Opinion
Page 1193w
31 F.Supp.2d 1193w (N.D.Cal. 1999) John CANTER, et al., Plaintiffs, v. WEST PUBLISHING COMPANY, INC., Defendant. No. C 96-20440 PVT. United States District Court, N.D. California, San Jose Division. Jan. 6, 1999Editorial Note:
This opinion is published in the advance sheet at this citation, Canter v. West Publishing Co., Inc., 31 F.Supp.2d 1193-1207, was withdrawn from the bound volume at request of the court. Robert J. Katz, Lisa Jeong Cummins, Katz & Lapides, Capitola, CA, Laura E. Rasmussen, Laura E. Rassmussen Law Office, Palo Alto, CA, for John J. Canter, Marc J. Roegiers, David H. Foster.
John J. Canter, Chico, CA, pro se.
L. Scott Oliver, Gray Cary Ware & Freidenrich, Palo Alto, CA, David E. Monahan, Gray Cary Ware & Freidenrich, San Diego, CA, for West Pub. Co., Inc.
ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
TRUMBULL, United States Magistrate Judge.
I. INTRODUCTION
Plaintiffs John J. Canter, Marc J. Roegiers, and David H. Foster brought this action against Defendant West Publishing Company ("West") for 1) Breach of Express Contract; 2) Breach of Contract Implied in Fact; 3) Breach of Contract Implied in Law; 4) Misappropriation of Trade Secret; 5) Negligence; 6) Fraud and Deceit; 7) Conversion; 8) Imposition of Constructive Trust; 9) Copyright Infringement. Plaintiffs subsequently withdrew their causes of action for Breach of Express Contract and Copyright Infringement. West denies all of Plaintiffs' claims, and moves for summary judgment.
IT IS HEREBY ORDERED that, for the reasons discussed below, Defendant's motion is GRANTED. The court finds there are no genuine issues of material fact that must be submitted to a jury, and West is entitled to judgment as a matter of law.
II. FACTUAL BACKGROUND
Viewed in the light most favorable to Plaintiffs, the evidence is sufficient to support the following facts.
On summary judgment, the non-moving party's evidence must be taken as true and all inferences are to be drawn in the light most favorable to the nonmoving party. See, Eisenberg v. Insurance Co. of North America, 815 F.2d 1285, 1289 (9th Cir. 1987).
West publishes and sells law books containing federal and state case decisions and statutes. In addition, West operates a computer assisted legal research service known as Westlaw.
John Canter was a Westlaw user from 1984 to 1989. During the time Canter was a Westlaw subscriber, he had some contact with Randy Goetz, one of West's Assistant Credit Managers. In 1988, Goetz was working in West's Credit Department. Goetz duties at the time included reviewing Westlaw subscriber agreements, and account history for new subscribers. He also reviewed new subscribers' past credit history with West for other West products. It was not part of his job duties to solicit ideas from anyone for West. Goetz never worked in either West's Research & Development Department or its Computer Department, and he did not have any technical background.
Sometime prior to September 23, 1988, Canter and Goetz had a conversation in which Canter mentioned he was interested in submitting a proposal to West to seek funding for development of an expert system to be used in conjunction with Westlaw. Goetz asked Canter to write down his submission and send it to him, and said he would send it over to Mr. Haynes.
There is sparse evidence in the record regarding the exact nature of the "submission" Goetz told Canter to submit. Canter admits he didn't discuss the contents of the submission with Goetz, so even if Goetz was authorized to bind the company, there was no real opportunity to decline the submission of any actual trade secret information (as opposed to a general development proposal).
In September, 1988, Canter submitted to West a concept paper regarding a proposal for a joint development project. Canter sought funding from West for development of an expert system to be used in conjunction with the Westlaw database. The cover letter indicated that several persons, including professors at a local university, had already reviewed his proposal. It also indicates that a prototype of the program had already been developed, and shown to those persons. The letter provides the name and phone number for one professor, James Owens, J.D., as an "additional contact."
The concept paper itself proposes development of a program that automatically:
"1. suggests alternative keywords and phrases
"2. suggests topics of law to confine the query under
"3. suggests appropriate databases within the CALR (WESTLAW) main system to run the query in"
The concept paper goes on to explain that general construction of the project would require:
"1. format and screen design and analysis for user interface
"2. the general database management program or coding
"3. and the database itself, consisting of: a. an electronic word and phrase thesaurus b. WEST's 414 digest topic abstracts a. abstracts describing the WESTLAW subject or topical databases"
The concept paper then provides a cursory description of the procedure the proposed software would go through to translate a natural language query into an appropriate boolean query that could be run on Westlaw's database.
The concept paper contains a copyright notice. Plaintiffs never had any discussions with anyone from West regarding whether the concept paper was confidential, or should be kept secret. Nor was there ever any discussion between Plaintiffs and West regarding whether West would pay Plaintiffs anything if it used the ideas in the concept paper.
