Direct Technologies v. Electronic Arts, Inc. , 836 F.3d 1059 ( 2016 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
DIRECT TECHNOLOGIES, LLC, Nos. 14-56266
a California limited liability 14-56745
company,
Plaintiff-Appellant, D.C. No.
8:10-cv-01336-AG-PJW
v.
ELECTRONIC ARTS, INC., a OPINION
Delaware corporation,
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Andrew J. Guilford, District Judge, Presiding
Argued and Submitted June 8, 2016
Pasadena, California
Filed September 6, 2016
Before: Alex Kozinski, Ronald M. Gould,
and Andrew D. Hurwitz, Circuit Judges.
Opinion by Judge Gould
2 DIRECT TECH. V. ELECTRONIC ARTS
SUMMARY*
Copyright / Trade Secrets
The panel affirmed in part and reversed in part the district
court’s summary judgment in favor of defendant Electronic
Arts, Inc., in a copyright infringement and trade secrets case.
Electronic Arts, maker of The Sims, a computer game,
contracted with a production company to produce a USB
flash drive shaped like a “PlumbBob,” a gem-shaped icon
from the game. That company contracted with Direct
Technologies, LLC, to produce a prototype. Electronic Arts
approved the prototype but had the flash drives produced by
a company in China. Direct Technologies sued under the
Copyright Act and the California Uniform Trade Secrets Act.
Reversing as to the copyright infringement claim, the
panel held that the district court erred in ruling as a matter of
law that the flash drive was not sufficiently original when
compared to the PlumbBob icon to qualify for copyright
protection as a derivative work. The panel held that there was
a genuine issue of material fact as to whether Direct
Technologies’ cut-away design for removing the flash drive
from the PlumbBob object was sufficiently non-functional
and non-trivial to warrant copyright protection. There was
also a genuine issue of material fact as to whether Direct
Technologies was sufficiently in control of its artistic
contribution to qualify as a joint author in the flash drive
prototype.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
DIRECT TECH. V. ELECTRONIC ARTS 3
Affirming as to the trade secrets claim, although relying
on different grounds than the district court, the panel held that
Direct Technologies’ contribution to the PlumbBob USB
drive, a design for the flash drive’s removal from the
PlumbBob object, did not derive independent economic value
from not being generally known to the public. The panel also
held that the district court did not clearly err or otherwise
abuse its discretion in denying Electronic Arts attorneys’ fees
for the trade secrets claim.
COUNSEL
John Tehranian (argued), Christopher W. Arledge, and Peter
R. Afrasiabi, One LLP, Newport Beach, California, for
Plaintiff-Appellant.
Robert N. Klieger (argued), Hueston Hennigan LLP, Los
Angeles, California, for Defendant-Appellee.
OPINION
GOULD, Circuit Judge:
Electronic Arts (EA) is the creator of The Sims, a popular
computer game. EA contracted with a production company
called Lithomania to produce a USB flash drive shaped like
a “PlumbBob,” a gem-shaped icon from the computer game,
to promote a “Collector’s Edition” of The Sims. Lithomania
in turn contracted with Direct Technologies (DT) to produce
a prototype of the PlumbBob-shaped flash drive. EA
approved the prototype, but DT’s prototype was shipped to a
4 DIRECT TECH. V. ELECTRONIC ARTS
company in China to make essentially the same flash drives
for $0.50 cheaper per unit than DT proposed.
After DT settled breach of contract claims with
Lithomania, DT sued EA under the federal Copyright Act and
the California Uniform Trade Secrets Act (CUTSA). The
district court granted summary judgment to EA. The district
court held that the flash drive was not sufficiently “original”
when compared to the PlumbBob icon to qualify for
copyright protection. The court also held that DT had not
taken “reasonable efforts” to keep the flash drive design
secret because DT had voluntarily given the prototype to
Lithomania without explicit confidentiality restrictions. EA
then moved for attorneys’ fees under each statute, but the
district court denied fees on both claims, concluding that
DT’s claims were neither objectively specious nor brought in
bad faith.
