Case Name: ?? Intellisoft, Ltd. v. Acer America Corporation, et al.
Case No.: ?????? 2014-1-CV-272381
This is an action for trade secret misappropriation and related claims. Plaintiff Intellisoft, Ltd. alleges that, in 1984, its founder Bruce Bierman developed Bookmark, software which provides computer users with a method to return their computer to a previously saved state after a power failure.[1] (See Fourth Amended Complaint (?4AC?), ?? 1, 14.)? In 1990, Intellisoft asked defendant Acer America Corporation (?AAC?) if it would be interested in an OEM (or ?original equipment manufacturer?) arrangement for the installation of Bookmark software on its personal computers. (Id., ? 29.)? AAC agreed to evaluate the software and executed a technology nondisclosure agreement (the ?1990 NDA?).? (Ibid.)? Over the next two years, Intellisoft provided AAC with confidential information about Bookmark. (See id., ?? 41-45.)? Shortly after Intellisoft provided this information, AAC secretly began drafting an application for a patent (the ?713 patent?) incorporating Bookmark technology. (See id., ? 47.)
Following its evaluation, AAC represented to Intellisoft that it wanted to license Bookmark software for factory installation in personal computers that would be released in 1992.? (See 4AC, ? 48.)? On January 2, 1992, AAC and Intellisoft entered into a licensing agreement (the ?First Acer License?) and a separate nondisclosure agreement (the ?1/92 NDA?). (See id., ??49.) That same day, unbeknownst to Intellisoft, AAC filed its application regarding the 713 patent. (Id., ??50.)? In August and September of 1992, the parties executed a modified licensing agreement (the ?Modified License?) and a second nondisclosure agreement (the ?9/92 NDA?). (Id., ? 52.) Intellisoft alleges that AAC has disclosed and used its proprietary and confidential information in violation of the nondisclosure and licensing agreements since 1992, including by applying for and obtaining three more patents during 1995-1999. (See id., ?? 59-63.)? The 713 patent was the first to issue on April 25, 1995, and at that time, ?the Confidential Information that Intellisoft provided to Acer under the NDAs and the Acer License was published in the United States.?? (Id., ??58.)? Intellisoft and Bierman stopped doing business in software development, and consequently did not learn of the 713 patent and AAC?s trade secret misappropriation generally until 2013.? (See id., ? 68.)
Intellisoft alleges that defendant Acer Incorporated (?AI?) is the parent company of AAC, as well as of defendants Wistron Corporation (?Winstron?) and Winstron InfoComm Technology (America) Corporation (?InfoComm,? collectively with Winstron, the ?Winstron Defendants?).? (4AC, ?? 3-5.)? AI marketed and manufactured PC computer products until about 2000, when Winstron was created and ?spun off? from AI, and InfoComm was also created.[2]? (Id., ?? 3, 79-80.)? Winstron acquired the rights to the patents at issue in this action and has exploited the technology covered by those patents ever since.? (Ibid.)? Intellisoft alleges upon information and belief that the Winstron Defendants have a corporate and/or contractual relationship with AAC and/or AI that results in them being subject to the contracts at issue.? (Id., ?? 3-4.)? Also upon information and belief, the Winstron Defendants have a joint interest with AI, AAC, and/or one another in marketing and selling computers manufactured and/or marketed by AAC, AI, and/or one another, including those that incorporated Intellisoft?s misappropriated materials; they shared profits and losses in regard to those activities; and they had a right to joint control over those efforts.? (Ibid.)? Intellisoft further alleges in boilerplate fashion that AI, AAC, Winstron, and InfoComm were each other?s agents, co-conspirators, joint venturers, and etc.? (Id., ? 11.)? Finally, Intellisoft alleges that the Winstron Defendants knew of information regarding AAC?s use of Intellisoft?s trade secrets that was fraudulently concealed from plaintiff, and of AAC?s breach of the 1990 NDA, but accepted and/or retained the benefit of AAC?s actions and have derived revenue from the trade secret information.? (Id., ?? 77-80.)
The Court (Hon. Arand) sustained two prior demurrers by the Winstron Defendants to previous versions of the complaint.? Most recently, their demurrer to the second amended complaint was sustained without leave to amend on April 8, 2015.? On September 25, 2015, Intellisoft filed the operative 4AC pursuant to the parties? stipulation, asserting the following claims: (1) trade secret misappropriation (against all defendants), (2) intentional misrepresentation and fraudulent concealment (against AAC and AI), (3) breach of the 1990 NDA (against AAC and AI), and (4)?accounting (against all defendants).