Goetz passed the concept paper on to Steve Haynes, a Research and Development Manager at West. Haynes called Canter on about November 17, 1988, and requested a copy of Plaintiffs' demonstration program on diskette. Canter sent the demonstration program to Haynes in December, 1988. The diskette with the demonstration program on it included a copyright notice, and a statement that it was for "demonstration and discussion purposes only." Canter and Haynes did not discuss whether the demonstration program was confidential. Nor was there any discussion regarding whether West would pay Canter if it used the program.
By letter dated June 13, 1989, Ellen Kaiser of Westlaw's Research and Development department asked Canter to answer five questions regarding his QueryMate proposal. In or around September, 1989, in response to Ms. Kaiser's letter, Plaintiffs prepared and submitted a document entitled "A Proposal for the Development of QueryMate, An expert system designed to make intelligent use of the Westlaw Database" (the "QueryMate Proposal").
The questions asked were:
The QueryMate Proposal sets forth a proposal for a joint venture between Plaintiffs and West whereby West would finance the entire cost of developing the QueryMate software, and then would license the resulting software from Plaintiffs. It provides a somewhat more detailed description of the proposed software program, as well as other proposed terms for the joint venture.
Plaintiffs never had any discussions with anyone from West regarding whether this proposal was confidential, or should be kept secret. Nor was there ever any discussion between Plaintiffs and West regarding whether West would pay Plaintiffs if it used the ideas in the proposal.
By letter dated February 22, 1990, West rejected Plaintiffs' proposal, stating that "it was felt there was a large gap between the proposal and a viable product."
West hired Howard Turtle as Principal Research Scientist in November, 1990. Turtle was a member of the core design team at West that designed the natural language feature on Westlaw called "WIN." West publicly announced WIN in September 1992, and released it in October, 1992. At the time, West heavily marketed WIN to the legal industry. WIN was also discussed in numerous articles published in legal and information retrieval publications during the months following its release, as well as at least two articles in general distribution media.
On November 23, 1993, the United States Patent and Trademark Office ("PTO") issued United States Patent no. 5,265,065, entitled "Method and Apparatus for Information Retrieval From a Database by Replacing Domain Specific Stemmed Phases (sic) in a Natural Language to Create a Search Query." Turtle is named as the sole inventor of the '065 patent, and West is named as the Assignee.
On May 23, 1995, the PTO issued United States Patent no. 5,418,948, entitled "Concept Matching of Natural Language Queries with a Database of Document Concepts." Turtle is named as the sole inventor of the '948 patent, and West is named as the Assignee.
Canter actually learned of WIN no later than June, 1994, when he heard of it from two traveling law students on a ferry in Alaska.
III. STANDARD OF REVIEW
The purpose of summary judgment "is to isolate and dispose of factually unsupported claims or defenses." Celotex v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). To obtain summary judgment, a party must demonstrate that no genuine issue of material fact exists for trial, and that based on the undisputed facts he is entitled to judgment as a matter of law. Id., at 322, 106 S.Ct. 2548.
The moving party "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any' which it believes demonstrate the absence of a genuine issue of material fact." Id. at 323, 106 S.Ct. 2548. If the moving party meets this burden, the non-moving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.Proc., Rule 56(e).
The moving party in not required to negate the elements of the non-moving party's case on which the non-moving party bears the burden of proof. Ibid. On the contrary, "regardless of whether the moving party accompanies its summary judgment motion with affidavits, the motion may, and should, be granted so long as whatever is before the district court demonstrates that the standard for the entry of summary judgment, as set forth in Rule 56(c), is satisfied." Celotex, 477 U.S., at 323, 106 S.Ct. 2548.
Nor can the non-moving party defeat the moving party's proper motion for summary judgment simply by alleging a factual dispute between the parties. To preclude summary judgment, the non-moving party must bring forth material facts, i.e., "facts that might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The court must draw all reasonable inferences in favor of the non-moving party. Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 518-22, 111 S.Ct. 2419, 2434-35, 115 L.Ed.2d 447 (1991); Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 588, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). However, the opposing party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 588, 106 S.Ct. 1348.
It is the court's responsibility "to determine whether the 'specific facts' set forth by the nonmoving party, coupled with undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence." T.W. Elec. Service v. Pacific Elec. Contractors, 809 F.2d 626, 630, 631 (9th Cir. 1987). "[S]ummary judgment will not lie if the dispute about a material fact is 'genuine,' that is if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. However, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.' " Matsushita, 475 U.S. at 587, 106 S.Ct. 1348.
IV. ANALYSIS
A. BREACH OF CONTRACT IMPLIED IN FACT
Defendant contends Plaintiff's cause of action for breach of contract implied in fact is barred by both the statute of limitations and the statute of frauds, is preempted by the federal copyright act, and is unsupported by the evidence. For the reasons discussed below, the court finds summary judgment in West's favor is warranted because this cause of action is barred by the statute of limitations and the statute of frauds, and is unsupported by the evidence in any event. It is not preempted by the Copyright Act, however.
