Fuhu Inc. v. Toys "R" Us Inc.

3:12-CV-02308
March 4, 2013
Federal Court
California
United States District Court for the Southern District of California

Popular children’s toy purveyor “Toys ‘R’ Us” (TRU) recently turned tech, having introduced its “Nabi” children’s electronic tablet device in late 2011 and “Nabi 2” in summer 2012. With TRU’s announcement of its own “Tabeo” tablet set for October 2012, the company was set to enter into its “first move into house-brand electronics.” (WSJ; Complaint Exhibit A). However, according to a September 24, 2012 filing, TRU is now being sued by Nabi maker FUHU in the United States District Court for the Southern District of California. In FUHU v. Toys R Us, No 3:12-cv-02308, electronics manufacturer FUHU claimed breach of contract, unfair competition, breach of implied covenant of good faith, and alleged misappropriation of its trade secrets by Toys R Us in its development of the TRU Tabeo tablet. The Tabeo was designed by TRU to progress upon and replace the original Nabi devices created by FUHU, and formerly sold in TRU stores. These devices were the subject of an exclusive distribution license between FUHU and TRU, terminated in 2011 for alleged under-performance and frustration to market on the part of TRU. The current lawsuit claims that TRU is seeking to capitalize on the Tabeo device by breaching its non-disclosure agreement with FUHU, executed during production of Nabi 1, and by subsequently misappropriating FUHU ’s trade secrets for use in the creation of the Tabeo tablet.

While most of FUHU ’s pleadings address the breach of contract and unfair competition claims, the fourth claim alleges TRU’s trade secret misappropriation stemming from earlier disclosures by FUHU of proprietary information about its “FOOZ KIDS” device and software interface, the prototype for what eventual became the Nabi devices. While this disclosure was made in the context of a prior exclusive distribution agreement between FUHU and TRU for Nabi products, FUHU asserts that upon the agreement’s termination TRU continued to utilize FUHU trade secret materials. The FUHU trade secret information surrounding the Nabi “user interface” was only made available to TRU upon execution of a non-disclosure agreement prior to entering into the exclusive agreement. FUHU claims that TRU subsequently used FUHU ’s trade secret information to develop and manufacture its latest Tabeo tablet for commercial gain.

FUHU ’s complaint was immediately followed by motions for a temporary restraining order (TRO) against TRU, and to expedite discovery in order to preliminarily enjoin TRU from its upcoming release and sale of the Tabeo tablet. On October 19, 2012 Judge Hayes of the District Court denied all three FUHU claims supporting their application for a TRO, including TRU's alleged trade secret misappropriation. The court first reasoned that temporary restraining orders are an extreme remedy fashioned only where the plaintiff is likely to succeed on the merits and is likely to suffer harm in the absence of preliminary relief. See Winter v. NRDC 555 US 7, 20 (2008). However, FUHU's pleadings did not demonstrate a likelihood of irreparable harm because the information identified by FUHU as trade secret was considered "general business concepts and broad marketing ideas that do not fit within the definition of trade secret under New Jersey Law (note that the existing NDA between the parties stipulated to NJ law). Order at 6. Denial of Fuhu's application for a temporary restraining order is a setback for the technology company, as the Toys R' Us Tabeo tablet was recently released in Mid-September.

After TRU's answer and subsequent FRE 12b6 motion to dismiss, the District Court issued an order on March 4th 2013 granting part of TRU's motion to dismiss six of FUHU's claims. fraud. However, the court left ten of the sixteen claims intact, including those for breach of contract and misappropriation of Trade Secrets. View the order by clicking the link below.

Fuhu, INC.
Inc., Toys R' Us
Other state statute