With regard to the copyright claim, we hold that the
district court erred by concluding as a matter of law that the
flash drive was not copyrightable. There is a genuine issue of
material fact as to whether DT’s cut-away design for
removing the USB flash drive from the PlumbBob object is
sufficiently non-functional and non-trivial to warrant
copyright protection. A reasonable jury could decide these
questions in either party’s favor.
On the CUTSA claim, we affirm the district court’s grant
of summary judgment to EA, although we rely on different
grounds than did the district court. We hold that DT’s
contribution to the PlumbBob USB drive—that is, DT’s
design for the flash drive’s removal from the PlumbBob
object—does not “derive[] independent economic value,
actual or potential, from not being generally known to the
DIRECT TECH. V. ELECTRONIC ARTS 5
public.” Cal. Civ. Code § 3426.1(d)(1). Rejecting EA’s
cross-appeal, we further hold that the district court did not
clearly err or otherwise abuse its discretion in denying
attorneys’ fees for this claim.
I
The Sims is a popular video game in which players
“create virtual people called ‘Sims,’ customize the homes and
neighborhoods in which [the Sims] live, and help direct them
in their relationships, careers, and social lives as they
progress through various life stages.” When a player controls
a specific character, a green icon called a “PlumbBob”
appears over the character’s head.
6 DIRECT TECH. V. ELECTRONIC ARTS
This logo is “an iconic symbol of The Sims.” EA holds a
copyright in the PlumbBob icon.
For the release of The Sims 3, EA decided to order USB
flash drives shaped like a PlumbBob as a promotional trinket
to be sold with the game. In May 2008, EA turned to
Lithomania, a print production company, to find a
manufacturer for the PlumbBob flash drives. Lithomania
president Gina Long contacted DT and sent pictures of the
PlumbBob. DT was asked to produce prototype samples of
a PlumbBob-shaped flash drive for EA’s approval. EA
approved DT’s prototype, and the parties began negotiating
over a Vendor Agreement in August 2008.
Less than two weeks later, Lithomania sent DT’s
prototype to TREK2000, a Chinese company, without telling
DT.1 TREK2000 offered to make identical PlumbBob USB
drives for $0.50 less per unit. EA asked Lithomania whether
TREK2000 “swear[s] they can match what we already had”
from DT, and Lithomania assured EA that “they don’t think
they will have a problem matching it at all.” In the end, the
only difference between TREK2000’s product and DT’s
prototype was that the corners were “a little less sharp than
the corners of the prototype.”
Rather than tell DT that it had been cut out of the deal,
Lithomania lied, first telling DT that the project was on hold
and “who knows???” why. Then, just one day after
Lithomania told EA that it was “ready to start the
preproduction sample [with TREK2000] as soon as you
confirm an order for the manufacturing tool,” Lithomania
1
EA claims this was because of a disagreement over the use of certain
flash drive technology, although DT disputes that explanation.
DIRECT TECH. V. ELECTRONIC ARTS 7
sent DT a vendor agreement stating that Lithomania would
purchase the USB flash drives from DT. The agreement also
purported to transfer all intellectual property rights from DT
to EA. DT signed the agreement, thinking that it had sealed
the deal. Lithomania, on the other hand, told EA that it had
received a vendor agreement from DT, “so IP’s are all
protected.” EA responded, “Great. . . . Protect us all.”
For the next few weeks, Lithomania had DT sign other
agreements and assignments of IP interests. DT was never
actually told that it had lost the project. DT suspected its
loss, but it did not know for sure until DT’s owner and CEO
saw the PlumbBob drive available in stores.
DT first sued Lithomania in California state court for
fraud, breach of contract, and breach of the implied covenant
of good faith and fair dealing. That suit settled.