Currently at issue is the Winstron Defendants? demurrer to both claims asserted against them in the 4AC for failure to state a claim.? (Code Civ. Proc., ??430.10, subd. (e).)
- Preliminary Issues
As an initial matter, the declaration of Matthew G. Ball filed in support of the Winstron Defendants? reply brief, along with its exhibits, is hereby STRUCK.? (Code Civ. Proc., ??436, subd. (a) [court may strike irrelevant or improper matters on its own motion].)? As defendants themselves acknowledge in their reply brief, these materials have absolutely no bearing on the issues raised by the demurrer, and were not considered by the Court in issuing its ruling.? The defendants shall refrain from engaging in irrelevant, personal attacks of this nature in the future.
Intellisoft?s request for judicial notice of filings by the Winstron Defendants in litigation related to the patents at issue is GRANTED as to the existence and content of these documents only.? (Evid. Code, ? 452, subd. (d); Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1564-1568 [a court may take judicial notice of the existence and content of each document in a court file, but cannot take judicial notice of the truth of hearsay statements or factual findings therein].)? Its request for judicial notice of assignments of the relevant patents that were recorded with the United States Patent and Trademark Office is GRANTED to the same extent.? (Evid. Code, ??452, subd. (c); Brescia v. Angelin (2009) 172 Cal.App.4th 133, 151 [?although the court could properly take judicial notice of the existence of the records to show that Scinto?s patent application was denied, it could not take judicial notice of the truth of the findings stated in the records, i.e., that Scinto?s formula and ingredients were, in fact, obvious to persons of ordinary skill in the industry?].)
- Analysis
The 4AC restates joint venture and conspiracy theories of trade secret liability against the Winstron Defendants that were rejected by the Court in its orders on prior demurrers.? (See April 8th, 2015 Order, pp.7-9 [Winstron Defendants cannot be held liable as joint venturers or co-conspirators because these entities did not exist at the time of the alleged misappropriation].)? It also attempts to state a direct claim for trade secret misappropriation against these defendants, a theory which was not addressed by the Court?s prior rulings.? Intellisoft further urges that the Winstron Defendants are liable as assignees of the patents incorporating its trade secrets.? The Winstron Defendants contend that each of these theories fails because the alleged misappropriation and publication of the trade secrets at issue occurred before the Winstron Defendants came into existence.
With respect to direct liability, the Winstron Defendants are correct that publication of a trade secret terminates the existence of the secret.? (Forcier v. Microsoft Corp. (N.D. Cal. 2000) 123 F.Supp.2d 520, 528 [plaintiff could not state a claim for trade secret infringement against purchaser of product line and patents incorporating alleged secrets where plaintiff and seller had published the secrets in patents before the sale].)? This prevents the imposition of direct liability for trade secret misappropriation on an entity that acquires the secret later, whether that liability is based on the acquisition, use, or disclosure of the former trade secret.? (Ibid. [acknowledging all three forms of liability].)? Intellisoft alleges that its confidential information was published in the United States in 1995 when the 713 patent issued, and it does not contend otherwise in its opposition papers.? Consequently, it cannot state a direct claim for trade secret misappropriation against entities that did not come into existence until 2000 or later.? PMC, Inc. v. Kadisha (2000) 78 Cal.App.4th 1368, cited by Intellisoft, is not to the contrary, given that the secrets at issue in that case had not been published.[3]
Turning to conspiracy liability, not only knowledge of a conspiracy, but ?intent to aid in its commission? and an agreement to do so are required to hold a defendant liable as a co-conspirator. ?(Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1582.)? ?There must be evidence of some participation or interest in the commission of the offense.?? (Ibid.)? These elements are absent where, as here, the object of the conspiracy has been accomplished before the alleged co-conspirators arrived on the scene.? (Id. at p. 1596 [?a party that publishes or distributes a fraudulently obtained intellectual property cannot be implicated as a co-conspirator with the party that stole the property?], discussing cases.)? The holding in Intermedics, Inc. v. Ventritex, Inc. (N.D. Cal. 1993) 822 F.Supp. 634 is instructive.? While it largely addressed issues related to the statute of limitations, Intermedics also held that ?a straightforward basis for entering judgment? on a claim for conspiracy to use certain trade secrets was that none of those matters constituted a trade secret at the time the allege co-conspirators began to work together.? (At p. 647; see also Gulshan Intern. Corp. v. Sematech, Inc. (9th Cir., Sept. 14, 1995, No. 93-16710) 66 F.3d 335, 1995 WL 547701, *1 [?The causes of action for breach of contract, misappropriation of trade secrets, ? and conspiracy all require that the ideas in question be trade secrets.? Information can?t be a trade secret, however, if it is ?generally known to the public or to other persons who can obtain economic value from its disclosure or use.? ?], citing Civil Code section 3426.1, subd. (d)(1).)? De Vries v. Brumback (1960) 53 Cal.2d 643 is distinguishable given that it involved conversion that was ongoing at the time the alleged co-conspirator became involved as an ?active participa[nt],? by joining the conspiracy a few hours after the initial robbery to aid in the disposition of the stolen property.? (At p. 647; see Kidron v. Movie Acquisition Corp., supra, 40 Cal.App.4th at p. 1595 [?[u]nlike the conspirator in de Vries, MAC did not join with Franklin/Waterman while the underlying tort was continuing?].)
