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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Jeffrey S. White of the Northern District of California held that the California Uniform Trade Secret Act (“CUTSA”) superseded common law claims for misappropriation, conversion, unjust enrichment, and trespass to chattels.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Cepia argued that Plaintiff’s common law claims were superseded by CUTSA.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that “common law claims premised on the wrongful taking of information that does not qualify as a trade secret are also superseded, unless the plaintiff identifies some law which confers property rights protecting the information.”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 »

Tenth Circuit Denies Prejudgment Interest for Lack of Certainty Even Where Jury Found Lost Profits and Awarded Unjust Enrichment

In Damages, Prejudgment Interest, Sister State Construction of UTSA on August 16, 2011 at 5:15 pm
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In a trade secrets case where the jury awarded plaintiff ClearOne Communications, Inc. damages on lost profits and unjust enrichment, the Tenth Circuit held that prejudgment interest was not appropriate because the damages calculations were based on speculation and assumptions and lacked the mathematical certainty required to justify an award of prejudgment interest.  ClearOne Communications v. Chang, et al., 2011 WL 3468215, No. 09-4128 (10th Cir. Aug. 9, 2011) (slip op.).

Background

ClearOne licensed to Biamp Systems Corporation an acoustic echo cancellation (AEC) algorithm for an average price of $83.49 per channel in 2002. Id. *1. In 2004, WideBand Solutions, Inc. and associated individual defendants agreed to develop AEC software for Biamp and allegedly developed said software based upon ClearOne’s trade secret computer code. Id. Biamp stopped making payments to ClearOne and instead began a licensing agreement with WideBand in 2005. Id. Biamp allegedly used the infringing code to develop its product.  Id. In 2006, Biamp developed its own technology and stopped licensing WideBand’s allegedly illicit code. Id.

Damages Calculations

ClearOne’s damages expert Richard Hoffman calculated lost profits and unjust enrichment. Id. Hoffman calculated lost profits by multiplying the number of channels Biamp licensed from WideBand by $83.49 (the average price per channel from the ClearOne/Biamp contract). Id. The jury found that ClearOne was entitled to $956,000 in lost profits against the WideBand defendants, and $956,000 in lost profits against Biamp. Id. Read the rest of this entry »

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 »

Blog Notice: In Trial, So Fewer Updates to California Trade Secrets This Week

In Blog Status on December 4, 2010 at 9:15 am
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I am in trial, so there will be fewer updates until December 11.

Best,

Charles

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Southern District Holds That Misappropriation of Trade Secrets Claim Properly Pled Even Where Complaint Lacks Allegation of Use to Plaintiff’s Detriment

In Motion to Dismiss on November 17, 2010 at 7:47 am
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The Southern District of California denied a motion to dismiss a claim for misappropriation of trade secrets even where counter-claimant does not allege plaintiff’s use of the trade secret to counter-claimant’s detriment.  Young v. Fluorotronics, Inc., No. 10cv976-WQH-BGS, 2010 WL 4569996 (S.D. Cal. Nov. 3, 2010) (slip op.).

Background

Plaintiff John Young, M.D. filed a complaint against Fluorotronics, Inc. and others relating to his investment in Fluoro-Raman technology, which was purported to be a portable, non-destructive and rapid screening device able to detect problems with food and drugs before they are distributed and detect counterfeit drugs.  Id. *1.  Plainitff alleged that the Private Placement Memorandum and Balance Sheet falsely stated that Fluorotronics was the owner of the “iStar ICCD Intensified CCD Detector Head camera” (“Camera”) and “certain Laser Equipment” (“Laser”). Id. Young for himself and others invested in Fluorotronics, but contrary to the representations of defendants, Fluorotronics allegedly did not own the Camera, but borrowed it from Andor Technology.  Id. **1-2.  When Fluorotronics failed to pay Andor for the camera, Young purchased it from Andor. Id. *2.  Plaintiff brought claims for (1) fraud; (2) negligent misrepresentation; (3) intentional misrepresentation; (4) securities fraud in violation of the Securities and Exchange Act of 1934, Section 10(b) and Rule 10b-5; (5) sale of unregistered securities; (6) breach of fiduciary duty; (7) violation of Section 1507(a) of the California General Corporation Law; and (8) violation of Section 2201 of the California General Corporation Law. Read the rest of this entry »

Second District Vacates Arbitration Award for Failure to Resolve Misappropriation of Trade Secrets Counterclaim

In Arbitration on November 15, 2010 at 11:08 am
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The Second District Court of Appeal vacated an arbitration award for failure to resolve defendants’ counter-claim for misappropriation of trade secrets.  Rad v. Keehan, No. B222049, 2010 WL 4487142 (Cal. App. 2d Dist. Nov. 10, 2010).  Defendants Michael Keehan, Lucy Keehan, Lucy’s Silk Store, Inc. and Michael’s Imports, Inc. (collectively defendants) appealed from a judgment entered after the trial court denied their motion to vacate an arbitration award against them and instead confirmed the award.  Id. *1.  Defendants contended that the arbitrator failed to decide their counter-claim for misappropriation of trade secrets, and thus the trial court should have vacated the arbitration award for failure to resolve all issues submitted to arbitration. Id. The Second District Agreed. Id.