DT then brought this case against EA, seeking a
declaratory judgment that DT was “joint author of a
copyrighted work” in the PlumbBob drive and was “entitled
to an equal share of the profits related to the PlumbBob
USB.” The district court dismissed for failure to state a
claim, holding that DT did not “sufficiently allege[] that it is
a joint owner of the USB Drive” because it had signed a
vendor agreement transferring all rights in the USB drive to
EA. On appeal, we vacated and remanded, holding that DT
could prevail “if the contract was fraudulently induced, such
that it was invalid from the beginning.” 525 F. App’x 560,
561 (9th Cir. 2013).
On remand, DT amended its complaint to add a claim for
Trade Secret Misappropriation under the California Uniform
Trade Secret Act (CUTSA), Cal. Civ. Code §§ 3426–3246.11.
8 DIRECT TECH. V. ELECTRONIC ARTS
EA moved for summary judgment on both claims. On the
copyright claim, EA argued: (1) that “DT did not contribute
any independently copyrightable expression to the PlumbBob
Drive”; (2) that even if DT did, it was not a joint author; and
(3) that DT had assigned any copyright interest it had to
Lithomania. The district court granted summary judgment on
the copyright claim, concluding that DT’s contributions to the
drive were either trivial or functional, and that even if not, DT
was not a joint author.
On the trade secrets claim, the district court at first denied
summary judgment, holding that a reasonable jury “could
find that Plaintiff had done enough to protect the secrets of
the samples” and that DT could prove misappropriation if EA
“knew Lithomania had a duty to maintain the samples’
secrecy or limit their use.” But after additional discovery, EA
filed a renewed motion for summary judgment, which the
district court granted, holding that there was “no reasonable
dispute of material fact that DT did not take reasonable
efforts to maintain the secrecy of its prototypes.” DT
appealed both claims.
EA then moved for attorneys’ fees on both claims under
the respective statutes. The district court denied fees for both
claims. The district court found that DT’s copyright claim
was not frivolous or unreasonable and that DT’s motivations
were not improper. The court also found that DT’s trade
secrets claim was not objectively specious and that DT did
not bring the claim in bad faith. EA cross-appeals the denial
of attorneys’ fees on only the trade secrets claim.
DIRECT TECH. V. ELECTRONIC ARTS 9
II
The federal copyright claim
Because EA holds a copyright in the original 2-D
PlumbBob icon, the question at the heart of this claim is
whether DT’s 3-D rendition of the PlumbBob as a USB flash
drive is entitled to copyright protection as a derivative work.
See 17 U.S.C. § 101 (defining derivative work). If DT
contributed material “distinguished from the preexisting
material employed in the work,” DT can claim a copyright in
its contributions. 17 U.S.C. § 103(b). DT alleges that two
aspects of its work make the PlumbBob-shaped drive original
enough to warrant copyright protection: (1) the USB drive
had 12 equal sides, whereas the icon had 20 unequal sides;
and (2) DT designed the USB drive to fit into the PlumbBob
with a “futuristic cut away look . . . at a unique angle.”
We have established a two-step inquiry for determining
whether a derivative work is original enough to receive
copyright protection. First, courts address the question
whether any aspects of the work seeking copyright protection
“are purely functional, utilitarian or mechanical.” Entm’t
Research Grp., Inc. v. Genesis Creative Grp., Inc., 122 F.3d
1211, 1221 (9th Cir. 1997) (hereinafter ERG) (citing
17 U.S.C. § 101 (describing the limitations on copyrighting
mechanical or utilitarian aspects of a work)). If so, “any
differences in appearance between a derivative work and the
preexisting work which are not conceptually separable from
any utilitarian, functional or mechanical purposes” are set
aside and excluded from the determination “whether
sufficient artistic differences exist to constitute ‘originality.’”
Id. at 1222.
