to show actual price control or competitor exclusion; it need only plausibly allege facts showing monopoly power over the market, not the exercise of that power. See Rebel Oil, 51 F.3d at 1434 (holding that market power may be demonstrated either by showing exercise of that power, or circumstantially by showing the structure of the market). DocMagic has done so by alleging facts showing that Ellie Mae has a significant market share in the LOS and network markets, that there are high barriers to entry for both markets, and that competitors cannot effectively increase their output to return the market to an efficient price level. See Compl. ¶¶ 98-101,105-107,113-115.
According to the facts alleged in the complaint, Ellie Mae had a significant market share in both the LOS and network markets. See, e.g., id. ¶ 105 (alleging Ellie Mae has a greater than 50%, and likely greater than 60%, market share in the LOS market); id. ¶ 99 (alleging Ellie Mae has a 60% market share in the network market). Ellie Mae’s arguments to the contrary inappropriately dispute facts alleged in the complaint.
Furthermore, DocMagic has alleged facts showing that there are high barriers to entry in each of these markets, and that competitors could not effectively make up for an increase in Ellie Mae’s prices by increasing their own output. With respect to the LOS market, DocMagic has alleged that there are high barriers to switching LOS providers. Id. ¶ 107. This both provides a barrier to entry, since new competitors in the LOS market will be unable to attract business that is “locked in” to old LOS providers, and indicates that Ellie Mae’s competitors cannot effectively increase production to compensate for a rise in Ellie Mae’s prices, since customers will be unable to take advantage of any increased supply of LOS services provided by Ellie Mae’s competitors. Cf. Eastman Kodak Co. v. Image Technical Servs., 504 U.S. 451, 476, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992) (noting that high switching costs can force “locked-in” consumers to tolerate supracompetitive prices rather than changing providers).
With respect to the network market, DocMagic has alleged that the “network effect” creates a high barrier to entry into the market. “In markets characterized by network effects, one product or standard tends towards dominance, because ‘the utility that a user derives from consumption of the good increases with the number of other agents consuming the good.’ ” United States v. Microsoft Corp., 253 F.3d 34, 49 (D.C.Cir.2001) (quoting Michael L. Katz & Carl Shapiro, Network Externalities, Competition, and Compatibility, 75 Am. Econ. Rev. 424, 424 (1985)). “For example, ‘[a]n individual consumer’s demand to use (and hence her benefit from) the telephone network ... increases with the number of other users on the network whom she can call or from whom she can receive calls.’” Id. (quoting Howard A. Shelanski & J. Gregory Sidak, Antitrust Divestiture in Network Industries, 68 U. Chi. L. Rev. 1, 8 (2001)). Where the network effect is sufficiently strong, it can function as a barrier to entry into a market. Id. at 83-84. DocMagic alleges that the network market is characterized by the network effect and that the success of ePASS, largely due to the network effect, has created a barrier to entry into the network market. Compl. ¶¶ 100-01. Taken altogether, DocMagic’s factual allegations are sufficient to support its allegation that Ellie Mae has monopoly power in the network and LOS markets.
