Beatport, LLC v. SoundCloud Limited

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. CV 19-847 MRW Date July 13, 2020

Title Beatport LLC v. SoundCloud Ltd

Present: Hon. Michael R. Wilner, U.S. Magistrate Judge

Veronica Piper n/a

Deputy Clerk Court Reporter / Recorder

Attorneys for Plaintiff: Attorneys for Defendant:

n/a n/a

Proceedings: ORDER DISMISSING ACTION

SUMMARY

1. The defense moved to dismiss Plaintiff Beatport’s third attempt at pleading

viable federal court jurisdiction over the parties and a plausible cause of action for trade

secret theft. After yet more extensive motion practice and another rollicking hearing, the

Court concludes that the current iteration of the complaint — like its predecessors — does

not adequately meet the standards applicable under federal law. The Court therefore

dismisses the action without leave to amend.

RELEVANT FACTS AND PROCEDURAL BACKGROUND

2. The following facts are asserted in Plaintiff's Second Amended Complaint

(SAC (Docket # 73)) and taken as true.

The Parties

3. Plaintiff Beatport is an American company involved in the digital music

industry. In early 2018, it acquired substantially all of the assets of Pulselocker.

Pulselocker was a San Francisco company that developed proprietary technology for DJs.

(SAC 2-3.)

4. Defendant SoundCloud Limited is an English company with its principal

place of business in Germany. For purposes of this decision (and without trying to pick a

political fight about the meaning or current state of Brexit), SoundCloud Limited will be

referred to as “SoundCloud Europe.” SoundCloud Europe provides subscription-based

music and other audio services worldwide. (SAC § 4.)

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. CV 19-847 MRW Date July 13, 2020

Title Beatport LLC v. SoundCloud Ltd

5. Defendant SoundCloud Inc. is an American company with a business

office in Los Angeles. This decision will refer to SoundCloud Inc. as “SoundCloud US.”

SoundCloud US is a wholly owned subsidiary of SoundCloud Europe. Among other things,

SoundCloud US “provides research and development services” to SoundCloud Europe.

(SAC 5-6.)

6. At paragraphs 6-8 of the Second Amended Complaint, Plaintiff alleges that

SoundCloud Europe (parent) and SoundCloud US (subsidiary): (a) have a principal-agent

relationship; and (b) are alter egos of each other. The alter ego allegation is based on the

parties’ common name, high-level officers, blog and social media accounts, and a general

“unity of interest” by which the companies “hold themselves out to the public as a single

unitary entity.” (SAC § 6-7.)

7. For these reasons, Plaintiff's complaint “collectively refer[s] to” both entities

as “SoundCloud,” except in certain specified sections of the pleading. (SAC § 8.) At the

hearing, the Court confirmed with Plaintiffs experienced lawyer that the appropriate way

to read the complaint is, essentially, to substitute “SoundCloud Europe” and

“SoundCloud US” in every allegation that uses the single, defined term “SoundCloud.”

The Allegations of Theft

8. The gist of Plaintiffs grievance is that SoundCloud (be it SoundCloud

Europe, SoundCloud US, or both) lured Pulselocker into a German conference room and

stole Pulselocker’s non-public, proprietary technology. The awkward parenthetical in the

preceding sentence provides the crux of the defense dismissal motion.

9. The Second Amended Complaint clearly alleges that SoundCloud Europe

“falsely led Pulselocker to believe that it [SoundCloud Europe] was interested in acquiring

Pulselocker or its assets.” (SAC § 10.) SoundCloud Europe then “induced Pulselocker to

disclose its [Pulselocker’s] proprietary trade secret information.” (SAC § 11.)

10. In early October 2017, Pulselocker and SoundCloud Europe “executed a

non-disclosure agreement.”! (SAC § 31.) After that, “Pulselocker began by providing

1 The parties agreed that the NDA would be governed by English law and that the

parties “submit to the non-exclusive jurisdiction of the English courts” in case of a dispute.

(Docket # 32-2 at 3.) In earlier motion practice, Plaintiff opposed the defense request that the

Court take judicial notice of the parties’ agreement. (Docket # 43.) Even so, Plaintiff

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. CV 19-847 MRW Date July 13, 2020

Title Beatport LLC v. SoundCloud Ltd

SoundCloud” — that is, using the dual-defined term, SoundCloud Europe and

SoundCloud US — “with access to documents and data” regarding the Pulselocker

technology. (SAC § 32.)