1. Statute of Limitations
Plaintiffs cause of action for breach of an implied-in-fact contract is barred by the statute of limitations regardless of whether the period of limitations is two years or four years. A cause of action for breach of contract accrues, and the statute of limitations begins to run, at the time of the breach. See, Cochran v. Cochran, 56 Cal.App.4th 1115, 1120, 66 Cal.Rptr.2d 337 (1997).
West contends the two year limitations period in Section 339 applies because there was no actual written contract. See, Cal.Code Civ.Proc. § 339. Plaintiffs contend the four year statute applies because the implied contract is "founded upon a writing." See, Cal.Code Civ.Proc. § 337. In support of their argument, Plaintiffs cite Beasley v. Wells Fargo Bank, 235 Cal.App.3d 1383, 1401-02, 1 Cal.Rptr.2d 446 (1991), Amen v. Merced County Title Co., 58 Cal.2d 528, 532-34, 25 Cal.Rptr. 65, 375 P.2d 33 (1962), and Bruckman v. Parliament Escrow Corp., 190 Cal.App.3d 1051, 235 Cal.Rptr. 813 (1987). Those cases involve implied promises arising out of written agreements or writings that memorialize express oral agreements. It is unclear from the cases cited, and other cases found by the court, whether California courts would apply the four year statute of limitations to a contract based on a written offer that was accepted by conduct. However, as it appears this cause of action is barred even if the four year period applies, the court need not address this question.
Plaintiffs claim West breached an implied agreement by: 1) using Plaintiffs' "invention" without paying royalties; 2) disclosing their invention to third parties; and 3) using the invention in connection with the development of the Turtle patents. Any such alleged disclosure of Plaintiffs' invention to Turtle, and use of it in developing the technology covered by the first Turtle patent, inherently would have occurred prior to filing the patent application. Thus, Plaintiffs' cause of action, if any, accrued no later than October 8, 1991, when West filed the application for the first Turtle patent. By the time Plaintiffs filed suit in May, 1996, the statute of limitations had already run.
Plaintiffs' argue that the statute of limitations is extended because the alleged contract is "breached each month" that West continues to use the technology without paying royalties. Plaintiffs have provided no legal authority for this proposition. In any event, Plaintiffs have not established an on-going monthly obligation of indefinite duration. The portion of the QueryMate Proposal that addresses royalties expressly states that royalties would be paid "[u]nder the terms of a license agreement" and would continue for "the term of the license agreement." At most, this provision can only constitute an agreement to agree in the future, conditioned on execution of a separate license agreement of specific duration to be determined at a later date. Thus, it cannot form the basis for an implied agreement to make monthly royalty payments on an indefinite basis.
Plaintiffs' argument that equitable tolling should apply also fails. The doctrine of equitable tolling suspends a statute of limitations when a plaintiff "proves that the defendant fraudulently concealed the existence of the cause of action so that the plaintiff, acting as a reasonable person, did not know of its existence." Hennegan v. Pacifico Creative Service, Inc., 787 F.2d 1299, 1302 (9th Cir. 1986). Here, Plaintiffs failed to present evidence from which a reasonable jury could find that West "fraudulently concealed" the existence of Plaintiffs' cause of action. There is no evidence that Haynes knew West retained copies of the concept letter and proposal. There is no evidence that West intended to conceal from Plaintiffs its decision to develop a natural language processor. On the contrary, Haynes' letter to Canter indicates West found Plaintiffs' proposal interesting, but that there was too large a gap between Plaintiffs' proposal and a viable product. Nor is there any evidence that, when West rejected Plaintiffs' proposal, it secretly intended to use Plaintiffs' materials in developing a natural language processor, or that it ultimately did use Plaintiffs' materials in developing WIN.
In arguing that the "discovery rule" applies, Plaintiffs do not distinguish between their contract and tort causes of action. However, in ordinary contract actions a plaintiffs ignorance of his cause of action or of the identity of wrongdoer does not toll statute of limitations. See, Neel v. Magana, Olney, Levy, Cathcart and Gelfand, 6 Cal.3d 176, 187, 98 Cal.Rptr. 837, 491 P.2d 421 (1971). Exceptions to this rule have been applied where there is a fiduciary or confidential relationship between the parties. See, id. at 187-88, 98 Cal.Rptr. 837, 491 P.2d 421 and cases cited therein. Although Plaintiffs allege a confidential relationship with West, they have presented no evidence from which a reasonable jury could find the existence of such a relationship. All of the evidence shows that there was nothing more than an arms length business relationship between the parties.
2. Statute of Frauds
Plaintiffs' cause of action for breach of an implied-in-fact contract is also barred by the statute of frauds because, by the terms of the QueryMate Proposal, the anticipated contract was "not to be performed within a year," and it was not signed by West.Cal.Civ.Code § 1624(a).
The proposal expressly calls for the funding from West to be provided in an initial payment followed by 18 monthly installments. It also contemplates a 24 month development period. Nothing in the proposal indicates that West would be free to discontinue the development at any time. Thus, Plaintiffs' argument that the statute of frauds does not affect "at will" agreement is inapplicable to this case.
