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Northern District of California Holds That CUTSA Supersedes Common Law Claims Where Plaintiff Alleges a Confidentiality Agreement But Failed to Allege Defendant Was Bound by It

In Preemption on February 14, 2012 at 3:52 pm
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District Judge Jeffrey S. White of the Northern District of California held that the California Uniform Trade Secret Act (“CUTSA”) superseded common law claims for misappropriation, conversion, unjust enrichment, and trespass to chattels.  Heller v. Cepia, L.L.C., No. C1101146JSW, 2012 WL 13572 (N.D. Cal. Jan. 4 2012) (slip op.).  Plaintiff alleged the existence of confidentiality agreements but not that defendants were bound by them.  Id.

Background

Plaintiff Heller was the sole proprietor of Floating Lightbulb Toys. Id. *1. He accused Cepia, A-Tech, The Bean and Ying Leung International Limited (“Ying Leung”) of misappropriating his trade secrets regarding his toy hamster project.  Id.  Cepia moved to dismiss Plaintiff’s claims for failure to state a claim and for sanctions under FRCP 11. Id. Plaintiff filed a counter-motion for sanctions against Cepia. Id. The Bean and A-Tech moved to dismiss based on lack of personal jurisdiction. Id.

Discussion

Cepia argued that Plaintiff’s common law claims were superseded by CUTSA. Id. Citing Silvaco Data Systems v. Intel Corp., 184 Cal.App.4th 210 (April 29, 2010), the court noted that “common law claims premised on the wrongful taking of information that does not qualify as a trade secret are also superseded, unless the plaintiff identifies some law which confers property rights protecting the information.”   Heller, 2012 WL 13572, at *1.

While Plaintiff argued that his confidential information that was not a trade secret is still property because he entered into agreements providing that any non-secret confidential and proprietary business information would remain his property. Id. The court disagreed, dismissing the common law claims: Read the rest of this entry »

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In Trade Secrets Case Related to Barnes and Noble’s Nook Device: Court Grants Partial Summary Judgment Based on Disclosure of Secrets in Patent Applications, But Rejects UTSA Preemption Argument as Premature

In Disclosure of Secret in Patent Application, Motions for Summary Judgment/Adjudication, Patents and Copyrights, Preemption on January 2, 2011 at 10:03 pm
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The Northern District of California granted partial summary judgment to a defendant in a trade secrets case on the ground that plaintiff disclosed its information to the public in its published patent applications.  Spring Design, Inc. v. Barnesandnoble.com, LLC, No. C 09-05185 JW, 2010 WL 5422556 (N.D. Cal. Dec. 27, 2010) (slip op.).  The court rejected defendant’s argument that plaintiff’s UCL claim was preempted by the UTSA because “if the confidential information is not a trade secret, then preemption would not apply because the claim would seek a civil remedy not based on the  misappropriation of a trade secret.” Id. *10.

Background

In 2006 and 2007, Plaintiff filed several patent applications which claim different variations of an eReader with a dual-display design, consisting of an electronic paper display (“EPD”) and a liquid crystal display (“LCD”).  Id. *1.  In 2009, Plaintiff and Defendant explored possible collaboration on an eReader, and the parties entered into a nondisclosure agreement (“NDA”) in which the parties agreed not to disclose, reproduce, transmit or use the other’s confidential information except to certain employees on a need-to-know basis.  Id. From February to October 2009, Plaintiff and Defendant conducted several meetings and exchanged emails regarding Plaintiff’s eReader technology.  But on October 20, 2009, Defendant announced the release of the NOOK—its Android-based, dual-screen eReader.  Id. *2.  In 2010, Plaintiff launched its competing eReader device, the Alex, which is also a dual-screen eReader. Id.

Plaintiff Spring Design, Inc. brought an action Barnesandnoble.com, LLC alleging, inter alia, misappropriation of trade secrets and violations of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code section 17200, et. seq. Id. *1.Plaintiff alleged that Barnesandnoble.com used Plaintiff’s confidential information to develop a competing eReader device, the Nook, in violation of the parties’ non-disclosure agreement. Id. The parties brought cross motions for summary judgment.

Discussion

Defendant moved for summary judgment on the UTSA cause of action on the grounds that, inter alia: Plaintiff’s information does not qualify for trade secret protection because Plaintiff disclosed its information to the public in its published patent applications.  Id. **3-4. Read the rest of this entry »

Northern District Denies Preliminary Injunction Where Plaintiff’s Declaration Failed to Show Customer List Was the Result of Substantial Time, Expense and Effort on Part of Plaintiff

In Customer lists, Motion to Dismiss, Preemption, Preliminary Injunction on September 24, 2010 at 11:02 am
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The Northern District of California denied defendants’ motion to dismiss based on UTSA preemption and denied plaintiff’s motion for preliminary injunction.  Kovesdy v. Kovesdy, C 10-02012 SBA, 2010 WL 3619826 (N.D. Cal. Sept. 13, 2010) (slip op.). Plaintiff Eric Kovesdy (“Eric” or “Plaintiff”) sued his stepmother, Defendant Hedy Kovesdy (“Hedy”) for, inter alia, for misappropriation of trade secrets under California’s Uniform Trade Secrets Act (“UTSA”), Cal. Civ. Code §§ 3426-3426.11, and trademark infringement under the Lanham Act, 15 U.S.C. § 1125(a). Id. (1) Defendants moved to dismiss; and (2) Plaintiff moved for preliminary injunction.