11. Later that month, at the invitation of SoundCloud Europe and

SoundCloud US, Pulselocker’s key personnel “gave SoundCloud [Europe and

SoundCloud US] a guided tour of Pulselocker’s trade secret technology.” (SAC 4 33.) At

the request of SoundCloud Europe and SoundCloud US, “the Berlin meeting also included

a detailed discussion with [SoundCloud Europe’s and SoundCloud US’s] engineering

operations leadership on how to integrate Pulselocker’s technology with [SoundCloud

Europe’s and SoundCloud US’s] existing platform.” (Id.)

12. During the Berlin meeting, the founder and chief product officer of

SoundCloud Europe and SoundCloud US spoke privately with a Pulselocker

representative. The SoundCloud executive “attempted to recruit [the Pulselocker

employee] by offering him a job with” SoundCloud Europe and SoundCloud US. (SAC

4] 36.) The Pulselocker employee rejected the offer.

13. However, several weeks later, Pulselocker’s former CEO “announced that he

had joined” SoundCloud Europe and SoundCloud US. (SAC § 37.) And, in October 2018,

the former Pulselocker CEO announced on behalf of SoundCloud Europe and

SoundCloud US that “Pulselocker’s spirit lives on.” (SAC 4 43.)

14. Based on that announcement, Beatport concluded that SoundCloud Europe

and SoundCloud US improperly stole some or all of the Pulselocker technology that

Pulselocker presented at the Berlin meeting one year earlier. (SAC § 44.) In the charging

allegations for Plaintiffs federal trade secret theft cause of action,? Plaintiff contends that

SoundCloud Europe and SoundCloud US “acquired the trade secret information under

false pretenses.” (SAC § 49.) The complaint alleges that SoundCloud Europe and

SoundCloud US “misappropriate[d] the trade secret information” and “us[ed] it to

acknowledged that the NDA “does not seem to controvert any fact alleged in the complaint.” (Id.

at 3-4.)

2 The two causes of action in the Second Amended Complaint allege violations of the

federal [18 U.S.C. § 1836] and state [Cal. Civ. C. § 3426 et seq., although not cited in the SAC]

trade secrets statutes. The parties agree that the elements of the offenses are substantively the

same. The complaint makes clear that the two sets of claims rely on the same factual assertions

regarding the SoundCloud entities.

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. CV 19-847 MRW Date July 13, 2020

Title Beatport LLC v. SoundCloud Ltd

substantially reduce the development time necessary to bring a competing product and

service to market.” (SAC § 50.) The pleading does not otherwise distinguish between acts

that the two SoundCloud entitles took.

Additional Allegations About SoundCloud Europe and SoundCloud US

15. Ina section of the Second Amended Complaint entitled “Personal

Jurisdiction” (SAC ¥ 9-18), Plaintiff pled additional facts about the two SoundCloud

companies. The complaint alleges that SoundCloud Europe: knew that Pulselocker was

headquartered in California; obtained secrets that Pulselocker kept in a data room in

California; and has a website that is accessible from California. (SAC 4 10-12.) Without

providing specific details, the complaint asserts that SoundCloud Europe “used agents

based in California” such as SoundCloud US “to perform some or all of the acts of

misappropriation.” (SAC § 13.)

16. Additionally, although not pled in the current iteration of the complaint,

Plaintiff proffered in a surreply submission that it could allege that SoundCloud Europe

contacted Pulselocker’s California headquarters to discuss the potential purchase of the

company and to propose the Berlin meeting. (Docket # 93 at 2.)

17. More generally, the complaint alleges that SoundCloud Europe: owns and

asserts patent and trademark rights in the United States; prices its online services in U.S.

dollars; earns a majority of its annual revenue from U.S. customers; and has executives

and a subsidiary (SoundCloud US) who “perform their duties” in the United States. (SAC

4] 14-18.) Attached to Plaintiffs opposition to the dismissal motion are documents from

other lawsuits in which SoundCloud US pled broadly that it provides “business

development and related services, as well as research and development services” for

SoundCloud Europe. (Docket # 80 at 64.)

Procedural History

18. ‘Plaintiffs original complaint named the two SoundCloud entities as

defendants. It also named the former Pulselocker CEO as a defendant complicit in the

trade secret theft. (Docket # 1.) The Court granted the defense’s request to dismiss the

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. CV 19-847 MRW Date July 13, 2020

Title Beatport LLC v. SoundCloud Ltd

original complaint with leave to amend on jurisdictional and substantive grounds.?

(Docket # 52.)