3. Copyright Preemption
The federal Copyright Act does not preempt this cause of action. The Copyright Act preempts state law claims where: 1) the work at issue comes within the scope of copyright, and 2) the rights granted under state law are equivalent to the exclusive rights within the general scope of copyright. See, 17 U.S.C. § 301(a). Neither prong is satisfied in the present case. The "work at issue" is not the specific expression in the QueryMate materials, but rather the underlying concepts, processes and procedures that are described in the QueryMate materials. Since the work at issue is not the specific expression of Plaintiffs' idea, it does not fall within the scope of copyright. See, 17 U.S.C. § 102(b).
The state law claim here, breach of contract, is not equivalent to the exclusive rights within the general scope of copyright because it requires the additional element that is not encompassed within the Copyright Act. See, 1 Nimmer on Copyright § 1.01[B] [1] [a]; National Car Rental v. Computer Associates, 991 F.2d 426, 432 (8th Cir. 1993).
Defendant's reliance on Pelt v. CBS, Inc., 1993 WL 273683 (C.D.Cal.1993) is misplaced. In Pelt, the court found preemption of state law claims based on quasi-contract, not an implied-in-fact-contract. Quasi-contract claims do not require proof of the parties actual assent to a mutual agreement; the obligations of a quasi-contract are imposed by law. A cause of action for breach of a contract implied-in-fact, on the other hand, requires proof of conduct that evinces an actual agreement of the parties. This extra element of the parties agreement defeats Copyright Act preemption.
Although the Worth opinion makes a parenthetical reference to implied-in-fact contracts, the specific elements it sets forth are those of an implied-in-law contract. See, Worth v. Universal Pictures, Inc., 5 F.Supp.2d at 821-22.
The court in McGough v. University of San Francisco (1989) 214 Cal.App.3d 1577, 1584, 263 Cal.Rptr. 404 explained the distinction between contracts implied-in-fact and quasi-contract as follows:
This court declines to follow Worth v. Universal Pictures, Inc., 5 F.Supp.2d 816 (C.D.Cal.1997). It appears the court in Worth erroneously equated implied-in-fact contracts with quasi-contract. See, McGough v. University of San Francisco (1989) 214 Cal.App.3d 1577, 1584, 263 Cal.Rptr. 404 (explaining sharp distinction between contracts implied-in-fact and quasi-contract).
4. Adequacy of Plaintiffs' Evidence
Even if Plaintiffs implied-in-fact contract claim were not barred by the statute of limitations and the statute of frauds, Plaintiffs have failed to produce sufficient evidence to withstand summary judgment.
To establish the existence of an implied-in-fact contract, Plaintiffs must show that: 1) they prepared the QueryMate materials; 2) they disclosed the materials to West for sale (or license); 3) under all the circumstances it can be concluded that West voluntarily accepted the disclosure knowing the conditions on which it was tendered (i.e., West must have had an opportunity to reject the attempted disclosure if it found the proposed conditions unacceptable); and 4) the reasonable value of the QueryMate materials. See, Faris v. Enberg, 97 Cal.App.3d 309, 318, 158 Cal.Rptr. 704, 709 (1979); Aliotti v. R. Dakin & Co., 831 F.2d 898, 902 (9th Cir. 1987).
Plaintiffs fail to meet their burden of producing evidence from which a reasonable jury could find in their favor. There is no evidence that Plaintiffs offered to either sell or license the QueryMate materials to West. The product Plaintiffs proposed to license to West had not yet been developed. As in Aliotti, Plaintiffs disclosed their idea to West not for the purpose of selling West that idea, but rather to induce West to enter into a business relationship with them.
Nor have Plaintiffs presented any evidence from which a reasonable jury could find that West voluntarily accepted disclosure of the QueryMate materials "knowing the conditions on which it was tendered." There is no evidence that Canter told Goetz there were any conditions on his submission. He did not tell Goetz he was submitting anything he expected West to pay for if they used it. Nor did he tell Goetz the submission was confidential. Thus, there is no evidence that West knew Canter intended to place conditions on his submission, and no evidence West had any opportunity to refuse the submission in light of those conditions.
In addition, the submission included disclosures of a different nature than those Canter had mentioned to Goetz. The cover letter accompanying the Concept Paper states that Canter had told Goetz he was interested in submitting a proposal for the "development of an expert system," not for selling or licensing any existing program. Thus, West had no opportunity to refuse submission of information regarding the specific design for the QueryMate program.
As the court in Desny v. Wilder, 46 Cal.2d 715, 739, 299 P.2d 257 (1956) stated:
"The idea man who blurts out his idea without having first made his bargain has no one but himself to blame for the loss of his bargaining power. The law will not in any event, from demands stated subsequent to the unconditioned disclosure of an abstract idea, imply a promise to pay for the idea, for its use, or for its previous disclosure. The law will not imply a promise to pay for an idea from the mere facts that the idea has been conveyed, is valuable, and has been used for profit; this is true even though the conveyance has been made with the hope or expectation that some obligation will ensue."