DocMagic’s factual allegations are not, however, adequate to show a dangerous probability that Ellie Mae will attain monopoly power in the DPS market, as the DPS market is defined by DocMagic, because DocMagic has not provided plausible allegations that there are any barriers to entry into the DPS market. As alleged, the DPS market consists of all online document preparation services provided to users of third-party LOSs. Id. ¶ 108. Doc-Magic has alleged that Ellie Mae has been able to obtain a market share of 60% in this market. Id. ¶ 110. DocMagic also contends that there are barriers to entry into the DPS market, based on its allegations that Ellie Mae has prevented Encompass users from connecting to DocMagic or any other DPS provider that is not a vendor on ePASS. Id. ¶¶ 70-72, 149-50. However, the contractual and technical limitations that Ellie Mae has placed on Encompass users’ choice of DPS vendors have not created a barrier to entry into the DPS market as a whole. Rather, Doc-Magic’s allegations show only that there is a barrier to entry for the submarket consisting of document preparation services provided to Encompass users. See L.A. Land Co. v. Brunswick Corp., 6 F.3d 1422, 1427-28 (9th Cir.1993) (defining barriers to entry); cf. Newcal, 513 F.3d at 1045 (recognizing the difference between a market and an economically distinct submarket); United States v. Syufy Enters., 903 F.2d 659, 666-67 (9th Cir.1990) (describing structural barriers to market entry that prevent any new competitors from joining the market). Unlike in the LOS market, where it is difficult for new LOS vendors to reach any existing customers because they are all “locked in” to their current LOSs, and unlike in the network market, where the network effect makes it difficult to establish a competing new network, there is nothing (at least according to Doc-Magic’s complaint) to prevent new DPS vendors from competitively entering the market. A new DPS vendor wishing to enter the DPS market but excluded from ePASS can sell its product to any customers except those who are also Encompass users. Therefore, while DocMagic’s allegations may be sufficient to show a dangerous probability that Ellie Mae will attain (or perhaps already has) monopoly power in the submarket consisting of document preparation services provided to Encompass users, the complaint does not plausibly aver a dangerous probability of monopoly power over the DPS market as a whole. See Syufy, 903 F.2d at 664 & n. 6.
For instance, if Ellie Mae raised the price of Elbe Mae Docs, the allegations show that Encompass users might be forced to pay this higher price (since Elbe Mae has prevented Encompass users from connecting to DPS vendors not on ePASS, Compl. ¶ 72, Elbe Mae can prevent new DPS vendors from joining ePASS, id. ¶ 119, and the other DPS vendors on ePASS do not provide effective competition to Elbe Mae Docs, id. ¶ 127). Nevertheless, the price of document preparation services would remain exactly the same for the alleged 40% of third-party LOS users who do not use Encompass. If Elbe Mae attempted to offer its services at an artificially high price to these users, that offer would be rejected and the market price would not change. Moreover, DPS vendors catering to non-Eneompass users would not be able to mimic Elbe Mae’s artificially high prices, raising the price for the market as a whole, because they would be undercut by increased production from their competitors or from new entrants into the market.
It is possible that the control which Elbe Mae allegedly exercises over current Encompass users’ choice of DPS vendor could constitute a barrier to entry into the market as a whole. See generally Areeda ¶4211 (explaining how inadequate access to customers in the market may constitute barrier to entry). Likewise, it is possible that there are other barriers to entry into the DPS market beyond those alleged in the complaint, and that these other barriers make the 40% of the DPS market not controlled by Elbe Mae as inefficient as the 60% of the market which is controlled by Elbe Mae. However, DocMagic has not at present alleged facts plausibly supporting either of these two conclusions.
Because DocMagic has fabed to allege facts showing a dangerous probability that Elbe Mae will acquire monopoly power in the DPS market, Elbe Mae’s motion to dismiss DocMagic’s first, third and fourth claims for relief is granted; those claims are dismissed with leave to amend.
B. Fifth claim for relief: trade dress and trademark claims
DocMagic’s fifth claim for relief alleges that Elbe Mae violated section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), by designing its document preparation services (Elbe Mae Docs) to create audit reports that infringe on Doc-Magic’s trade dress and trademarks. In order to state a trade dress infringement claim, DocMagic must allege facts showing that: “(1) the trade dress is inherently distinctive or has acquired distinctiveness through secondary meaning; (2) there is a likelihood that the public will be confused by the infringing use; and (3) the trade dress is non-functional.” Stephen W. Boney, Inc. v. Boney Sens., Inc., 127 F.3d 821, 828 (9th Cir.1997). DocMagic alleges that its trade dress in the audit report consisted of a “3-column table-like bst without internal borders, with field names on the left, a message describing the deficiency in the middle and space for additional details on the right.” Compl. ¶ 55. The field names DocMagic allegedly utilized were the word “FATAL,” in red, followed by a description of the deficiency in red, and the word “WARNING,” in yellow, followed by a description of the (less-vital) deficiency in black. Id. ¶¶ 54, 167. DocMagic further alleges that it possesses trademarks in the words “FATAL” and “WARNING” as they appear in Doc-Magic’s audit reports. Id. ¶ 51. According to DocMagic, Elbe Mae has copied this trade dress and these trademarks in their entirety, except that the word “WARNING” in Elbe Mae’s audit report appears in black rather than yellow. Finally, DocMagic avers that by organizing the audit reports in Elbe Mae Docs in a manner identical to DocMagic’s trade dress, Ellie Mae’s conduct is “likely to lead to confusion as to the source of Ellie Mae’s document preparation services.” Id. ¶ 57. Ellie Mae suggests that Doc-Magic’s allegations are insufficient to satisfy any of the three elements of a Lanham Act violation. To the contrary, the complaint contains allegations of trademark and trade dress infringement that are sufficient, albeit barely, under Rule 8(a).