Background

Plaintiff Ira Rad, on behalf of his company Bita LLC, executed an agreement (Sales Agreement) with one of defendants’ corporations, Michael Imports, Inc., to sell and distribute silk products from defendants’ “Lucy’s Silk” label. Id. Bita paid defendants $60,000 as partial consideration for the exclusive right to sell the products in the eastern United States, but after execution of the Sales Agreement, defendants continued to sell the products directly to East Coast customers, undercutting Bita’s sales.  Id. Plaintiffs sued defendants, alleging, inter alia, causes of action for breach of contract, fraud, negligent misrepresentation, and rescission with respect to the Sales Agreement. Id. The parties ultimately stipulated to submit their disputes to binding arbitration and a stay of the litigation was entered. Id. Read the rest of this entry »

Plaintiffs Awarded Over $1 Million After Bench Trial in a Trade Secrets Case

In Judgments, Verdicts on November 2, 2010 at 11:41 am
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After a bench trial in San Francisco Superior Court, plaintiffs in a trade secrets case recovered judgment on the merits against certain defendants in the amount of $921,469, plus pre-judgment interest in the amount of $301,664, and punitive damages of $275,000.  UltraEx Inc. vs. Express It Delivery Services Inc., Case No., CGC-05-447942, 2010 WL 4260535, 44 Trials Digest 13th 5 (Cal. Sup. Ct. Verdict Date: April 1, 2010).

According to court records, on April 29, 1998, plaintiff UltraEx Inc. merged with two other corporations, Express It Courier Services Inc. (“Old Express It”) and 800 Courier Inc.  Id. *1. Plaintiff was the surviving corporation in this merger, but prior to the merger, Old Express It and 800 Courier had each been actively conducting a package delivery business in California.  Id. Defendant Express It Delivery Services Inc. (“New Express It”) was a California corporation formed in November 2004. Id. Read the rest of this entry »

Approaches to Damages in Trade Secret Cases

In Damages, Practice articles, Reasonable Royalty, Unjust enrichment on October 20, 2010 at 7:59 pm
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Once a trade secret lawsuit progress beyond the preliminary injunction stage, the key battleground usually shifts to damages.  Assessing damages can be particularly difficult in a trade secret case because of the problematic uncertainty in measuring the value of trade secrets.  Marc Pensabene and Christopher Loh summarized some of the flexible approaches that plaintiffs and defendants might pursue in arguing for and against trade secrets damages calculations.

From the plaintiff’s perspective, the authors offer the following aggressive approaches (not all of which have been accepted by California courts):

  • In calculating lost profits, argue that the amounts should include not only lost sales that were diverted from the plaintiff to the defendant, but also losses attributable to price erosion or to increased costs cause by the misappropriation, such as the costs of an advertising campaign to recoup market share stolen by defendant
  • Argue for provable future profits, overhead costs, general and administrative expenses, lost profits on reorder or spare parts or other natural follow-on items
  • Ask the court to calculate plaintiff’s lost profits by applying the defendant’s profit margins to the plaintiff’s lost sales
  • In seeking unjust enrichment, if the defendant does not incorporate the trade secret into a product but rather uses it to promote its existing products or to develop new and different products, ask for a portion from those products
  • If plaintiff is unable to prove lost profits or unjust enrichment, seek development costs (so-called “head-start” damages), the diminution of the value of the plaintiff’s business or stock, or a reasonable royalty based either on the actual royalties that have been paid to the plaintiff, or a hypothetical royalty that the litigants would have negotiated at the time of the misappropriation Read the rest of this entry »

Trade Secrets Basics for Small Businesses

In Seminars and MCLE on October 12, 2010 at 10:54 am
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Steve Obenski  posted a useful video directed to small business, entitled Trade Secrets for Small Businesses 101.  In the video, he discusses what a trade secret is, ways to protect trade secrets, and limitations of trade secrets compared to patent and other areas of intellectual property law.

By CHARLES JUNG

Study Shows Courts Fail to Rely on Sister-State UTSA Law as Source of Case Law Precedent

In Uncategorized on October 8, 2010 at 10:11 am
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The University of Pennsylvania Law Review’s PENNumbra published an essay by discussing whether, in the thirty years since the creation of the Uniform Trade Secrets Act (UTSA), courts actually look to sister states in interpreting the law. See Michael Risch, Essay, A Failure of Uniform Laws?, 159 U. PA. L. REV. PENNUMBRA 1(2010).   The author focuses on West Virginia as a test case because of the jurisdiction’s complete absence of state court trade secret case law, both before and after passage of the UTSA.

The author concludes that “the UTSA fails the test of uniformity because it is not being used as a source of case law precedent. Instead, older common law is being used.”  Even West Virginia federal courts have looked to outside precedent based on the Restatement (Second) of Torts, rather than the UTSA:

The West Virginia experience implies that the UTSA fails as a uniform source of precedent for sister states that adopt it. When faced with a lack of home-state-court guidance, West Virginia federal courts look to out-of-state precedent based on the Restatement (Second) of Torts, the primary source of trade secret common law. Indeed, when faced with collateral trade secret questions, such as litigation discovery protective orders, West Virginia’s own Supreme Court also looked to non-UTSA precedent.

By CHARLES JUNG