California Court Whittles Down Claims Against StubHub

After more than three years of litigation and two rounds of extensive discovery, in Calendar Research LLC v. StubHub, Inc., et al., 2:17-cv-04062-SVW-SS, the United States District Court for the Central District of California dismissed almost all the remaining claims against StubHub and the other defendants.  In doing so, the Court confirmed that in California, specific identifiable trade secrets are required and general industry knowledge and “know how” is insufficient for trade secret protection.

The individual defendants founded and/or worked for a startup named Calaborate that developed a group scheduling mobile application named Klutch.   The Calaborate founder unsuccessfully attempted to sell the company and Klutch to StubHub Inc., among others, and thereafter he and the other individual defendants became StubHub independent contractors.   Plaintiff Title Calendar Research LLC purchased Calaborate in a foreclosure sale.  The lawsuit for breach of the Defend Trade Secrets Act (DTSA) and Computer Fraud and Abuse Act (CFAA), as well as state law claims (which were stayed), followed.

In an earlier order, the Court granted partial summary judgment for StubHub and its then parent eBay, Inc. on the DTSA claim, concluding the corporate defendants had not misappropriated the Klutch source code and that the source code was not a protectable trade secret.   The Court noted that the order did not preclude Plaintiff from asserting that defendants misappropriated non–code trade secrets.

Defendants thereafter moved for summary judgment and Plaintiff asserted the individual defendants’ “know how” and “learnings” acquired at Calaborate were protectable trade secrets, and introduced expert testimony to attempt to distinguish the alleged trade secrets from matters already known to persons in the field.  In opposition, Plaintiff identified four distinct trade secret categories:  (1) Virality Capabilities; (2) UI/UX and Design; (3) Venue Focus; and (4) Integration of Third-Party Apps.   The Court did not buy it, noting that Plaintiff’s expert addressed Virality Capabilities in his report but made little to no mention of the other categories.  Describing the report and the expert's supplemental declaration as “creating a circuitous path of unexplained jargon,” the Court concluded Plaintiff’s expert failed to show what specific techniques and “know how” actually constitute the Virality Capabilities trade secret, and that Plaintiff’s expert testimony failed to elevate these nebulous concepts to protectable trade secrets.  The Court further concluded Plaintiff failed to provide non-speculative evidence that the alleged trade secrets ever existed, and granted summary judgment on all DTSA claims.

Plaintiff asserted the individual defendants violated the CFAA because they stored Calaborate’s intellectual property on their personal devices and cloud accounts while employed at Calaborate, failed to delete or return the information upon termination in violation of their employment agreements, and therefore accessed the computers without authorization.   The Court rejected this argument, noting that similar “use restriction” arguments have been consistently rejected by the Ninth Circuit and that Plaintiff provided no evidence the individual defendants were not entitled to access or back up confidential information in the first place.  The Court agreed with Plaintiff that there was a factual dispute whether one defendant accessed his Calaborate email once after leaving the company and before the master password was turned over, and denied the motion as to the CFAA claim against that defendant.  Plaintiff will be permitted to proceed on that claim but the recoverable damages are limited to the forensic investigation costs related to the remaining defendant’s alleged unlawful access, which would likely be a de minimis amount.

The Court set the case for a jury trial on this remaining issue for July 7, 2020.   The Plaintiff still has its state law trade secret and breach of contract claims, which the Court did not specifically address.

This case is another example of the tension between trade secret claims and employee mobility, and more specifically the California courts’ reluctance to allow employers to weaponize vague trade secret claims against employee mobility.