Firstly, DocMagie has adequately alleged that its trade dress in the format of its audit reports have “acquired distinctiveness through secondary meaning.” Boney, 127 F.3d at 828. DocMagie alleges that its use of this trade dress was long-standing and exclusive, that it has been used consistently on DocMagic’s audit reports, and that users of the re-branded services knew that those services were being provided by DocMagie based on this trade dress. Compl. ¶¶ 53-55. These facts, particularly the last one, raise a plausible inference that consumers generally viewed the alleged trade dress as primarily identifying DocMagie as the source of the product, rather than merely identifying the product itself. See Samara Bros., 529 U.S. at 211, 120 S.Ct. 1339.
Secondly, DocMagic’s complaint contains factual allegations from which the court can infer a likelihood of confusion. Ellie Mae attacks DocMagic’s confusion allegations on two separate grounds. To begin with, Ellie Mae suggests that as a factual matter, there is no likelihood of public confusion between Ellie Mae Docs and DocMagie because the products are dissimilar in appearance. To support this contention, Ellie Mae submitted two screenshots of DocMagie computer audit reports. The screenshots, and therefore Ellie Mae’s arguments founded upon them, are not admissible to support Ellie Mae’s motion to dismiss. “[A] district court ruling on a motion to dismiss may consider a document the authenticity of which is not contested, and upon which the plaintiffs complaint necessarily relies.” Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998). However, DocMagie contends that its complaint relies on a different version of its audit report than that submitted by Ellie Mae. Since DocMagic’s claim does not necessarily rely on the versions of the audit reports submitted by Ellie Mae, they are inadmissible. The court cannot decide at this stage the factual question of whether DocMagic’s audit reports actually appeared as they are described in the complaint; therefore, Ellie Mae’s argument provides no basis for dismissing this claim.
Next, Ellie Mae contends that even if the court refuses to admit the screenshots submitted by Ellie Mae, Doc-Magic has not adequately alleged consumer confusion. Such is not the case. Doc-Magic has alleged that Ellie Mae’s audit report is nearly indistinguishable from its own, that Ellie Mae intentionally copies DocMagic’s trade dress, and that it is offered to consumers who previously used DocMagic’s products and who associate the trade dress in question with DocMagic’s products. Compl. ¶¶ 57, 170. These facts are sufficient to raise a plausible inference of consumer confusion, either as to the source of the document preparation services or as to the affiliation of DocMagic with Ellie Mae’s services. See Cairns v. Franklin Mint Co., 292 F.3d 1139, 1149-50 (recognizing that consumer confusion may arise over the origin or endorsement of products). Elbe Mae argues, however, that consumer confusion is unlikely since the report is only created after the consumer has been exposed to other source-identifying information clearly showing who will create the report. The question of whether other source-identifying information will dispel consumer confusion created by the similar trade dress is a factual one that the court cannot resolve at this stage, and so provides no basis for dismissing DocMagic’s claim.
