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Attorneys

Copyright Preemption and Its Interplay with Trade Secret Misappropriation

January 24 2014

By James Kachmar

A recent decision in the case Jobscience, Inc. v. CVPartners, Inc. (N.D. Cal. Jan. 9, 2014) shows the interplay between the various theories of intellectual property claims. There, the plaintiff asserted claims for both copyright infringement and trade secret misappropriation arising out of the alleged theft of its software code. The court was required to deal with the issue of whether plaintiff’s trade secret claim was preempted by its claim for copyright infringement.

Jobscience develops and licenses recruiting software applications, including its JS 2 Jobscience Recruiting Package. In 2010, Jobscience entered into a master agreement with defendant CVPartners that contained an End User License and Agreement, which provided the defendant with a license to use plaintiff’s job recruiting software application. The license was renewed in 2011.

In November 2011, defendant Brandon Metcalf, who was formerly the Senior Director of Technology at CVPartners, was alleged to have assisted with the formation of defendant Skipan SAAS LLC and within months, defendants were alleged to have recreated and began marketing a software application that was similar to that of Jobscience. In August, 2012, defendant CVPartners notified Jobscience that it was terminating the license agreement and plaintiff alleged that shortly thereafter it discovered a “replica of the Jobscience job board” on defendant’s website. Plaintiff claimed that the job board was one of the “functional elements” of its own software and that defendant’s job board “was so similar to Jobscience that Jobscience’s own employees were fooled to believe that the Jobscience job board was still up on the CVPartners website.” Plaintiff sued the defendants for numerous claims, including copyright infringement and trade secret misappropriation. The defendants moved to dismiss all of plaintiff’s claims.

The Court began by examining plaintiff’s copyright infringement claim. The defendants argued that plaintiff’s complaint failed to state a claim. The Court recognized that a plaintiff must plead the following to state a copyright infringement claim: “(1) ownership of a valid copyright; and (2) copying of protected expression by the alleged infringers.” The Court noted that a plaintiff could establish the second element “by showing that the works in question are substantially similar in their protected elements and that the alleged infringers had access to the copyrighted works.” Defendants did not dispute that plaintiff had a valid copyright in its Jobscience software application. The defendants argued that the complaint failed to plead the second element, specifically there were no allegations as to what any defendant allegedly did to infringe on plaintiff’s copyright, that defendants had access to the works entitled to copyright protection or that there was virtual identity of works entitled to copyright protection. They also argued that because plaintiff had alleged that the job board “was one of the functional elements of plaintiff’s software solution,” it was not entitled to protection as a functional element under the Copyright Act.

The Court rejected these arguments and found that there were sufficient allegations in the complaint that defendants had developed an application called Talent Rover which was alleged to have infringed on plaintiff’s Jobscience software program. The Court also noted that plaintiff had alleged that one of the defendants’ websites allegedly contained a “replica” of plaintiff’s job board and that this was sufficient to allege the “virtual identity of works entitled to copyright protection.” Thus, the Court denied the motion to dismiss plaintiff’s copyright infringement claim.

However, given the survival of the copyright infringement claim, the Court then turned to the issue of plaintiff’s trade secret misappropriation claim and whether it was preempted by plaintiff’s copyright infringement claim. The Court noted that section 301(a) of the Copyright Act provided the “exclusive rights” within the general scope of copyright law and that “no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any state.” The Court noted that copyright “preemption” applies if the content of the protected right falls within the subject matter of the Copyright Act and the rights asserted under state law are equivalent to those protected by the Copyright Act.

The Court then considered the nature of plaintiff’s trade secret misappropriation claim to see whether it was “based on the same nucleus of facts as the copyright infringement claim.” Plaintiff had alleged that defendant Metcalf “gained access to plaintiff’s trade secrets consisting of software code and other proprietary information” and that plaintiff had made substantial investments of time and money “in developing its proprietary software application software code methods and other trade secrets.”

The Court noted the definition of a trade secret under California’s Uniform Trade Secret Act, which requires the following to state a claim: (1) the existence of a trade secret; and (2) misappropriation of the trade secret. The Court observed that plaintiff’s complaint did not plead the separate existence of a trade secret but instead simply referred to “proprietary software applications” that it noted were the basis of plaintiff’s copyright infringement claim. The Court further found it significant that plaintiff could not show that it had taken reasonable steps to maintain the secrecy of its alleged trade secret “because it received copyrights for its software applications.”

Given that plaintiff’s claim for trade secret misappropriation was based on the “same nucleus of facts” as its copyright infringement claim, the Court found that plaintiff’s trade secret misappropriation claim was preempted by the Copyright Act. It therefore granted defendants’ motion to dismiss this trade secret claim.

The Jobscience decision demonstrates that while a plaintiff may plead multiple claims of liability in an intellectual property case, a defendant has several important defenses at its disposal such as preemption. A defendant in such a case should carefully examine the interplay between the various claims to determine whether certain of the claims can be dismissed under preemption doctrine.