Monday, January 03, 2011

eReader lawsuit goes forward

Spring Design, Inc. v., LLC, 2010 WL 5422556 (N.D. Cal.)

Spring Design, an eReader development company, sued B&N for misappropriation of trade secrets and unfair competition, alleging that B&N used Spring Design’s confidential information to develop a competing device, the Nook, in violation of the parties’ nondisclosure agreement.

The court denied summary judgment on the misappropriation of trade secrets claims, except that it found that one supposed trade secret was actually disclosed to the public in published patent applications, and also denied summary judgment on the breach of contract claim.

The court then turned to the California UCL claims. A trade secret misappropriation claim can support a claim for violation of the “unlawful” prong of the UCL. A breach of contract claim, by contrast, can only ground a UCL claim if the breach itself is unlawful, unfair, or fraudulent. The court found that the UCL claim was not solely based on breach of the nondisclosure agreement. Rather, it allegedly involved misappropriation of plaintiff’s proprietary information. Moreover, plaintiff claimed that B&N induced it into meetings by representing that it would maintain plaintiff’s information in confidence, knowing it wouldn’t keep that promise. Summary judgment was thus improper (though I didn’t see any discussion of any evidence that B&N intended not to keep the promise at the time the promise was made, which would seem to be necessary for the contract-based UCL claim).

There was also a preemption argument. Under the governing law, if the confidential information at issue is a trade secret, then a UCL claim is preempted, but not otherwise. Because the first claimed trade secret was not entitled to protection as a trade secret, the UCL claim based on improper use of that information wouldn’t be preempted. And there were factual issues of whether the remaining claimed trade secrets were protectable, so a preemption ruling was premature.

Finally, there were factual issues as to whether B&N’s ads for the Nook were false or misleading. Some of the allegedly false ads called the Nook the “first” eReader to have certain features, such as a color touchscreen. “Although it is undisputed that the NOOK was available for consumer purchase before Plaintiff's Alex, such statements could still be actionable if they were intended to mislead the average consumer into thinking that Defendant, rather than Plaintiff, was the inventor of these concepts.”

Comments: Holy Dastar, Batman! Riddle me this: If copyright precludes a Lanham Act claim based on that theory, then should it not also preempt a state law claim on that same theory, on conflict preemption grounds? Also, what’s the reference to intent doing here? Under California law, misleading statements are actionable if misleading, regardless of intent. And anyway, isn’t it ridiculous to speak of an “inventor” of a “concept”? Even if the implementation of a color touchscreen is patentable, the concept of a color touchscreen is different—as I recall, I saw them in Star Trek reruns as a kid, so I can’t imagine that a reasonable consumer would think that there was a single “inventor” of the idea, much less care who that inventor was. Perhaps the court only means that consumers might think that B&N invented the particular color touchscreen solution that it used, though I can’t imagine why they’d bother to think about that or why, if they did, we would presume that they didn’t know that companies license tech from other places all the time.

Separately, the court found that it was heavily disputed whether plaintiff was the first to create an eReader with certain claimed features or whether B&N independently developed those features prior to its meetings with plaintiff. (Why is that relevant, if everyone agrees that the Nook was first to market?) Anyway, no summary judgment for B&N on false advertising either.

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