Intellisoft?s joint venture theory fails for similar reasons as its conspiracy theory: given that the Winstron Defendants did not exist until after the alleged misappropriation was completed, the misappropriation could not have been within the scope of any joint venture involving these defendants.? (See Rickless v. Temple (1970) 4 Cal.App.3d 869, 893 [?a joint venture is formed for a single transaction or single series of transactions,? with a limited scope and duration].)? The theory that the Winstron Defendants are liable as asignees of the patents at issue is also unavailing.? Intellisoft cites no apposite authority supporting this theory (cf. Johnson v. County of Fresno (2003) 111 Cal.App.4th 1087, 1096 [assignee of indemnification rights ???stands in the shoes? of the assignor, taking his rights and remedies?]), which is contrary to the holding in Forcier and would result in the imposition of liability against wholly innocent purchasers of patents, in conflict with the trade secret statute.
Intellisoft consequently fails to state a claim for trade secret misappropriation against the Winstron Defendants on any of these theories, and it does not defend its boilerplate allegations supporting other potential theories of liabiity.? The Winstron Defendants argue, and Intellisoft does not dispute, that Intellisoft?s accounting claim is derivative of its claim for trade secret misappropriation, and the claims must stand or fall together.? (See Janis v. California State Lottery Com. (1998) 68 Cal.App.4th 824, 833 [?A right to an accounting is derivative; it must be based on other claims.?].)? The 4AC thus fails to state any claim against the Winstron Defendants.
Particularly given its numerous prior amendments of its claims against the Winstron Defendants, it is Intellisoft?s burden to identify the manner in which it could amend its complaint to state a cause of action.? (See Camsi IV v. Hunter Technology Corp. (1991) 230 Cal.App.3d 1525, 1542 [?absent an effective request for leave to amend in specified ways,? it is appropriate to deny leave to amend unless ?a potentially effective amendment [is] both apparent and consistent with the plaintiff?s theory of the case?]; Goodman v. Kennedy (1976) 18 Cal. 3d 335, 349 [?Plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading?], quoting Cooper v. Leslie Salt Co. (1969) 70 Cal. 2d 627, 636.)? As Intellisoft has not attempted to do so here, the Winstron Defendants? demurrer is SUSTAINED WITHOUT LEAVE TO AMEND.
Footnotes:
[1] In the 4AC, plaintiff refers to subsequent versions of Bookmark as ?MIT? and ?MSI.?? For simplicity?s sake, this order will refer to all versions of the software as ?Bookmark.?
[2] Winstron and InfoComm assert that they were actually formed in 2001 and 2007, respectively; however, as they acknowledge, these details are not material to the issues addressed herein.? (Mem. of Points and Authorities ISO Demurrer, p. 1, fn. 1.)
[3] As noted by the Winstron Defendants, PMC addresses the circumstances under which officers and directors of a corporation may be liable for trade secret misappropriation, and held that liability may exist where ?(1) the officer or director purchased or invested in the corporation the principal assets of which were the result of unlawful conduct; (2) the officer or director took control of the corporation and appointed personnel to run the corporation, which was engaging in unlawful conduct; and (3) the officer or director did so with knowledge or, with respect to trade secret misappropriation, when she or he had reason to know, of the unlawful conduct.?? (PMC, Inc. v. Kadisha, supra, 78 Cal.App.4th at p. 1372.)? Even if PMC applied to liability among related corporations, several of these elements are not alleged here.