Plaintiffs' reliance on Reeves v. Alyeska Pipeline Service Co., 926 P.2d 1130 (Alaska 1996) is misplaced. Alyeska involved an actual agreement, before disclosure of an idea, to keep it confidential. See, Alyeska, 926 P.2d at 1133.
B. BREACH OF CONTRACT IMPLIED-IN-LAW
Defendant contends Plaintiffs' cause of action for breach of contract implied-in-law is barred by the statute of limitations and is preempted by the federal copyright act. For the reasons discussed below, the court finds summary judgment in West's favor is warranted because the statute of limitations bars this cause of action. It is not preempted by the Copyright Act, however.
1. Statute of Limitations
The statute of limitations on a cause of action for breach of a contract implied in law is two years. See, Cal.Code Civ.Proc. § 339; Kurokawa v. Blum, 199 Cal.App.3d 976, 989, 245 Cal.Rptr. 463 (1988). This cause of action is barred by the statute of limitations for the same reasons discussed in Section IV.A.1., above.
2. Copyright Preemption
To the extent Plaintiffs seek compensation for the underlying concepts, processes and procedures that are described in the QueryMate materials, rather than the specific expression in the QueryMate materials, this cause of action is not preempted by the federal Copyright Act. As discussed above, the Copyright Act only preempts state law claims where the work at issue comes within the scope of copyright, and in the instant case the work at issue does not fall within the scope of copyright. See, 17 U.S.C. § 102(b).
C. TRADE SECRET
Defendant contends Plaintiffs' cause of action for misappropriation of trade secrets is barred by the statute of limitations, is precluded by Plaintiffs' failure to adequately identify their trade secrets, and is unsupported by the evidence. The statute of limitations does not warrant summary judgment on this cause of action. However, Plaintiffs' failure to adequately designate their trade secret, and their failure to support their opposition to this motion with evidence of any protectable trade secret, warrant granting summary judgment in West's favor.
1. Statute of Limitations
California's statute of limitations on a cause of action for misappropriation of trade secrets is three years. Cal.Civ.Code, § 3426.6 . The limitation period begins when the misappropriation "is discovered or by the exercise of reasonable diligence should have been discovered." Cal.Civ.Code, § 3426.6.
The question of when a plaintiff should have discovered a cause of action is a question of fact for the jury. See, Beneficial Standard Life Ins. Co. v. Madariaga, 851 F.2d 271, 275 (9th Cir. 1988). "Where there are disputed questions of fact or facts susceptible to opposing inferences as to when the statute of limitations for fraud commenced, summary judgment is not appropriate." General Bedding, 947 F.2d at 1397, citing Garter-Bare Co. v. Munsingwear Inc., 723 F.2d 707, 711 (9th Cir. 1984).
In the present case, at a minimum the facts are susceptible to opposing inferences as to when the statute of limitations commenced. Whether the amount of information in the press regarding WIN was enough to put Plaintiffs on notice is a question best left to a jury. Thus, the statute of limitations does not provide grounds for granting summary judgment on this cause of action.
2. Adequacy of Trade Secret Designation
Plaintiffs failed to adequately designate their trade secrets as required under California Code of Civil Procedure section 2019(d). Section 2019(d) provides:
"In any action alleging the misappropriation of a trade secret under the Uniform Trade Secrets Act (Title 5 (commencing with Section 3426) of Part 1 of Division 4 of the Civil Code), before commencing discovery relating to the trade secret, the party alleging the misappropriation shall identify the trade secret with reasonable particularity subject to any orders that may be appropriate under Section 3426.5 of the Civil Code."
After Plaintiffs failed to provide the designation required by Section 2019(d), and well over a year after this action was filed, West moved for an order compelling Plaintiffs to comply with Section 2019(d). This court granted West's motion, stating that: "I want in the designation of your trade secrets is I want you to delineate specifically as to what they are. And if you want to do that by using the proposal letter and the ... then do it."
In response to the court's order, Plaintiffs served a designation of trade secrets stating that "The trade secret is a natural language processor which, among other attributes, formulates queries and enhances the ease of electronic document retrieval." The designation also states that the trade secrets are described with reasonable particularity in the QueryMate materials, including 21 pages attached to the designation and a prototype of the software that Plaintiffs had already provided to West. Nowhere in the designation did Plaintiffs specify which portions of the QueryMate materials described their trade secret.
Plaintiffs' argument that the court's statement gave them permission to refer to the QueryMate materials misses the point that, regardless of the means Plaintiffs used to designate their trade secret, the designation was required to "delineate specifically" the claimed trade secrets. By using a blanket reference to the QueryMate materials, Plaintiffs left West to speculate as to what specific concepts they claimed constituted their trade secret. At the hearing on the present motion, Plaintiffs conceded that not all portions of the QueryMate materials described trade secrets belonging to Plaintiffs. The court finds that Plaintiffs' designation did not describe the claimed trade secret with sufficient specificity to meet the requirements of Section 2019(d) and this court's prior order. Failure to do so has left both West and this court guessing as to what exactly Plaintiffs claim is their trade secret. Plaintiffs have the burden of establishing the existence a trade secret. See, MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 522 (9th Cir. 1993) (trade secret claimants must "identify the trade secrets and carry the burden of showing that they exist"). Their failure to adequately designate their trade secret constitutes a failure to carry their burden on this necessary element of their claim.
