A recent federal court decision in California illustrates the care that plaintiffs should take when pleading their own claims in trade secrets cases, lest they provide defendants a ready basis for dismissal. In a January 9, 2014 decision in Jobscience, Inc. v. CV Partners, Inc., et al., the federal district court in the Northern District of California dismissed state law based trade secrets claims as pre-empted by the federal Copyright Act. Luckily for the plaintiff in that case, the plaintiff had actually obtained a copyright registration on the relevant materials and included a copyright infringement claim in the complaint. Thus, plaintiff may still obtain relief in that very action. But it may not ultimately be full relief.
Indeed, the dismissal of the trade secret claim is a cautionary tale. Another plaintiff, without the foresight to actually obtain copyright registrations on the relevant materials, could have been denied a means of achieving any relief, or at least could have had its right to such relief delayed, through the dismissal of a trade secret claim. That is because the complaint in the matter rested on a fairly narrow factual basis, albeit one not too different from that seen in many trade secret complaints:
The complaint alleges that defendant Metcalf "gained access to Plaintiff's trade secrets consisting of software code and other proprietary information." "Plaintiff invested substantial time, money, and skill in developing its proprietary software applications, software code, methods and other trade secrets. Defendants spent very little time and effort in converting those same software applications for their own use"…Plaintiff alleges that defendants "misappropriat[ed] and conver[ted] Plaintiff's software application for their own use" and "stole and converted Plaintiff's proprietary software applications."
The court found that the copyrightable nature of software code and the lack of any particular specificity as to the other aspects of any claimed trade secret meant that these allegations did not sufficiently establish the existence of a trade secret under California, and instead meant that the trade secret, conversion, and unfair competition claims were pre-empted by the federal Copyright Act
One can, however, assert successfully trade secret claims alongside copyright claims, or concerning otherwise copyrightable material. One must merely do it correctly. First, the Jobscience plaintiff made allegations that “fail[ed] to show claims of unfair competition and conversion based on facts distinct from the copyright infringement claim.” (emphasis added) One makes this distinction by framing allegations so as to make clear that the state law created a right that is other than something equivalent to the rights protected by federal copyright law. This means showing that the state law claim requires an “extra element” instead of, or in addition to, the acts of reproduction, performance, distribution or display at issue under copyright law. That “extra element” should be pled to make the state law claim a qualitatively different claim than one under the federal copyright laws. Additionally, one may avoid pre-emption by making clear allegations that the trade secret claim rests on facts, items and information other than and in addition to the sort of works that fall within the protections of the Copyright Act under Sections 102 and 103.
The key then to making such trade secrets claims involves, as one court noted, “making plausible allegations that extend beyond software” or other copyrightable works. Spear Marketing, Inc. v. BancorpSouth Bank, No. 3:!2-CV-3583-B (N.D. Tex. July 1, 2013). That means making allegations not necessarily limited to specific expressions, such as is implied in referencing only software code. It means making sure that there are allegations concerning customer lists, business plans, marketing strategies, and customer preferences. These types of trade secrets do not fall under the subject matter of copyright and are therefore not preempted by the Copyright Act.
This is important because copyright law can only protect particular expressions of trade secret, while a trade secret claim can extend to the substance of the trade secret, however expressed.
- Managing Director / Member of the Firm