Cases from Lucy H. Koh

Northern District of California
ND Calif. Holds CUTSA Pre-Empts Non-Trade Secret Claims

On February 13, 2012, solar panel manufacturer SunPower Corporation filed suit against competitor SolarCity Corporation and former employees who left Sunpower to work at SolarCity. SunPower alleged that SolarCity and SunPower’s former employees misappropriated SunPower’s trade secrets in violation of the California Uniform Trade Secrets Act (CUTSA), Cal. Civ. Code § 3426 et seq. SunPower also alleged a number of causes of action based on misappropriation of what SunPower termed “non-trade secret proprietary information,” including: breach of confidence, conversion, trespass to chattels, tortious interference with prospective economic advantage, and statutory and common law unfair competition.

On August 2, 2012, the defendants filed a motion to dismiss the non-trade secret causes of action based on preemption by CUTSA. The Northern District of California dismissed the non-trade secrets causes of action on December 11, 2012, holding that they were preempted by CUTSA. The parties subsequently stipulated that the action be dismissed with prejudice, with each side bearing its own costs and expenses, including attorneys’ fees. On January 28, 2013, the Court dismissed the action with prejudice and retained jurisdiction to enforce the parties’ settlement agreement.

United States District Court for the Northern District of California
Contrary to California’s public policy against non-competes, the District Court for the Northern District of California narrowly construes an ambiguous non-compete to find it enforceable

Although California Business and Professions Code §16600 generally voids non-compete provisions, the District Court for the Northern District of California narrowly construed an ambiguous non-compete provision to find it enforceable in Richmond Technologies, Inc. v. Aumtech Business Solutions. Richmond Technologies, Inc. (“Richmond”) provides software for financial service companies who provide credit card terminals to merchants. In 2007, Richmond entered into a Memorandum of Understanding with Aumtech Business Solutions (“Aumtech) and in 2009, the same parties entered into a Confidentiality and Non-Disclosure Agreement (“NDA”). The NDA contained three broad provisions regarding non-solicitation, non-interference and non-competition. These provisions broadly prohibited Aumtech from doing business with Richmond’s clients or employees, or competing with Richmond, for a year unless that client or employee had ceased his business relationship with Richmond for at least six months. Richmond alleged in its complaint that in 2010, Aumtech solicited and worked with a former employee to market competing services to Richmond's clients.

In its analysis, the Richmond court acknowledged a non-compete may be enforced to protect a former employer’s trade secrets. It declared that the non-solicitation and non-interference clauses in the NDA were unenforceable because they were drafted more broadly than necessary to protect Richmond’s trade secrets. However, it construed the non-compete to bar the use of Richmond’s trade secrets, such as “confidential source code, software or techniques developed for [Richmond’s] products or clients" and therefore found it enforceable.

United States District Court for the Northern District of California
N.D. Cal.: Free Exercise Clause Does Not Preclude Evaluation of Asserted Trade Secrets of Spiritual Nature

The Northern District of California recently held that its involvement was not so “entangled” with the Free Exercise Clause of the First Amendment that it should be precluded from evaluating a plaintiff’s trade secrets claim.

The Art of Living Foundation brought an action for copyright infringement and misappropriation of trade secrets under the California UTSA against former members of its movement who turned to blogs to voice their criticism under the monikers “Skywalker” and “Klim.” The organization provides courses on “healthy living” topics such as yoga and controlled breathing that are embodied in manuals and teaching notes. As part of their criticism, the bloggers posted some of these teaching notes and other materials on their blogs and/or linked to other sites that hosted them.

Defendants asserted that the court should be barred from assessing the plaintiff’s trade secrets claim due to excessive entanglement with the Free Exercise Clause. Specifically, as the plaintiffs had argued that they had added novel elements to traditional Hindu concepts, the defendants claimed that this necessarily involved an adjudication of what is traditionally religious or not and therefore would ensnare the court in impermissible evaluation of religious doctrine. The court rejected this, noting that even though the nature of the work is religious, it could still evaluate the trade secrets claim as it would any other: by comparing the allegedly novel portions to what is generally known to the public and then assessing the value of nondisclosure of those elements.

After a lengthy discussion that concluded that the training materials might be eligible for trade secret status, the court dismissed the motion to strike as to Skywalker, as he had personally posted some of the materials on his blog, constituting enough evidence of potential misappropriation for the case to move forward. However, the motion to strike was granted as to Klim because there was no evidence that he posted any materials to his blog.