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In Software Distribution Case, Northern District Holds That Improper Disclosure Element of UTSA Claim Properly Pled Where Acknowledgment of EULA Alleged

In Motion to Dismiss on August 27, 2010 at 5:29 pm
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In BMMSoft, Inc. v. White Oaks Technology, Inc., No. C-09-4562 MMC, 2010 WL 3340555 (N.D. Cal. Aug. 25, 2010), the court denied a motion to dismiss a misappropriation of trade secrets claim in an unauthorized software distribution case.  The court held that the improper disclosure element was properly pled where the complaint included an allegation that defendant clicked “I agree” to an end user license agreement restricting unauthorized disclosure.

BMM alleged that it is a software development company whose “principal product” is software known as “EDMT Server” (“the Software”), which contains “confidential information belonging to BMM[ ]” Id. *1.  BMM also alleges that distributors, including Sybase, Inc. (“Sybase”), sell the Software, that, in 2008, WOTI purchased the Software from Sybase, and that the Software was “intended for a WOTI end-customer who was to use the Software for its internal purposes”.  Id. According to BMM, “[t]he Software cannot be run, even for support purposes,” unless someone “click[s]” the ‘I agree’ box that appears on the screen on which the terms of the “End User License Agreement” (“EULA”) is displayed. Id. At some point, not specified by BMM in the AC, WOTI “copied and distributed the Software” in a manner prohibited by the terms of the EULA, and “disclos[ed]” the confidential information in the Software to “third parties without authorization”.  Id. BMM alleges two causes of action, including one for misappropriation of trade secrets.  Id. BMM alleged in its misappropriation cause of action that the Software contains “confidential information belonging to BMM[ ].” Id. *4.  According to BMM, WOTI engaged in “misappropriation” of such confidential information “[b]y selling the Software without a license, and disclosing it to third parties without authorization, and using the [c]onfidential [i]nformation to create a competing product.” Id.

WOTI argued that the complaint does not include any factual allegations to support a claim that it disclosed the alleged confidential information improperly.  The Court disagreed, finding that the complaint sufficiently alleged an improper disclosure where the EULA provided that “[c]onfidential [i]nformation” in the Software “shall not be disclosed to any third party without the express written consent of BMM[ ]” and alleged that during the installation process, WOTI necessarily would have had to “click” the “I agree” box that appeared on the screen when the EULA was displayed, and thus would have had notice that it owed a duty to BMM to maintain the secrecy of the confidential information. Id.

Judge

District Judge Maxine M. Chesney.

By CHARLES H. JUNG

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