3. Adequacy of Plaintiffs' Evidence
Plaintiffs failed to present evidence from which a reasonable jury could find in their favor on this claim. Plaintiffs have to burden of establishing that the "invention" they claim West misappropriated satisfies the definition of a "trade secret" under California Civil Code section 3426.1(d), which provides:
" 'Trade secret' means 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."
Plaintiffs' evidence is insufficient to establish either prong of the definition. The only evidence they present on the first prong is an argument that, because West derives value from its patents, their trade secret--which they claim is the same as part of West's patents--must have value as well. This conclusory argument is insufficient to constitute a factual showing that the claimed trade secrets themselves "derived 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."
Plaintiffs also fail to present any evidence that they made reasonable efforts to maintain the secrecy of their invention. On the contrary, the concept paper expressly states that Canter had already disclosed the invention to "several persons including professors at a local university." No attempt was made to show what steps, if any, Canter took to preclude those individuals from disclosing or using the claimed invention. Plaintiffs also admit that they never asked West to keep their invention secret. Nor is there any evidence that Plaintiffs had any agreement among themselves to maintain the secrecy of their invention.
Plaintiffs' argument that marking the QueryMate materials with a copyright notice constituted reasonable efforts to maintain its secrecy fails as a matter of law. A copyright notice by its nature is used to protect materials that are not kept secret from unauthorized copying.
No reasonable jury could find that Plaintiffs made reasonable efforts under the circumstances to maintain the secrecy of their invention.
D. NEGLIGENCE
Defendant contends Plaintiffs' cause of action for Negligence is barred by the statute of limitations, is preempted by the federal copyright act, and is not supported by the evidence. Neither the statute of limitations nor the Copyright Act warrant summary judgment on this cause of action. However, both Plaintiffs' failure to support their opposition to this motion with evidence, and preemption of this claim by federal patent laws, warrant granting summary judgment in West's favor.
1. Statute of Limitations
To the extent Plaintiffs are alleging a negligent breach of contract, their cause of action is barred by the statute of limitations. The statute of limitations for negligent breach of contract begins to run at the time of the negligent breach. Seelenfreund v. Terminix of Northern California, Inc., 84 Cal.App.3d 133, 136, 148 Cal.Rptr. 307 (1978). Since the statute began running at the time of the breach, this cause of action is barred for the same reasons stated in Section IV.A.1., above.
However, to the extent Plaintiffs are alleging negligence unrelated to the alleged breach of contract, the statute of limitations does not provide grounds for granting summary judgment on this cause of action for the same reasons stated in Section IV.C.1, above.
2. Copyright Preemption
As discussed above, to the extent Plaintiffs seek compensation for the underlying concepts, processes and procedures that are described in the QueryMate materials, rather than the specific expression in the QueryMate materials, their claims are not preempted by the federal Copyright Act. See, 17 U.S.C. § 102(b). 3. Adequacy of Plaintiffs' Evidence
Plaintiffs' failure to present sufficient evidence from which a reasonable jury could find that a contract existed between Plaintiffs and West proves fatal to their cause of action for negligent breach of contract. Absent a contract, West did not owe Plaintiffs a duty to use due care in carrying out any responsibilities under the alleged "agreement" between the parties.
4. Patent Preemption
To the extent Plaintiffs base this cause of action on an alleged negligent failure to name Canter as a co-inventor on the Turtle patents, the claim is preempted by the patent laws, because it "clashes with the objectives of the federal patent laws." See, Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 231, 84 S.Ct. 784, 11 L.Ed.2d 661, (1964); Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974). The question of who should be named on a patent is squarely covered by federal patent law. Allowing a litigant to press a state law claim premised on this question would constitute "too great an encroachment on the federal patent system to be tolerated." See, Sears, Roebuck & Co., 376 U.S. at 232, 84 S.Ct. 784.
E. FRAUD AND DECEIT
Defendants contend that Plaintiffs' fraud cause of action is barred by the statute of limitations, is preempted by the federal Copyright Act, and is without merit because there was no actionable misrepresentation. Neither the statute of limitations nor the Copyright Act warrant summary judgment on this cause of action. However, Plaintiffs' failure to support their opposition to this motion with evidence of any actionable misrepresentation warrants granting summary judgment in West's favor.
1. Statute of Limitations
California's three year statute of limitations on a fraud cause of action begins running when the plaintiff first discovers the facts constituting the fraud. Cal.Code Civ.Proc. § 338(d). However, for purposes of § 338(d), "discovery" is not limited to actual knowledge. See, General Bedding Corp. v. Echevarria, 947 F.2d 1395, 1397 (9th Cir. 1991) ("statute of limitations begins to run, when [plaintiff] has actual or constructive notice of its claims").