Finally, DocMagie has also alleged sufficient facts to support a barely plausible inference that its claimed trade dress is nonfunctional. “A product feature is functional and cannot serve as a trademark if the product feature is essential to the use or purpose of the article or if it affects the cost or quality of the article, that is, if exclusive use of the feature would put competitors at a significant, non-reputation-related disadvantage.” Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 165, 115 S.Ct. 1300, 131 L.Ed.2d 248 (1995) (internal quotation marks omitted). Although DocMagie may have great difficulty proving that the features it alleges as its trade dress could be denied to other competitors without putting them at a non-reputation-related disadvantage, the question of whether DocMagic’s trade dress is functional or nonfunctional is a factual one that cannot be resolved on a motion to dismiss. See Clicks Billiards, Inc. v. Sixshooters Inc., 251 F.3d 1252, 1258 (9th Cir.2001); Axis Imex, Inc. v. Sunset Bay Rattan, Inc., No. C 08-3931 RS, 2009 WL 55178, at *3 (N.D.Cal. Jan. 7, 2009) (Seeborg, Mag. J.). Construing Doc-Magic’s complaint liberally, it has alleged facts showing that competitors would not need the features of its audit report which it identifies as its trade dress in order to compete without disadvantage. Compl. ¶ 56 (“[T]he information to be displayed in the audit report could be selected, arranged, and presented in any number of ways.... Indeed, the audit report format had been used by no one else in the field until Ellie Mae decided to replicate Doc-Magic’s software in 2009.”).
As another basis for its Lanham Act claim, DocMagie argues that it holds a trademark in the words “WARNING” and “FATAL” as used on its audit reports. As described above, the court is skeptical of DocMagic’s ability to adduce evidence proving that it holds a protectable trademark in these words, particularly in showing that these words are inherently distinctive or have acquired secondary meaning, and that they are not functional. See Talking Rain Beverage Co. Inc. v. S. Beach Beverage Co., 349 F.3d 601, 603 (9th Cir.2003) (requiring showing of distinctiveness and nonfunctionality for successful trademark claims). However, given the factual allegations described above, it is plausible that DocMagie possesses a protectable interest in these alleged marks, and that Ellie Mae’s actions constitute trademark infringement. See Compl. ¶¶ 51-57, 166-170. These questions are best resolved on summary judgment. Accordingly, Ellie Mae’s motion to dismiss DocMagic’s fifth claim for relief is denied.
C. Sixth claim for relief: false advertising
DocMagic’s sixth claim for relief alleges that Ellie Mae committed false advertising in violation of section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), by sending a letter to its customers stating that Ellie Mae’s document preparation service, in contrast to DocMagic’s service, would provide “greater automation, safeguards and control to help you easily stay compliant now.” Compl. ¶ 79. In order to state a claim for false advertising, a plaintiff must allege facts showing each of the following five elements:
(1) a false statement of fact by the defendant in a commercial advertisement about its own or another’s product; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision; (4) the defendant caused its false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a lessening of the goodwill associated with its products.
Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir.1997).
Ellie Mae argues that Doc-Magic has not alleged sufficient facts to plausibly support any of these five elements. A quick examination of the complaint indicates that DocMagic has failed to adequately allege even the first element of the claim. The alleged misrepresentation constitutes non-actionable puffery. Puffery consists of statements that are “extremely unlikely to induce consumer reliance.” Newcal, 513 F.3d at 1038. “Ultimately, the difference between a statement of fact and mere puffery rests in the specificity or generality of the claim.... Thus, a statement that is quantifiable, that makes a claim as to the ‘specific or absolute characteristics of a product,’ may be an actionable statement of fact while a general, subjective claim about a product is non-actionable puffery.” Id. (quoting Cook, Perkiss & Liehe v. N. Cal. Collection Serv., Inc., 911 F.2d 242, 246 (9th Cir. 1990)). The claims that Ellie Mae’s program will provide “greater automation, safeguards and control” and will “help you easily stay compliant now” are neither quantifiable, nor claims as to the specific or absolute characteristics of its product. Cf. id. at 1053 (finding that the “general assertion that IKON provides its customers with low costs and with flexibility” is “classic puffery”); Cook, 911 F.2d at 246 (holding that general assertions of superiority, such as claiming comparable services at lower rates, are “not ... the kind of detailed or specific factual assertions that are necessary to state a false advertising cause of action”). Because the alleged misrepresentations are not actionable as a matter of law and do not come close to stating a claim for false advertising, Elbe Mae’s motion to dismiss DocMagic’s sixth claim is granted, and the claim is dismissed without leave to amend.