10 DIRECT TECH. V. ELECTRONIC ARTS
Second, when addressing originality, courts apply the two
Durham factors from the Second Circuit:
First, to support a copyright the original
aspects of a derivative work must be more
than trivial. Second, the original aspects of a
derivative work must reflect the degree to
which it relies on preexisting material and
must not in any way affect the scope of any
copyright protection in that preexisting
material.
Id. at 1220 (quoting Durham Indus., Inc. v. Tomy Corp.,
630 F.2d 905, 909 (2d Cir. 1980)). “[T]he amount of creative
input by the author required to meet the originality standard
is low” but “not negligible.” Satava v. Lowry, 323 F.3d 805,
810 (9th Cir. 2003); see also Sid & Marty Krofft Television
Prods., Inc. v. McDonald’s Corp., 562 F.2d 1157, 1163 n.5
(9th Cir. 1977).
A. Functionality
In ERG, we discussed at length how the functionality
standard applies to 3-D representations of 2-D objects. That
case involved costumes derived from drawings of famous
cartoon characters such as the Pillsbury Doughboy, Geoffrey
the Giraffe, and Cap’n Crunch. When analyzing the
differences between the costumes and the drawings, we
concluded that differences in “form, texture and
proportionality” were “necessitated by the fact that a human
body must fit inside the costumes.” 122 F.3d at 1223. Those
differences were thus functional or utilitarian and had to be
excluded from the originality analysis. On the contrary, we
recognized that the facial expressions on the costumes were
DIRECT TECH. V. ELECTRONIC ARTS 11
a “truly ‘artistic’ difference” that was not merely functional.
Id. We held that that non-functional artistic difference could
be considered in our originality analysis.2
Here, DT alleges that it made a non-functional
contribution to the USB drive by designing the flash drive to
fit into the PlumbBob with a “futuristic cut away look . . . at
a unique angle.”
2
For examples of other cases discussing functionality, see Lamps Plus,
Inc. v. Seattle Lighting Fixture Co., 345 F.3d 1140, 1146–47 (9th Cir.
2003) (holding that additions designed to turn a ceiling lamp into a table
lamp were functional), and Pickett v. Prince, 207 F.3d 402, 405 (7th Cir.
2000) (Posner, C.J.) (stating that the differences between a guitar based on
Prince’s symbol and Prince’s symbol may be “nothing more than the
functional difference between a two-dimensional symbol and a guitar in
the shape of that symbol,” but also positing that perhaps “the juxtaposition
of the symbol and the guitar is enough to confer on the ensemble sufficient
originality” for copyright protection).
12 DIRECT TECH. V. ELECTRONIC ARTS
We hold that there is a genuine issue of material fact
regarding whether the manner in which DT designed the USB
flash drive stick to fit into the PlumbBob object was merely
functional or utilitarian. See Poe v. Missing Persons,
745 F.2d 1238, 1242–43 (9th Cir. 1984) (explaining that
functionality is a question of fact for a jury); see also N.
Coast Indus. v. Jason Maxwell, Inc., 972 F.2d 1031, 1034–35
(9th Cir. 1992) (explaining that originality is a question of
fact for a jury).
Of course, the mere feature of having a USB flash drive
that can be removed from the PlumbBob object is not
copyrightable; that is a functional attribute “necessitated by
the fact” that the 3-D PlumbBob was designed for use as a
USB flash drive. ERG, 122 F.3d at 1223. But the “cut away”
manner in which the flash drive is to be removed is
potentially non-functional. DT claims that it designed this
feature to have a “futuristic” appearance. The record shows
that DT considered at least four other design options that had
different aesthetic characteristics.
DIRECT TECH. V. ELECTRONIC ARTS 13
And the designer, Erik Jones, submitted a sworn declaration
explaining that his ultimate choice was made “for aesthetic
reasons.” Like the court found with the costume faces in
ERG, a jury could find that this design feature was “truly
‘artistic.’” Id. There is a genuine issue of material fact
whether the unique and creative manner in which DT
designed the USB drive to fit into the PlumbBob was non-
functional and could potentially qualify for copyright
protection.