Background

Peter Kovesdy (“Peter”) opened a professional tax practice known as Humex Income Tax (“Humex”).   Read the rest of this entry »

Eastern District of California Rejects UTSA Preemption of Contractual Nondisclosure Claim

In Preemption on August 6, 2010 at 5:35 pm
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Since the opinion in  Court of Appeal decision in K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc., 171 Cal. App. 4th 939, 954 (2009), defendants have successfully demurred to common law-based causes of action, arguing that the UTSA preempts them.  In this next case, Removable Media Solutions v. AAR Mobility Systems, 2010 WL 3034219 (E.D. Cal. July 28, 2010) (slip op.), defense counsel takes it one step further, arguing that the statute preempts a contract claim.  This is despite the language of the statute that expressly excludes preemption of “contractual remedies, whether or not based upon misappropriation of a trade secret“.

Plaintiff Removable Media Solutions, Inc. (“RMSI”) previously sought to sell a telecommunications device to the California National Guard. RMSI sought the assistance of defendant AAR Manufacturing, Inc., (“AAR”) in this endeavor. The California National Guard eventually elected to retain the services of AAR but not RMSI in producing the device, and AAR subsequently sold similar devices to other states.

RMSI’s claims alleged that AAR breached a non-disclosure agreement. AAR sought summary judgment on both.  The court denied the motion as to the non-disclosure agreement.

AAR’s sole argument for summary judgment on this claim was that it was preempted by the Uniform Trade Secrets Act, as by California, and in particular by Cal. Civ. Code § 3426.7. In pertinent part, this statute provides that:

(a) Except as otherwise expressly provided, this title does not supersede any statute relating to misappropriation of a trade secret, or any statute otherwise regulating trade secrets.

(b) This title does not affect

(1) contractual remedies, whether or not based upon misappropriation of a trade secret,

(2) other civil remedies that are not based upon misappropriation of a trade secret, or

(3) criminal remedies, whether or not based upon misappropriation of a trade secret.

“Undaunted by the statute’s explicit statement that it does not affect contractual remedies, AAR argues that the statute preempts for breach of the non-disclosure agreement. This assault on the plain language of the statute fails.”

The Court wrote:

Courts have held that except for the three exemptions noted in subsection (b), the statute implicitly “preempts common law claims that are based on misappropriation of a trade secret.” Ali v. Fasteners for Retail, Inc., 544 F.Supp.2d 1064, 1070 (E.D.Cal.2008) (internal quotation marks omitted); see also K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc., 171 Cal.App. 4th 939, 954 (2009), Accuimage Diagnostics Corp. v. Terarecon, Inc., 260 F.Supp.2d 941, 954 (N.D.Cal.2003) (holding that this interpretation was implied by Cadence Design Systems, Inc. v. Avant! Corp., 29 Cal.4th 215, 224 (2002)).

AAR’s argument that this implicit preemption extends to contract claims invokes a gross misreading of the caselaw. AAR quotes the statement from Digital Envoy, Inc. v. Google, Inc., 370 F.Supp.2d 1025 (N.D.Cal.2005) that “all state law claims based on the same nucleus of facts as the trade secrets claim are preempted under California’s UTSA.” Id. at 1034.FN4 AAR argues that notwithstanding the statute’s explicit saving of contract claims, courts have stated that “common law claims” arising out of the same operative facts as a trade secret claims are preempted, and that contract claims are common law claims, so contract claims must be preempted.

To the extent that Digital Envoy held that “all claims” are preempted, it plainly referred to “all claims” argued to be preempted in that case, i.e., claims for unfair competition and unjust enrichment. Id. at 1035 (“California’s statute. preempts Digital’s claims for unfair competition and unjust enrichment.”). Digital Envoy and other cases have explicitly recognized that § 3426.7 does not preempt contract claims. Id. (§ 3426.7 “explicitly states that claims based upon breach of contract … are not preempted by the statute.”); see also First Advantage Background Servs. Corp. v. Private Eyes, Inc., 569 F.Supp.2d 929, 936 (N.D.Cal.2008), HiRel Connectors, Inc. v. United States, No. CV 01-11069, 2006 U.S. Dist. LEXIS 93332 (C.D.Cal. July 18, 2006) (“Plaintiff’s claim for breach of contract is not preempted by California’s Uniform Trade Secrets Act.”). While few California courts have spoken to the scope of this statute, at least one state court has allowed a claim for breach of a non-disclosure agreement to proceed in parallel with a claim for misappropriation of trade secrets. Glue-Fold, Inc. v. Slautterback Corp., 82 Cal.App. 4th 1018, 1021 (2000). Although Glue-Fold did not discuss possible preemption of the contract claim, this may well be because the issue was so clear as to require no discussion.

Although this conclusion should be obvious, the court has exhaustively searched cases citing § 3426.7, finding no cases providing even implicit support for AAR’s theory. AAR’s motion is therefore denied as to this claim.

Id. **4-5.

Senior District Judge Lawrence K. Karlton wrote the opinion.

By CHARLES H. JUNG

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