Court Opinion

ID: 4115118
Source: CourtListenerOpinion
Date Created: 2017-01-11 21:01:16.045306+00
Date Added: 2024-06-11T07:46:14.754104
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                             JAN 11 2017
                    UNITED STATES COURT OF APPEALS                       MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

INTEGRAL DEVELOPMENT                             No.   14-16629
CORPORATION, a California
corporation,                                     D.C. No. 4:12-cv-06575-JSW

              Plaintiff-Appellant,
                                                 MEMORANDUM*
 v.

VIRAL TOLAT, an individual,

              Defendant-Appellee.

                    Appeal from the United States District Court
                       for the Northern District of California
                     Jeffrey S. White, District Judge, Presiding

                               Argued July 8, 2016
                            Submitted January 11, 2017
                             San Francisco, California

Before: BERZON and N.R. SMITH, Circuit Judges, and CHRISTENSEN,** Chief
District Judge.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The Honorable Dana L. Christensen, United States Chief District
Judge for the District of Montana, sitting by designation.
      Integral Development Corporation (“Integral”) appeals the district court’s

grant of summary judgment in favor of Viral Tolat, Integral’s former Chief

Technology Officer. We review de novo the district court’s grant of summary

judgment. Szajer v. City of Los Angeles, 632 F.3d 607, 610 (9th Cir. 2011). We

affirm in part, reverse in part, vacate in part, and remand.

      1. To succeed on a claim for misappropriation of trade secrets under the

California Uniform Trade Secret Act (“CUTSA”), Integral must show three things:

(1) it possessed a trade secret; (2) Tolat misappropriated the trade secret; and (3)

Tolat’s misappropriation caused or threatened damage to Integral. See Silvaco

Data Sys. v. Intel Corp., 109 Cal. Rptr. 3d 27, 38 (Cal. Ct. App. 2010),

disapproved of on other grounds by Kwikset Corp. v. Superior Court, 246 P.3d 877

(Cal. 2011). In establishing that certain information qualifies as a trade secret, a

plaintiff first must clearly identify the information. See id. The plaintiff must also

show that the information communicates ideas or facts to another.1 Id. Finally, a

plaintiff must show that it took reasonable steps to maintain the secrecy of that

      1
        CUTSA does not protect “ideas.” Rather it protects the information that
“communicate[s] . . . the idea or fact to another.” Silvaco, 109 Cal. Rptr. 3d at 38.
That information may take the form of “a formula, pattern, compilation, program,
device, method, technique, or process.” Id. (quoting Cal. Civ. Code § 3426.1(d)).
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information, and that the information obtained value from being kept secret. Whyte

v. Schlage Lock Co., 125 Cal. Rptr. 2d 277, 286–87 (Cal. Ct. App. 2002).

      Integral has identified three sets of information that it claims are trade

secrets that Tolat misappropriated: (1) facts about Integral’s business that Tolat

included in a resume he sent to EBS, one of Integral’s competitors; (2) Integral’s

source code for its products; and (3) business documents containing, inter alia,

customer lists and details about ongoing projects. Integral has failed to present any

evidence that it suffered damages as a result of Tolat disclosing facts about Integral

in his resume or as a result of Tolat copying and retaining Integral’s business files.

There is no evidence in the record that Integral suffered actual losses from these

actions, or that any of Integral’s competitors were unjustly enriched as a result of

these actions. See Cal. Civ. Code § 3426.3(a). Therefore, the district court

properly granted summary judgment in favor of Tolat on Integral’s CUTSA claim,

to the extent it is based on the information contained in Tolat’s resume or the

business files Tolat allegedly copied and retained.

      However, Integral’s CUTSA claim based on the misappropriation of its

source code should have survived summary judgment. First, Integral met its

burden on the question of whether the source code is a trade secret under CUTSA.

There is evidence in the record that Tolat copied at least a portion of Integral’s

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source code on to an external hard drive, in violation of Integral’s policies, on

November 5, 2012, shortly before he planned to retire from Integral. There is also

evidence that, on this date, Tolat copied only the recent updates in the source code

to the external hard drive and that he tried to cover up the evidence that he had

transferred the files to his personal device. Based on this evidence, a fact finder

could conclude that Tolat had previously copied all of Integral’s source code, and

that he periodically copied the updates to the code. Thus, Integral has raised a

question of material fact as to whether Tolat copied all of its source code. Integral

has also identified specific key aspects of its source code that it claims Tolat

misappropriated. Thus, Integral sufficiently identified the information it alleges is

a trade secret.

       Source code, which conveys facts or ideas, qualifies for trade secret

protection. See Altavion, Inc. v. Konica Minolta Sys. Lab. Inc., 171 Cal. Rptr. 3d

714, 741 (Cal. Ct. App. 2014) (“[S]ource code is undoubtedly a trade secret.”)