19. The former CEO remained a defendant in the First Amended Complaint.

Plaintiff also beefed up the details of the theft allegations, (which, in the original

complaint, were quite vague). (Docket # 59.) Even so, after a hearing on the defense’s

renewed dismissal motion, Plaintiff agreed to amend the complaint further. (Docket # 67.)

20. The resulting third attempt omitted the Pulselocker CEO as a putative

defendant. It also made clear that the misappropriation of the technology occurred at the

Berlin meeting, not through later actions or the post-game recruitment of the CEO.

PERTINENT FEDERAL LAW

21. Acomplaint may be dismissed under Rule 12(b)(6) for failure to state a claim

based on the lack of a cognizable legal theory or the absence of facts alleged under such a

theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).

22. Acomplaint need not plead detailed factual allegations, but the complaint

must contain enough facts to establish a “plausible” entitlement to relief that is more than

merely speculative. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “Factual allegations must

be enough to raise a right to relief above the speculative level.” Bell Atlantic Corp. v.

Twombly, 550 U.S. 544, 555 (2007) (citations omitted). Rather, the facts as alleged in the

complaint “must plausibly suggest an entitlement to relief, such that it is not unfair to

require the opposing party to be subjected to the expense of discovery and continued

litigation.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011)

23. Acourt must accept a plaintiffs factual allegations as true and must view all

inferences in a light most favorable to plaintiff. Zimmerman v. City of Oakland, 255 F.3d

734, 737 (9th Cir. 2001). Nevertheless, a pleading will be rejected if it offers labels,

conclusions, or a formulaic recitation of the elements of a cause of action. Iqbal, 556 U.S.

at 678.

kok *

3 The Court incorporates and takes as read aspects of its earlier order in rendering

this decision.

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. CV 19-847 MRW Date July 13, 2020

Title Beatport LLC v. SoundCloud Ltd

24. A federal court may exercise jurisdiction over a non-resident defendant when

that party has “certain minimum contacts” with the forum state. Int'l Shoe Co. v.

Washington, 326 U.S. 310, 316 (1945). The Supreme Court has emphasized that the

minimum contacts analysis “focuses on the relationship among the defendant, the forum,

and the litigation.” Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 775 (1984).

25. Of particular importance are “the defendant’s contacts with the forum State

itself, not the defendant’s contacts with persons who reside there.” Walden v. Fiore, 571

U.S. 277, 285 (2014). Entering into “a contractual relationship that envisioned continuing

and wide-reaching contacts in the forum State” or “physical entry into the State — either

by the defendant in person or through an agent, goods, mail, or some other means — is

certainly a relevant contact.” Id.

26. However, “it is the defendant’s conduct that must form the necessary

connection with the forum State”; a defendant’s contacts or relationship with a plaintiff,

“standing alone, is an insufficient basis for jurisdiction.” Id. at 286 (citing Rush v.

Savchuk, 444 U.S. 320, 332 (1980)). Moreover, a defendant’s “knowledge of a plaintiffs

connection to a forum” is not enough to establish a basis for jurisdiction; “Walden requires

more.” Axiom Foods, Inc. v. Acerchem Int'l, Inc., 874 F.3d 1064, 1069 (9th Cir. 2017).

27. That “more” is an analysis of the non-resident’s “contacts with California” to

determine whether that party’s “suit-related conduct [ ] create[d] a substantial connection

with” the state. Id. at 1070. This component of the jurisdictional analysis requires a

showing that “the claim arises out of or relates to the defendant’s forum-related activities.”

Dole Food Co., Inc. v. Watts, 303 F.3d 797, 802 (9th Cir. 2002).

28. A specific jurisdiction analysis that relies on an out-of-state defendant’s

knowledge that: the infringed party “resided in California”; its trade secrets were located

in California; and that the infringed business “suffered harm” in California, does not

allege contacts that “qualify as expressly aiming conduct under Walden.” Medimpact

Healthcare Systems, Inc. v. IQVIA Holdings, Inc., 2020 WL 1433327 at *11 (S.D. Cal.

2020).

