Northern District Dismisses UTSA Cause of Action for Source Code Partially Filed With Copyright Office

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The Northern District dismissed a California Uniform Trade Secrets Act (UTSA or CUTSA) cause of action in a software code distribution case for failure to adequately allege secrecy. Kema, Inc. v. Koperwhats, No. C-09-1587 MMC, 2010 WL 3464708 (N.D. Cal. Sept. 1, 2010) (slip op.).

Koperwhats, a software programmer, alleged that counterclaim defendants breached a licensing agreement, improperly distributed Koperwhats’ proprietary software and source code, and misused the trademark “Visualize-IT.” Id. *1. Koperwhats asserted in his cause of action for violation of the California Uniform Trade Secrets Act, that the source code to his software constitutes a trade secret, and counterclaim defendants have stolen and improperly “transferred” such source code to Axmor, which is improperly “using” such source code.  Id. *3.  Koperwhats further alleges that certain defendants “improperly used, copied, sold or otherwise distributed software programs that utilize [Koperwhats'] trade secrets.”  Id. Counterclaim defendants argued that Koperwhats’ claim should be dismissed because Koperwhats failed to adequately allege “the disclosure or use of anything ‘secret’”.  Id.

The court previously dismissed Koperwhats’ UTSA cause of action for failure to allege that the misappropriated software was kept “secret,” given Koperwhats’ alleged submission of the source code for Version 4.3 to the Copyright Office and failure to allege he had “blocked out” any “trade secret material” prior to such submission. Id. *3 (citing In re Providian Credit Card Cases, 96 Cal. App. 4th 292, 304, 116 Cal. Rptr. 2d 833 (2002) (holding “[p]ublic disclosure, that is the absence of secrecy, is fatal to the existence of a trade secret”; noting “[i]f an individual discloses his trade secret to others who are under no obligation to protect the confidentiality of the information, or otherwise publicly discloses the secret, his property right is extinguished”)).

Koperwhats realleged his trade secret claim without material alteration, but in his opposition brief contended that the source code submitted to the Copyright Office was kept secret because restrictions are placed on the public’s ability to obtain copies of deposits submitted in conjunction with an application for registration of a copyright.  Id. (citing 37 C.F.R. § 201.2(d)(2)(i)-(iii) (providing requests for copies of deposited material will be granted only upon receipt of (i) written authorization from copyright holder, (ii) written request from attorney involved in litigation pertaining to the copyright, or (iii) receipt of court order)).  But the court rejected this argument, noting that “the articles deposited in connection with completed copyright registrations and retained under the control of the Copyright Office, shall be open to public inspection.”  Id. (citing 17 U.S.C. § 705(b); 37 C.F.R. § 201.2(b)(1) (providing for public “inspection [at the Copyright Office] of … material deposited in connection with a completed copyright registration”)).

The court further found that Koperwhats “essentially pleads he provided [a counter defendant] with the source code for Version 3.3” and that “[c]onsequently, Koperwhats has not alleged he took reasonable efforts to maintain the secrecy of any portion of the source code for Version 3.3.” Id. The court rejected Koperwhats conclusory contention in his opposition that there was an “understanding [the source code] was to be kept confidentially”. Id. The court reasoned that “Koperwhats has not included any such allegation in the FACC, let alone facts sufficient to plead a reasonable effort to maintain secrecy.”

Accordingly, the court dismissed Koperwhats’ UTSA cause of action without prejudice.

Judge and Attorneys

District Judge Maxine M. Chesney.

Valerie Margo Wagner, James L. Jacobs, GCA Law Partners LLP, Mountain View, CA, Linda M. MacLeod, Morgan, Franich, Fredkin & Marsh, San Jose, CA, for Plaintiffs.

Saralynn Mandel, Mandel & Adriano, Pasadena, CA, for Defendants.

By CHARLES JUNG

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