D. Seventh claim for relief: copyright infringement
DocMagic’s seventh claim is for copyright infringement, based on Ellie Mae’s alleged copying of various elements in DocMagic’s audit reports to create Ellie Mae’s own audit reports. Specifically, DocMagic alleges that the following elements in its audit reports constitute protectable expression and were copied by Ellie Mae: “(1) the selection of deficiencies and field names; (2) the arrangement of deficiencies into two groups with specific field names; and (3) the arrangement and display of field names and deficiencies in a color-coded format.” Compl. ¶ 184-185.
Except under certain exceptions not relevant here, 17 U.S.C. section 411(a) requires that “no civil action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim shall have been made in accordance with this title.” Pursuant to this registration requirement, a party may bring a suit for copyright infringement once the Copyright Office receives a complete application for copyright on the allegedly infringed materials. Cosmetic Ideas, Inc. v. IAC/Interactivecorp, 606 F.3d 612, 615-16, 621 (9th Cir.2010). The registration requirement is not jurisdictional, but it is a necessary element of a copyright infringement claim. Reed Elsevier, Inc. v. Muchnick, — U.S.—,—, 130 S.Ct. 1237, 1237, 176 L.Ed.2d 17 (2010); Cosmetic Ideas, 606 F.3d at 615. DocMagic alleges that it “has complied with Title 17 of the United States Code and is in the process of registering the ... copyright [on its audit reports] with the United States Copyright Office.” Compl. ¶ 187. An allegation that DocMagic “is in the process of registering” the copyright does not plausibly support the inference that the registration had already been made at the time this suit was filed. At the hearing on this matter, DocMagic admitted that it had not submitted a copyright application prior to the filing of its complaint; post-hearing submissions from DocMagic confirmed this state of affairs. See Docket No. 58 (Letter from DocMagic’s counsel, attaching a copyright Certificate of Registration dated June 11, 2010). Because allegations to support this element of DocMagic’s claim are lacking, Ellie Mae’s motion to dismiss DocMagic’s seventh claim for relief is granted, and the claim is dismissed with leave to amend. However, any amendment to this claim for relief will not relate back.
E. Eighth claim for relief: intentional interference with contractual relations
DocMagic’s eighth claim is for intentional interference with contractual relations, based on Ellie Mae’s alleged actions to disrupt and destroy DocMagic’s relationships with its customers. However, DocMagic appears to misunderstand the nature of this tort. The tort of intentional interference with contractual relations under California law is what is known as “inducement of breach of contract” in other jurisdictions. See 5 Witkin, Summary of California Law § 731. It requires the following five elements:
1. The existence of a valid contract between the plaintiff and a third party;
2. The defendant’s knowledge of that contract;
3. The defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship;
4. Actual breach or disruption of the contractual relationship; and
5. Resulting damage.
Reeves v. Hanlon, 33 Cal.4th 1140, 1148, 17 Cal.Rptr.3d 289, 95 P.3d 513 (2004). Here, DocMagic does not allege any facts plausibly showing that Ellie Mae’s actions caused the breach or disruption of any existing contracts which DocMagic and its customers were in the process of fulfilling at the time Ellie Mae’s actions were taken. See Compl. ¶¶ 15-18, 38 (indicating that DocMagic’s interactions with customers consisted of discrete transactions, rather than long-term contracts). Because Doc-Magic’s allegations do not show that Doc-Magic had existing contracts — as opposed to mere economic relations — that were breached or disrupted as the result of Ellie Mae’s actions, Ellie Mae’s motion to dismiss the eighth claim for relief is granted, and this claim is dismissed with leave to amend.