EA’s arguments to the contrary do not persuade us. EA
argues that the record contains evidence that the choice of
design “was driven by functional considerations.” EA cites
testimony from a DT employee, Shaun Secours, who said that
he talked with Jones and that Jones’s decision was “just for
the functionality of the drive, there’s no other way we can
make this come out. Otherwise, the portion that you are
plugging into the computer will be too fat and you — it
would interfere with cables and other USB slots and it
wouldn’t be — people wouldn’t use it.” But Secours was not
the designer of the drive; Jones was, and as stated above,
Jones declared that his design decisions were made for
14 DIRECT TECH. V. ELECTRONIC ARTS
aesthetic reasons. This type of factual dispute supports our
conclusion that this issue is inappropriate for resolution on
summary judgment. See Doe v. Cutter Biological, Inc.,
971 F.2d 375, 381 (9th Cir. 1992) (explaining that the
existence of conflicting testimony on an issue “underscores
the inappropriateness of a grant of summary judgment”).
Secours’s assertion that the final design reflected the only
way to design the drive while maintaining its functionality is
certainly debatable—at least two of the other options that
Jones considered appear to have been able to function as a
normal USB flash drive. If Jones said one thing and Secour
said another on the same subject, it is the role of the jury, not
a court on summary judgment, to determine the facts.
In sum, it cannot properly be said as a matter of law that
the manner in which DT designed the flash drive to emerge
from the PlumbBob object was merely utilitarian or
functional. A reasonable jury could answer that question in
either party’s favor.3
B. Originality
As discussed above, when determining whether a
derivative work is sufficiently original to warrant copyright
protection, the pertinent question is whether “the difference
between the [derivative] work and the preexisting work is
non-trivial.” N. Coast Indus., 972 F.2d at 1033. In North
Coast Industries, we held that the district court erred by
concluding that a minor difference in the arrangement of
3
Because we view the facts in the light most favorable to the non-
moving party when analyzing whether summary judgment is appropriate,
we will consider this design feature when discussing the originality of the
PlumbBob drive.
DIRECT TECH. V. ELECTRONIC ARTS 15
rectangular shapes on two different clothing patterns was
trivial as a matter of law; the question of triviality should
have been sent to a jury. Id. at 1034–35. To the contrary, our
opinion in ERG held that the differences in facial expressions
between cartoons and their derivative costumes were trivial
as a matter of law because “no reasonable trier of fact would
see anything but the underlying copyrighted character when
looking at ERG’s costumes.” 122 F.3d at 1223. We
distinguished North Coast Industries by explaining that the
different geometric shapes on the clothes in that case were
“so crucial to the derivative work” that “a reasonable trier of
fact [c]ould find the derivative works to be recognizably the
derivative creator’s own product.” Id. at 1224.
Turning to the facts of this case, we reject DT’s first
argument that its PlumbBob drive merits copyright protection
because it has 12 rather than 20 sides. While some images of
the PlumbBob have 20 unequal sides, others have only 12.
The PlumbBob has apparently evolved throughout multiple
editions of The Sims—also including, for instance, changes
in whether the icon is translucent or solid. Even assuming
that DT’s version has a slightly different shape than the
drawing presented by EA, we have held that a character’s
copyright encompasses its “distinctive character traits and
attributes, even if the character does not maintain the same
physical appearance in every context.” DC Comics v. Towle,
802 F.3d 1012, 1020 (9th Cir. 2015). The number of sides on
DT’s USB flash drive is not a copyrightable contribution in
this case.
On the other hand, if a jury determines that the manner in
which DT designed the USB drive to fit into the PlumbBob
object is artistic and non-functional, see Sec. II.A & n.3,
supra, we hold that there is a genuine issue of material fact as
16 DIRECT TECH. V. ELECTRONIC ARTS
to whether DT’s USB drive is sufficiently original to warrant
copyright protection. That aesthetic feature is “something
recognizably the artist’s own,” and a reasonable jury could
determine that it meets the “low” standard for originality.