In the present case, at a minimum the facts are susceptible to opposing inferences as to when the statute of limitations for fraud commenced. Whether the amount of information in the press regarding WIN was enough to put Plaintiffs on notice is a question best left to a jury. Thus, the statute of limitations does not require summary judgment on this cause of action.
2. Copyright Preemption
The Copyright Act does not preempt fraud claims. See, Valente-Kritzer Video v. Pinckney, 881 F.2d 772, 776 (9th Cir. 1989), cert. denied, 493 U.S. 1062, 110 S.Ct. 879, 107 L.Ed.2d 962 (1990) (fraud cause of action "qualitatively different" from a copyright claim because of the additional element of misrepresentation). Thus, Plaintiffs fraud cause of action is not preempted.
3. Adequacy of Plaintiffs' Evidence
Plaintiffs' cause of action for fraud fails because they presented no evidence to support the allegations of fraud in their complaint. In their complaint, Plaintiffs allege that Haynes falsely represented that West would keep Plaintiffs invention confidential and that West would not use the materials for West's sole benefit. There is no evidence of such representations in Plaintiffs opposition papers.
Plaintiffs contend their fraud cause of action is not subject to summary judgment because there is evidence from which a reasonable jury could find in their favor with regard to certain other purported misrepresentations. However, under Rule 9(b) of the Federal Rules of Civil Procedure fraud must be pleaded with particularity. Allowing Plaintiffs to defeat Summary Judgment based on purported misrepresentations not pleaded in their complaint would defeat the purposes of Rule 9(b).
One purpose of Rule 9(b) is to provide the defendants with adequate notice of what they are alleged to have done, so that they may defend against those accusations. See, Concha v. London, 62 F.3d 1493, 1502 (9th Cir. 1995). Another purpose of Rule 9(b) is to prevent lawsuits from being filed as a pretext for discovering unknown wrongs. See, Neubronner v. Milken, 6 F.3d 666, 671 (9th Cir. 1993); and Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). Rule 9(b) also creates the parameters of relevance for the parties' discovery regarding the fraud claims. See, Goldman v. Belden, 98 F.R.D. 733, 740 (W.D.N.Y.1983) (requirement that fraud be pleaded with particularity serves to "mark off the boundary lines with respect to what will be deemed 'relevant' for purposes of permissible discovery").
Here, West had notice of only one purported misrepresentation, and conducted its discovery accordingly. Allowing Plaintiffs to assert new fraud allegations at this late date, well after the close of discovery, would unfairly prejudice West. See, Texaco, Inc. v. Ponsoldt, 939 F.2d 794, 798 (9th Cir. 1991) (denial of leave to amend to add new fraud causes of action upheld where moving party waited to bring motion until after close of discovery and just four and one half months before trial).
In any event, Plaintiffs failed to submit evidence of their new fraud allegations to withstand West's motion for summary judgment. Although it is not entirely clear from Plaintiffs' brief, it appears they are asserting three new purported misrepresentations: 1) Haynes told Plaintiffs that West was not interested in developing or using Plaintiffs' QueryMate technology; 2) West obtained a patent claiming that Plaintiffs' QueryMate technology was invented by Howard Turtle; and 3) Haynes told Plaintiffs he was returning their QueryMate materials, when, in fact, West had retained one or more copies of the QueryMate proposal and "possibly" the prototype program.
These new claims of fraud would not withstand summary judgment because Plaintiffs fail to submit any evidence, nor even any argument, that they relied on any of these purported misrepresentations to their detriment. Nor have they submitted any evidence from which a reasonable jury could find that the representations were false, that West knew they were false, and that West intended to mislead Plaintiffs. Finally, there is no evidence that West used the QueryMate materials in developing WIN. The contention regarding the patent also fails because it was not a representation made to Plaintiffs.
Plaintiffs point out that a West employee made the notation "Fly by night" on the materials they submitted to West. However, there is no evidence regarding when the notation was made, or even what the author meant by the notation (even though Plaintiffs took the author's deposition and could have inquired into this subject).
Since Plaintiffs have failed to submit evidence from which a reasonable jury could find in their favor on their fraud claim, summary judgment is warranted.
F. CONVERSION
Defendants contend that Plaintiffs' conversion cause of action is barred by the statute of limitations, and is preempted by the federal Copyright Act. Although neither the statute of limitations nor the Copyright Act warrant summary judgment on this cause of action, patent preemption does.
1. Statute of Limitations
California has a three year statute of limitations for conversion See, Cal.Code Civ.Proc. § 338(c). Under the facts of this case it is unclear whether the limitation period begins to run upon the date of the conversion, or upon the date the Plaintiffs discovered or reasonably should have discovered the facts giving rise to the cause of action. Strasberg v. Odyssey Group, Inc., 51 Cal.App.4th 906, 916 n. 10, 59 Cal.Rptr.2d 474 (1996) (discovery rule applies only to certain classes of conversion claims). Assuming for purposes of this motion only that the "discovery rule" applies, the statute of limitations does not provide grounds for granting summary judgment on this cause of action for the same reasons stated in Section IV.C.1., above.