F. Ninth claim for relief: intentional interference mth prospective economic advantage
DocMagic’s ninth claim for relief is for intentional interference with prospective economic advantage (IIPEA), based on its allegations that Ellie Mae acted to cut DocMagic off from access to customers with which DocMagic had ongoing business relations. An IIPEA claim requires the following elements:
1. An economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff;
2. The defendant’s knowledge of the relationship;
3. Intentional acts on the part of the defendant designed to disrupt the relationship;
4. Actual disruption of the relationship; and
5. Economic harm to the plaintiff proximately caused by the acts of the defendant.
Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1153, 131 Cal. Rptr.2d 29, 63 P.3d 937 (2003). In addition, the intentional acts alleged as the third element must have been “wrongful by some legal measure other than the fact of interference itself.” Id. (quoting Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal.4th 376, 393, 45 Cal.Rptr.2d 436, 902 P.2d 740 (1995)); see also Korea Supply, 29 Cal.4th at 1158-59, 131 Cal.Rptr.2d 29, 63 P.3d 937 (“The tort of intentional interference with prospective economic advantage is not intended to punish individuals or commercial entities for their choice of commercial relationships or their pursuit of commercial objectives, unless their interference amounts to independently actionable conduct.”).
DocMagic alleges generally that it had existing economic relationships with third parties — Encompass LOS and ePASS users — that gave it the prospect of future economic benefits — additional agreements to prepare loan documents for loan originators or lenders using a third-party LOS. See Compl. ¶¶ 15-18, 192-204. That said, DocMagic does not identify any particular relationship that was disrupted because of Ellie Mae’s actions. At this stage and given the nature of the harm alleged by DocMagic, DocMagic need not specify every single economic relationship with which Ellie Mae interfered. Twombly, 550 U.S. at 570, 127 S.Ct. 1955 (“[W]e do not require heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face.”). However, in order to provide Ellie Mae with sufficient information to answer the complaint, DocMagic must, for at least one actual relationship, plead facts sufficient to satisfy all of the elements of an IIPEA claim. Because such allegations are missing from the complaint, Ellie Mae’s motion to dismiss DocMagic’s ninth claim for relief is granted, and this claim is dismissed with leave to amend.
G. Tenth and eleventh claims for relief: breach of contract claims
DocMagic’s tenth and eleventh claims are for breach of contract, based on Ellie Mae’s alleged breach of the Reseller Agreement and Bridge Agreement respectively. Specifically, DocMagic claims Ellie Mae breached these agreements by misappropriating and misusing proprietary information, including both technology and customer information, that DocMagic provided to Ellie Mae pursuant to these agreements. To assert a claim for relief for breach of contract, a plaintiff must plead: (1) the existence of the contract, (2) the plaintiffs performance or excuse for non-performance, (3) the defendant’s breach of the contract, and (4) the resulting damages to the plaintiff. Armstrong Petroleum Corp. v. Tri-Valley Oil & Gas Co., 116 Cal.App.4th 1375, 1391 n. 6, 11 Cal.Rptr.3d 412 (2004). DocMagic has adequately pled each of these elements in its complaint with respect to each contract, and supported them with factual allegations. See Compl. ¶¶ 39-42, 45, 47-49, 58, 74-80, 205-26. Contrary to Ellie Mae’s contention, DocMagic has not only pled that Ellie Mae had access to DocMagic’s proprietary information, but also that Ellie Mae actually misappropriated and misused it. Id. ¶¶ 58, 76, 86, 92, 211, 222. Doc-Magic is not required to plead with specificity the precise proprietary information that Ellie Mae misappropriated and misused. Twombly, 550 U.S. at 570, 127 S.Ct. 1955 (holding that heightened fact pleading of specifics not required). Likewise, Doc-Magic’s factual allegations are sufficient to make plausible the inference that Ellie Mae actually breached the contract. See Compl. ¶¶ 74-77 (alleging that Ellie Mae used DocMagic’s proprietary customer information to contact DocMagic’s customers); id. ¶¶ 47-50 (alleging that Ellie Mae used DocMagic’s proprietary software information to create Ellie Mae Docs). Ellie Mae’s motion to dismiss the tenth and eleventh claims for relief is therefore denied.
