Federal judge partially grants Dutch company’s motion to dismiss claims

By Sandra Lane | Jun 22, 2018

FRESNO, Calif -- Judge Dale A. Drozd of the U.S. District Court for the Eastern District of California on June 1, granted in part and denied in part defendants’ motion to dismiss a case concerning infringement of patent rights for a drying machine used in making colorants and nutraceutical products.

FRESNO, Calif -- Judge Dale A. Drozd of the U.S. District Court for the Eastern District of California on June 1, granted in part and denied in part defendants’ motion to dismiss in a case concerning infringement of patent rights for a drying machine used in making colorants and nutraceutical products.

The plaintiffs are E. & J. Gallo Winery, G3 Enterprises, Inc., and MCD Technologies, Inc., and defendants are two Dutch companies collectively called ILVO. Their individual names are Instituut Voor Landbouw - En Visserijonderzoek and Eigen Vermogen Vh Instituut Voor Landbouw - En Visserijonderzoek. 

According to the court summary, MCD Technologies had developed a machine known as the refractance window dryer (RW dryer) that allows for fast and efficient drying of organic food products such as fruits, vegetables and algae. These are used to make colorants and nutraceutical products without compromising the dried product’s color, flavor or active ingredients.

In 2011, representatives of ILVO contacted MCD expressing interest in purchasing one of the RW dryers. The defendants presented themselves to MCD as a research institute, not a commercial concern, and requested a demonstration of the RW dryer.


Judge Dale A. Drozd  

After the two companies signed a non-disclosure agreement, MCD shared its trade secrets, intellectual property and business information regarding refractance window drying technology.

However, the defendants did not purchase an RW dryer from MCD. Later the plaintiffs said they learned that ILVO had begun developing a copy of the RW dryer using MCD’s trade secrets without paying for them.

In 2012 E. & J. Gallo Winery, doing business as San Joaquin Valley Concentrates (SJVC), purchased MCD’s RW dryer business. SJVC, in turn, licensed the RW dryer technology to G3 Enterprises Inc., doing business as Delaware G3 Enterprises Inc. (G3). G3 manufactures and sells commercial RW dryers based on plaintiff MCD’s technology.

In 2015 ILVO asked G3 to obtain an environmental technology verification (ETV), to verify the energy efficiency of new, environmentally-friendly technologies to facilitate the technology’s acceptance in the European marketplace. ILVO assured G3 that it was not developing a competing RW dryer product. Going by that assurance, G3 obtained the ETV, during which it signed a mutual non-disclosure agreement with defendants and the testing entity.

In late 2016, ILVO publicly announced it had produced a working prototype dryer, known as the “Dry-on-Water” dryer, and that Constructie Spiessens NV, would be the exclusive manufacturer. 

The plaintiffs allege that defendants receive royalties and possibly other considerations from Spiessens as a result of this arrangement.  In addition, they believe that defendants and Spiessens will continue marketing their commercial dryers to the plaintiffs’ current and future customers, making them market competitors.

In announcing his ruling, Drozd dismissed the cause of action concerning trade secret misappropriation saying, “The complaint must do more than describe the subject matter of the trade secrets in a vague and conclusory manner," he wrote." "Because there was no factual dispute that parts of the alleged trade secret had previously been made public, the district court properly held that those parts cannot be protected under the California Uniform Trade Secrets Act as a trade secret.”

The second cause of action concerning breach of contract in the 2011 NDA was also dismissed by the judge. “Plaintiff MCD has failed to plausibly allege how it has suffered damages in this case," Drozd wrote. 

The Plaintiffs’ third cause of action concerning breach of contract on the 2015 NDA was also dismissed.

The fourth cause of action concerning unfair competition was dismissed. Drozd said, “The defendants argue that MCD cannot state a claim for trade secret misappropriation because it has suffered no damages. In order to satisfy the third element of a trade secret misappropriation claim, a plaintiff must plead facts showing that misappropriation caused damage to the plaintiff.”

In conclusion, Drozd said, “For these reasons, defendants’ motion to dismiss is granted in part and denied in part.” 

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