(citing Agency Solutions.com, LLC v. TriZetto Grp., Inc., 819 F. Supp. 2d 1001,

1017 (E.D. Cal. 2011)). Finally, the parties do not dispute that Integral took steps

to maintain the secrecy of the source code or that the code obtains value from

being kept secret.

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      Second, there is enough evidence in the record to raise a question of material

fact as to whether Tolat misappropriated those portions of Integral’s source code

that qualify for trade secret protection. See Whyte, 125 Cal. Rptr. 2d at 289

(“‘Misappropriation’ is, generally speaking, improper acquisition of a trade secret

or its nonconsensual use or disclosure.”) (citing Cal. Civ. Code § 3426.1(b)).

There is evidence that Tolat copied the source code shortly before he planned to

leave Integral and join EBS. There is also evidence that, after Tolat joined EBS,

EBS released a product—EBS Direct—that competed directly with some of

Integral’s products. A fact finder must determine whether Tolat actually gave

Integral’s source code to EBS and whether EBS used the source code to develop

EBS Direct.

      Lastly, there is evidence that EBS Direct cut into Integral’s sales and that the

resulting loss of revenue also caused Integral’s equity value to decrease, satisfying

Integral’s burden as to damages. Because Integral has at least raised a question of

material fact as to all necessary elements of a CUTSA claim (based on the alleged

misappropriation of its source code), we reverse the district court’s summary

judgment ruling on this claim and remand.

      2. CUTSA does preempt some claims, but it “does not affect . . . civil

remedies that are not based upon misappropriation of a trade secret.” Cal. Civ.

                                          5
Code § 3426.7(b). If a breach of fiduciary duty is not “based on the same nucleus

of facts as [the] trade secret misappropriation,” CUTSA will not preempt the claim.

See Silvaco, 109 Cal. Rptr. 3d at 48 (quoting K.C. Multimedia, Inc. v. Bank of Am.

Tech. & Operations, Inc., 90 Cal. Rptr. 3d 247, 264 (Cal. Ct. App. 2009)). Integral

asserts that Tolat owed a fiduciary duty to Integral, which he breached when he

shared confidential information with a competitor. This claim does not require that

the confidential information qualify as a “trade secret.” Thus, Integral’s breach of

fiduciary duty claim “ha[s] a basis independent of any misappropriation of a trade

secret,” and therefore, is not preempted by CUTSA. Angelica Textile Servs. Inc. v.

Park, 163 Cal. Rptr. 3d 192, 202–03 (Cal. Ct. App. 2013) (finding claim for breach

of fiduciary duty was independent of trade secret claim). Accordingly, we vacate

the district court’s ruling on this claim and remand the case so the district court can

consider the merits.

      3. The plain language of CUTSA also provides that it does not preempt

“contractual remedies, whether or not based upon misappropriation of a trade

secret.” Cal. Civ. Code § 3426.7(b)(1); see also Angelica Textile Servs., 163 Cal.

Rptr. 3d at 203 (“[B]reach of contract claims, even when they are based on

misappropriation or misuse of a trade secret, are not displaced by [C]UTSA.”).

Thus, the district court erroneously found Integral’s breach of contract claim was

                                           6
preempted by CUTSA. Accordingly, we vacate the district court’s ruling on this

claim, and remand the case so the district court can consider the merits.

      4. “Plaintiffs must satisfy two requirements to present a prima facie case of

direct [copyright] infringement: (1) they must show ownership of the allegedly

infringed material and (2) they must demonstrate that the alleged infringers

violate[d] at least one exclusive right granted to copyright holders under 17 U.S.C.

§ 106.” Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1159 (9th Cir. 2007)

(quoting A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1013 (9th Cir. 2001)).

Integral alleges that Tolat infringed on its copyright in its source code. Integral

acquired a copyright in its source code as the source code was written; it did not

need to register the source code with the copyright office before a copyright

existed. See 17 U.S.C. §§ 101, 302(a). As employer of the various individuals

writing source code, Integral was the author of the source code and the owner. Id.

§ 201(a)–(b). Thus, Integral has satisfied the first requirement of a direct

infringement claim.

      As copyright owner, Integral has the exclusive right to “reproduce the

copyrighted work in copies”; “prepare derivative works based on the copyrighted

work”; and “distribute copies . . . of the copyrighted work to the public by sale or

other transfer of ownership, or by rental, lease, or lending.” Id. § 106(1)–(3).

                                           7
Integral contends that Tolat violated its exclusive rights in its source code by

copying the source code onto personal devices without authority and later

distributing the copies (which Integral contends were not all deleted or returned to

Integral) to EBS. The undisputed facts show that Tolat copied at least some of

Integral’s source code while still employed by Integral. Whether Tolat had the

authority to copy the code and whether Tolat distributed the code to EBS are

disputed questions of material fact that must be decided by a fact finder.

Therefore, we reverse the district court’s ruling on Integral’s copyright claim and

remand.

      Each party shall bear its own costs on appeal.

      AFFIRMED IN PART, REVERSED IN PART, VACATED IN PART,

and REMANDED.

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