H. Twelfth claim for relief: trade secret misappropriation
DocMagic’s twelfth claim for relief, for trade secret misappropriation, is also based on Ellie Mae’s alleged misappropriation and misuse of the proprietary information that DocMagie provided to Ellie Mae under the Reseller Agreement and Bridge Agreement. In California, a trade secret misappropriation claim has “two primary elements: (1) the existence of a trade secret, and (2) misappropriation of the trade secret.” AccuImage Diagnostics Corp v. Terarecon, Inc., 260 F.Supp.2d 941, 950 (N.D.Cal.2003) (Patel, J.) (citing Cal. Civ. Code § 3426.1(b)). DocMagic’s allegations are sufficient to support each of those elements. As discussed above, Doc-Magic need not plead with specificity what particular proprietary information was misappropriated by Ellie Mae; the description of the proprietary information given in the complaint is sufficient to satisfy Rule 8(a). See Compl. ¶¶ 228-232; Twombly, 550 U.S. at 570, 127 S.Ct. 1955; see also StonCor Grp., Inc. v. Campton, No. C05-1225JLR, 2006 WL 314336, at *5 (W.D.Wash. Feb. 7, 2006) (finding alleged misappropriation of “proprietary and confidential information concerning ... sales and marketing strategies, pricing and pricing policies, and customer lists and installers” sufficient to state a claim). DocMagic’s factual allegations are also sufficient to support a plausible inference of misappropriation. Compl. ¶¶ 47-50, 57-58 (technical information); id. ¶¶ 74-78 (customer information). Likewise, DocMagie alleges facts supporting Ellie Mae’s actual misuse of its proprietary trade secret information, in creating Ellie Mae Docs and in soliciting DocMagic’s customers. Id.
Ellie Mae’s argument that it already had independent access to all of the customers in question, and so that it is implausible to infer that Ellie Mae misappropriated Doc-Magic’s customer information, ignores DocMagic’s allegation that the customer information which it had compiled was only obtained and made usable at significant expense. Id. ¶ 231. Given the alleged difficulty of independently obtaining the customer information at issue, it becomes plausible that Ellie Mae would misappropriate DocMagic’s compiled customer information rather than preparing its own. The alleged difficulty of obtaining customer information distinguishes this case from Metro Traffic Control, Inc. v. Shadow Traffic Network, 22 Cal.App.4th 853, 863, 27 Cal.Rptr.2d 573 (1994), on which Ellie Mae relies. In that case, only a single customer was at issue, and the evidence presented showed that the customer had independently given the alleged misappropriator all of the alleged trade secret information that it had provided to the plaintiff. In this case, by contrast, DocMagic’s customer information allegedly relates to a relatively wide client base, and it is too early a stage in the litigation for any evidence to show whether Ellie Mae compiled the information independently rather than by misappropriating it. Furthermore, DocMagic’s allegations that Ellie Mae specifically tailored Ellie Mae Docs to Doc-Magic’s customers, and could not have done so without using DocMagic’s proprietary information, support the inference that Ellie Mae used DocMagic’s proprietary information rather than gathering its own. See Compl. ¶¶ 49, 74. Since Doc-Magic alleges facts plausibly supporting its claim for trade secret misappropriation, Ellie Mae’s motion to dismiss the twelfth claim for relief is denied.
I. Thirteenth claim for relief: unfair competition
DocMagic’s thirteenth claim for relief is brought under California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq., alleging that all of Ellie Mae’s acts described in the complaint constituted unfair competition within the meaning of that statute. Section 17200 prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising ----” Cal. Bus. & Prof. Code § 17200. Because section 17200 is written in the disjunctive, “a business act or practice need only meet one of the three criteria— unlawful, unfair, or fraudulent — to be considered unfair competition under the UCL.” Daro v. Superior Court, 151 Cal. App.4th 1079, 1093, 61 Cal.Rptr.3d 716 (2007). In its complaint, DocMagic alleges that Ellie Mae’s conduct violated both the unlawful and unfair prongs of the UCL.
“Under its ‘unlawful’ prong, the UCL borrows violations of other laws ... and makes those unlawful practices actionable under the UCL.” See Berryman v. Merit Prop. Mgmt., 152 Cal.App.4th 1544, 1554, 62 Cal.Rptr.3d 177 (2007) (internal quotation marks and citation omitted; alteration in original). “Thus, a violation of another law is a predicate for stating a cause of action under the UCL’s unlawful prong.” Id.; see Smith v. State Farm Mut. Auto. Ins. Co., 93 Cal.App.4th