Satava, 323 F.3d at 810; see also N. Coast Indus., 972 F.2d
at 1034–35.
EA argues that the district court correctly determined that
DT failed the second prong of the Durham test that
“derivative works are not copyrightable if they ‘affect the
scope of any copyright protection in th[e] preexisting
material.’” ERG, 122 F.3d at 1224 (quoting Durham,
630 F.2d at 909). EA parrots the district court in saying that
DT’s design was “so similar to the well known and
copyrighted PlumbBob [it’s] based on” that if it were
copyrightable, DT would have “a monopoly on all USB[
drives] shaped like the PlumbBob, and perhaps even any
other 3-D embodiment of the PlumbBob.” That statement is
incorrect. As a derivative copyright holder, DT would only
have a copyright in its unique contribution—the artistic
manner in which it designed the USB flash drive to fit into
the PlumbBob object. See 17 U.S.C. § 103(b). Anyone else
would be free to create a USB flash drive that used a different
method or design for flash-drive removal, and DT’s copyright
would obviously not preclude others from making a 3-D
PlumbBob without a flash drive.
We conclude that the question of originality warrants
decision by a jury.
C. Joint authorship
In the alternative, EA argues that even if the differences
between the 2-D and 3-D PlumbBobs were not trivial, DT
DIRECT TECH. V. ELECTRONIC ARTS 17
was not a joint author as required by the Copyright Act. The
district court adopted this argument as an alternative basis for
granting summary judgment.
We have set forth three criteria to determine authorship
for copyright purposes, of which the most important factor is
who is “exercising control”: that is, who is “‘the inventive or
master mind’ who ‘creates, or gives effect to the idea.’”
Aalmuhammed v. Lee, 202 F.3d 1227, 1234 (9th Cir. 2000)
(quoting Burrow-Giles Lithographic Co. v. Sarony, 111 U.S.
53, 61 (1884)). EA argues that it “had ultimate control and
final decision-making authority over the design of the
PlumbBob Drives,” dictating shape, color, “and all other
material particulars.” While the record suggests that Long at
some point requested that the USB drive be a flat stick
removable from the top of the Drive rather than have the
Drive split in the center to reveal the USB, such evidence,
viewed in the light most favorable to DT, does not prove that
EA held ultimate control over the drive’s design. A
reasonable factfinder could find that EA was merely in a
position to offer suggestions, but did not ultimately “give[]
effect to the idea” of how the USB flash drive fit into the
PlumbBob object. Aalmuhammed, 202 F.3d at 1234 (quoting
Burrow-Giles, 111 U.S. at 61).
EA also argues that the “audience appeal” of the
PlumbBob drive did not derive from DT’s contributions to
the shape of the design port. See id. (listing audience appeal
as a factor to consider in determining joint authorship). But
a reasonable factfinder could conclude that the drive design
DT ultimately adopted was more aesthetically pleasing than
the designs it rejected, suggesting that DT’s contribution
helped entice consumers to purchase the Collector’s Edition
of the game.
18 DIRECT TECH. V. ELECTRONIC ARTS
We hold that there is a genuine issue of material fact as to
whether DT was sufficiently in control of its artistic
contribution to qualify as a joint author in the resulting USB
drive prototype. Again, this issue warrants decision by a jury.
D. The assignment contract
EA argues finally that DT’s copyright claim fails because
DT assigned away its copyright interest in the PlumbBob
drives in the vendor agreement it signed with Lithomania.
The district court did not address this claim, but we consider
it because we may affirm on any basis apparent in the record.
Hell’s Angels Motorcycle Corp. v. McKinley, 360 F.3d 930,
933 (9th Cir. 2004).