2. Copyright Preemption
The Copyright Act does not preempt a conversion claim involving intangible intellectual property rights where the claimants seeks to protect a right to use intellectual property rather than the exclusive right to copy a document. See, G.S. Rasmussen & Associates, Inc. v. Kalitta Flying Service, Inc., 958 F.2d 896 (9th Cir. 1992) Here, Plaintiffs' conversion claim is based on West's alleged use of the "invention" disclosed in the QueryMate materials. See, A & M Records, Inc. v. Heilman, 75 Cal.App.3d 554, 570, 142 Cal.Rptr. 390 (1977) ("misappropriation and sale of the intangible property of another without authority from the owner is conversion"). Since Plaintiffs seek to protect with this cause of action an invention disclosed in the materials rather than the right to copy the materials themselves, Copyright Act does preemption does not apply.
2. Patent Preemption
Plaintiffs' conversion claim is, however, preempted by the federal patent laws. In this cause of action, Plaintiffs' contend that West's purported use of their QueryMate materials and refinement of their invention for market constitutes actionable conversion. In order to withstand preemption, a cause of action based on misappropriation of an idea must include an "extra element" such as breach of a fiduciary duty or confidential relationship, or "palming off" one's product as those of a competitor. Summit Mach. Tool Mfg. Corp. v. Victor CNC Systems, Inc., 7 F.3d 1434, 1441-42 (9th Cir. 1993). No such extra elements are present in Plaintiffs' conversion cause of action.
As indicated above, although Plaintiffs allege a confidential relationship with West, they have not presented evidence to support that allegation.
G. IMPOSITION OF CONSTRUCTIVE TRUST
Defendants contend that Plaintiffs' conversion cause of action is barred by the statute of limitations, and is preempted by the federal Copyright Act. For the reasons discussed below, the court finds summary judgment in West's favor on Plaintiffs' Fraud cause of action is warranted.
Although the parties did not address the issue in their papers, the court notes that under California law a "constructive trust" is a remedy, not a cause of action. See, Stansfield v. Starkey, 220 Cal.App.3d 59, 269 Cal.Rptr. 337 (1990); CHoPP Computer Corp. v. U.S., 5 F.3d 1344, 1349 (9th Cir. 1993). In any event, to the extent Plaintiffs are attempting to allege some form of state law claim, it fails as a matter of law. Although neither the statute of limitations nor the Copyright Act warrant summary judgment on this cause of action, patent preemption does.
1. Statute of Limitations
For the reasons discussed in Section IV.C.1., above, the statute of limitations does not provide grounds for granting summary judgment on this cause of action.
2. Copyright Preemption
As discussed above, to the extent Plaintiffs seek compensation for the underlying concepts, processes and procedures that are described in the QueryMate materials, rather than the specific expression in the QueryMate materials, their claims are not preempted by the federal Copyright Act. See, 17 U.S.C. § 102(b).
3. Patent Preemption
The basis for Plaintiffs' claim that they're entitled to a judgment imposing a constructive trust against West is their allegation that "West holds title to those claims in the Turtle Patents which were invented by Plaintiffs." As with Plaintiffs' negligence cause of action, this claim is preempted because it clashes with the federal patent laws. See, Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 231, 84 S.Ct. 784, 11 L.Ed.2d 661, (1964); Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974). Disputes over who invented patented technology must be addressed through the patent laws or not at all.
"1. How do you see this product in relation to Westlaw?
"2. How is QueryMate integrated into the legal research process?
"3. How do you plan to handle refining the query (expanding and restricting the query)?
"4. How would QueryMate handle material that isn't editorially enhanced with headnotes?
"5. What type of pricing do you propose?"
"Contracts are generally described as being either 'express,' 'implied in fact,' or 'implied in law' (quasi-contracts)". (1 Witkin, Summary of Cal.Law (9th ed. 1987) Contracts, §§ 11-12, pp. 46-47.) An express contract is one whose terms are stated in words (either oral or written). (Civ.Code, § 1620.) An implied in fact contract is one whose existence and terms are manifested by conduct. (Civ.Code, § 1621.) 'The distinction between express and implied in fact contracts relates only to the manifestation of assent; both types are based upon the expressed or apparent intention of the parties.' "The true implied contract consists of obligations arising from a mutual agreement and intent to promise where the agreement and promise have not been expressed in words." (1 Witkin, supra, Contracts, § 11, p. 46, emphasis in original.) Implied in fact contracts must be distinguished from implied in law (or quasi) contracts. " '[U]nlike true contracts, quasi-contracts are not based on the apparent intention of the parties to undertake the performances in question, nor are they promises. They are obligations created by law for reasons of justice.' (Id., § 12, p. 47, quoting Rest.2d, Contracts, § 4, com. b.)"