29. In Medimpact, the district court found a complaint’s assertion that “the

alleged misappropriation [ ] was conducted outside of California” in foreign nations was

insufficient to establish jurisdiction in the absence of allegations of other acts related to

the theft. Id. at *9. See also E*Healthline.com v. Pharmaniaga Berhad, 2018 WL

5296291 (E.D. Cal. 2018) (phone calls and e-mails with California company insufficient to

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. CV 19-847 MRW Date July 13, 2020

Title Beatport LLC v. SoundCloud Ltd

establish jurisdiction; no substantive in-state meetings related to trade secret theft, and

parties agreed to foreign jurisdiction in contract for joint venture); Hempel v. Cydan

Development, Inc., 2018 WL 5777491 (D. Nev. 2018) (site of confidential material

(controlled by plaintiff) not focus of jurisdictional analysis; site of theft and parties’

agreement “drive the minimum contacts inquiry”). An allegation that jurisdiction may be

based on a foreign company’s targeting or aiming the impact of its misconduct toward a

particular location is “outdated” and superseded per Walden and Axiom. Medimpact, 2020

WL 14383327 at *10.

30. Federal courts “will not impute” a subsidiary corporation’s forum contacts to

an out-of-state parent in the absence of a pleading that plausibly “spelled out” a basis to

disregard their legitimate corporate forms. Axiom, 874 F.3d at 1071 n.5 (citing Holland

American Line Inc. v. Wartsilla North Amer. Inc., 485 F.3d 450, 459 (9th Cir. 2007)).

kE*

31. Federal Rule of Civil Procedure 4(k)(2) may provide an alternative basis for

asserting jurisdiction over a foreign defendant. Under the rule, a district court may

exercise personal jurisdiction over a party that “is not subject to jurisdiction in any state’s

courts of general jurisdiction” if doing so is “consistent with the United States

Constitution.”

32. Analysis of Rule 4(k)(2) jurisdiction is “nearly identical” to traditional federal

jurisdictional principles, except “rather than considering contacts between the defendant

and the forum state, we consider contacts with the nation as a whole.” Holland American

Line, 485 F.3d at 462; Axiom, 874 F.3d at 1072.

□□ OK

33. <A plaintiff must plead a defendant’s alleged conduct — or misconduct — with

reasonable specificity. It is a basic pleading defect for a complaint to “lump” parties

together and to fail to distinguish between named defendants. Vendavo, Inc. v. Price f(x)

AG, 2018 WL 1456697 at *4 (N.D. Cal. 2018) (dismissing trade secret complaint for “lack

of specificity” in pleading theft by related companies); Ansara v. Maldonado, 2020 WL

2281476 at *6 (D. Nev. 2020) (plaintiffs broad allegations of statutory violations against

several parties “fail to distinguish between defendants, and thus do not provide fair notice

of the claims against them”; citing Twombly); see also United States v. Corinthian

Colleges, 655 F.3d 984, 997 (9th Cir. 2011) (in fraud-based action, Rule 9 “does not allow a

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. CV 19-847 MRW Date July 13, 2020

Title Beatport LLC v. SoundCloud Ltd

complaint to merely lump multiple defendants together, but requires plaintiffs to

differentiate their allegations when suing more than one defendant”); United States ex rel.

Swoben v. United Healthcare Ins. Co., 848 F.3d 1161, 1184 (9th Cir. 2016) (distinguishing

between “collective allegations” and “failure to allege particular details” for specific

defendants in complaint).

ANALYSIS

34. Plaintiffs third version of the complaint is inadequate to properly plead

federal jurisdiction over SoundCloud Europe. Plaintiff has not plausibly alleged that

SoundCloud Europe has minimum contacts with California sufficient to justify requiring

the company to defend the action here.

35. Directly put, the Second Amended Complaint says virtually nothing about

SoundCloud Europe’s contacts with California regarding the trade secret issue. That is,

the complaint is silent in pleading facts that set out this defendant’s “suit-related conduct”

sufficient to create “a substantial connection with” the state. Axiom, 874 F.3d at 1070.

36. Most of the facts pled to justify jurisdiction address general aspects of

SoundCloud Europe’s business. It’s a large tech company that sells products via its

website in California, the United States, and elsewhere in the world. It also has

executives who travel to California, presumably to interact with personnel at its

California-based subsidiary. That may be enough to establish that SoundCloud Europe

“purposely availed” itself of California in its day-to-day operations.

37. However, those general allegations don’t address the fundamental issue here

— what are SoundCloud Europe’s claim-related contacts with the state that justify

exercising jurisdiction? Dole Food, 303 F.3d at 802. At most, Plaintiff pleads (or, in a

further amended complaint, hopes to plead) that SoundCloud Europe contacted

Pulselocker in California to set up a meeting at which the trade secrets were to be swiped.

The meeting itself occurred in Germany, though, under the terms of a contract pointing to

English law and courts for potential relief. No substantial California contact there.