DT claims that fraud in the inducement invalidates this
vendor agreement, but EA draws a distinction between fraud
in the inducement and fraud in the execution. EA states,
“even if DT had been fraudulently induced to enter into the
Vendor and Confidentiality and Anti-Piracy Agreements,
those agreements would still bar DT’s claim.” This argument
is barred by law of the case. In our prior memorandum
disposition, we reasoned that “if the contract was fraudulently
induced, such that it was invalid from the beginning, there
would be no valid contract for EA to enforce.” 525 F. App’x
at 561. That statement in our prior decision forceloses EA’s
argument here.
To reiterate the facts that led to this contract: Lithomania
knew it was going to be sending DT’s prototype to a Chinese
company for manufacturing, but rather than disclose that to
DT, it sent DT a vendor agreement stating that Lithomania
would purchase the USB drives from DT while asking DT to
sign over its intellectual property rights. Lithomania then
DIRECT TECH. V. ELECTRONIC ARTS 19
bragged to EA that it had secured this contract, stating that
“IP’s are all protected,” to which EA responded “Great. . . .
Protect us all.” As we stated in the prior appeal, “[b]ecause
DT may be able to prove that the contract is unenforceable,
this case is inappropriate for dismissal.” Id. at 561–62.
Nothing has changed materially since then. The vendor
agreements are not a proper basis for summary judgment.
For these reasons, we reverse the district court’s grant of
summary judgment on the copyright claim.
III
The California trade secret claim
In California, the tort of misappropriation of a trade secret
is governed by statute. A trade secret is defined as
information, including a formula, pattern,
compilation, program, device, method,
technique, or process, that:
(1) Derives independent economic value,
actual or potential, from not being generally
known to the public or to other persons who
can obtain economic value from its disclosure
or use; and
(2) Is the subject of efforts that are reasonable
under the circumstances to maintain its
secrecy.
Cal. Civ. Code § 3426.1(d). The district court ruled that no
reasonable jury could find that DT took reasonable efforts to
20 DIRECT TECH. V. ELECTRONIC ARTS
maintain the secrecy of its prototype. As we explain below,
we decline to affirm on that basis.
To be sure, the record shows that DT did not do much, if
anything, to explicitly protect its prototype design. EA points
to substantial evidence that DT “placed no limitations on
what could be done with the prototypes that DT sold to
Lithomania,” and EA stresses that DT did not label the
prototypes as confidential “or otherwise communicate to
Lithomania that it regarded them as such.” DT does not
contest this evidence, but the thrust of DT’s claim is that it
reasonably relied on implicit business expectations that
Lithomania would keep the prototype secret—that is,
expectations that Lithomania would not send the prototype to
a Chinese competitor to manufacture effectively the same
product at a lower price. As we explained in Pachmayr Gun
Works, Inc. v. Olin Mathieson Chem. Corp., 502 F.2d 802
(9th Cir. 1974), “courts will consider the factual
circumstances of each case on an individual basis, to
determine whether a confidential relationship may reasonably
be implied” such that an entity has the duty to maintain the
secrecy of confidential information. Id. at 808. We quoted
the Seventh Circuit for the proposition that
Where the facts show that a disclosure is
made in order to further a particular
relationship, a relationship of confidence may
be implied, e.g., disclosure to a prospective
purchaser to enable him to appraise the value
of the secret, disclosure to a prospective
lender to assure him of the prospects of a
borrower’s business, disclosure to agent,
partner, or joint adventurer.
DIRECT TECH. V. ELECTRONIC ARTS 21
Id. (quoting Cloud v. Standard Packaging Corp., 376 F.2d
384, 388–89 (7th Cir. 1967)).
EA contends that this common law theory of trade secret
misappropriation has been preempted by California’s trade
secret statute, which was passed after Pachmayr was decided.
EA claims that the statute requires plaintiffs “to prove as an
essential element of a CUTSA claim that it made affirmative
efforts to maintain the secrecy of its purported trade secret.”
That is not, however, the language of the statute. The
statute instead requires “efforts that are reasonable under the
circumstances to maintain its secrecy.” Cal. Civ. Code
§ 3426.1(d)(2). It may be that in some factual circumstances,
a rational jury could find that when an implied relationship of
confidentiality exists between two business partners,4 it is
“reasonable under the circumstances” for the prospective
seller to not make additional efforts to maintain secrecy of the
prototype. But because we can affirm on an alternate ground,
see Hell’s Angels, 360 F.3d at 933, we decline to address
whether the CUTSA statute preempts Pachmayr, and we
assume without deciding that DT raised a genuine issue of
material fact as to whether it had such an implied confidential
relationship with Lithomania.5
4
For instance, “disclosure to a prospective purchaser to enable him to
appraise the value of the secret.” Pachmayr, 502 F.2d at 808 (quoting
Cloud, 376 F.2d at 389).
5
EA also argues that Pachmayr is “inapposite” because it concerned
“unfair competition or breach of confidence,” but the claim very clearly
was for “Unfair Competition – Misappropriation of Trade Secret.”
502 F.2d at 807.
22 DIRECT TECH. V. ELECTRONIC ARTS
We instead affirm the district court’s grant of summary
judgment on alternate grounds. CUTSA defines trade secrets
as having “independent economic value, actual or potential,
from not being generally known to the public or to other
persons who can obtain economic value from its disclosure or
use.” Cal. Civ. Code § 3426.1(d)(1); see Altavion, Inc. v.
Konica Minolta Sys. Lab. Inc., 171 Cal. Rptr. 3d 714, 743 (Ct.
App. 2014) (“[T]he information alleged to be a trade secret”
must be “‘valuable because it is unknown to others.’”)
(quoting DVD Copy Control Ass’n Inc. v. Bunner, 10 Cal.
Rptr. 3d 185, 192 (Ct. App. 2004)). EA argues that DT’s
design is not a trade secret because it has no “actual or even
potential value to DT outside of a single ephemeral project
for a single customer.” DT has not presented any evidence
that there was value in the secrecy of its design. We affirm
the district court’s grant of summary judgment on this
ground.
Attorneys’ fees
EA argues that it is entitled to attorneys’ fees on DT’s
trade secrets claim under Cal. Civ. Code § 3426.4, which
authorizes attorneys’ fees when “a claim of misappropriation
is made in bad faith.” California courts have held that bad
faith “requires objective speciousness of the plaintiff’s claim,
as opposed to frivolousness, and its subjective bad faith in
bringing or maintaining the claim.” Gemini Aluminum Corp
v. Cal. Custom Shapes, Inc., 116 Cal. Rptr. 2d 358, 368 (Ct.
App. 2002). A “specious” action “may superficially appear
to have merit,” id., so attorneys’ fees may be proper even if
the claim is not frivolous.
The district court held that DT’s claim was not
objectively specious and found that DT did not bring the
DIRECT TECH. V. ELECTRONIC ARTS 23
claim in bad faith, explaining that “Plaintiff had reason to
believe its action against Defendants was valid.” The district
court did not clearly err or abuse its discretion in drawing
these conclusions. Even assuming that bad faith includes
recklessness (which the parties dispute), there is no evidence
to suggest that DT brought the claim for an improper purpose
such as to extort a settlement. The allegations here are
consistent with the normal scope of vigorous advocacy, and
these are not the type of specious claims that could justify an
attorneys’ fee award under California law. The district court
did not clearly err or otherwise abuse its discretion in denying
EA an attorneys’ fee award.
IV
We reverse the district court’s grant of summary
judgment on the copyright claim and remand for further
proceedings consistent with this opinion. We affirm the
district court’s grant of summary judgment on the trade secret
claim and we affirm the denial of attorneys’ fees.
AFFIRMED IN PART, REVERSED IN PART,
REMANDED. Each party shall bear its own costs on appeal.
See Fed. R. App. P. 39(a)(4).