38. And yes, Plaintiffs secrets had originally been stored in a data room in

California. But the complaint makes reasonably clear that the Pulselocker team sent this

information to Germany and took it with them to present to SoundCloud Europe’s tech

team. Regardless, the situs of Plaintiffs conduct (where it chooses to house its IP) is

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. CV 19-847 MRW Date July 13, 2020

Title Beatport LLC v. SoundCloud Ltd

irrelevant to evaluating SoundCloud Europe’s contact with California as part of the trade

secret theft scheme. Hempel, 2018 WL 5777491.

39. There’s nothing in the complaint that clearly or plausibly pleads that

SoundCloud Europe did, well, anything in California related to its alleged theft of

Plaintiffs technology. That’s fatal to a claim that this federal court has jurisdiction over

the European entity. Walden, 571 U.S. at 286; Axiom, 874 F.3d at 1070; Healthline.com,

2018 WL 5296291; Hempel, 2018 WL 5777491; Medimpact, 202 WL 1433327.

40. To get around this obvious problem, Plaintiff tries to transfer SoundCloud

Europe's contacts with California to those of its subsidiary, SoundCloud US. Two key

problems. First, the complaint does not plausibly allege facts sufficient to disregard the

corporate distinctions between the two entities. Plaintiffs conclusory allegation that one

company is the alter ego of the other (based on minimal facts about common executives

and joint ownership that certainly apply to all related companies) doesn’t provide a

legitimate basis for jurisdiction over the foreign company. Axiom, 874 F.3d at 1071;

Holland American Line, 485 F.3d at 459. In the same vein, Plaintiffs general contention

that SoundCloud US has acted as SoundCloud Europe’s agent in various ways is not

adequate to establish that the American entity does so for all purposes, including for the

conduct alleged in the complaint.

41. Second — and more crucially — the Second Amended Complaint is entirely

silent in alleging any facts linking SoundCloud US to any misconduct at all. Read

broadly, the complaint essentially alleges that both companies simultaneously took all

actions necessary to steal Plaintiffs technology and develop their competing project.

That’s just implausible on its face. It’s obviously conclusory for a litigant to say that

A and B (and C and D) all did the same thing to me, without making any attempt to

distinguish between the parties or to explain in any way the basis for their alleged

culpability. Iqbal, 556 U.S. at 678; Vendavo, 2018 WL 1456697 at *4; Ansara, 2020 WL

2281476 at *6.

42. The complaint is also unsupported by any legitimate factual assertions that

SoundCloud US did anything — in California, or elsewhere — as part of the defense’s

scheme. Rather, in order to allege jurisdiction over both companies, Plaintiff relies on a

formulation that (i) SoundCloud Europe (or, perhaps SoundCloud US) stole the trade

secrets, (ii) SoundCloud Europe has a close relationship with SoundCloud US, and (iii)

SoundCloud US generally has ties to California. But, as with the foreign entity, that

chain of vague allegations is insufficient to plausibly plead that SoundCloud US

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UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL

Case No. CV 19-847 MRW Date July 13, 2020

Title Beatport LLC v. SoundCloud Ltd

participated in the alleged misconduct here. Plaintiff has not pled a plausible, non-

speculative, fact-based claim of trade secret theft against the American subsidiary.

Twombly, 550 U.S. at 555.

43. Plaintiffs tacked-on argument for jurisdiction under Rule 4(k) fares no

better. SoundCloud Europe certainly has broader ties to the United States as a whole

than simply to California. Its website is likely viewable in all 50 states, and the revenue it

derives from the entire nation is even more considerable than what it earns locally. But

the complaint alleges no facts establishing that the claim-related conduct — when

aggregated from around the nation — is any greater than the (non-existent) facts involving

SoundCloud Europe’s alleged California-based trade secret thieving. Holland American

Line, 485 F.3d at 462; Axiom, 874 F.3d at 1072. Rule 4(k) does not provide an adequate

substitute basis for jurisdiction.

kok *

44. _ Plaintiffs factual allegations in favor of jurisdiction over the SoundCloud

entities are far too vague, conclusory, and speculative to fairly require them to defend

themselves in federal trade secret litigation. Starr, 652 F.3d at 1216. After more than a

year of legal wrangling over three iterations of pleading, it’s clear that Plaintiff cannot

properly allege a basis for subjecting either the European company or its American

affiliate to this Court’s jurisdiction. The Court therefore dismisses the Second Amended

Complaint without leave to amend.

4 Because the Court concludes that it does not have jurisdiction over the defendants,

it declines to address the parties’ contentions regarding the substantive causes of action.

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