ESI Group v. Wave Six, LLC

[7] 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA [10] 11 ESI GROUP, a foreign corporation; ESI Case No.: 17-CV-2293 TWR (MSB) NORTH AMERICA, INC., a Michigan [12] corporation; and ESI US R&D, INC., a ORDER (1) GRANTING IN PART 13 Michigan corporation, AND DENYING IN PART DEFENDANTS’ MOTION FOR 14 Plaintiffs, SUMMARY JUDGMENT, (2) 15 v. DENYING WITHOUT PREJUDICE DEFENDANTS’ MOTION TO 16 WAVE SIX, LLC, a California limited EXCLUDE PLAINTIFFS’ EXPERTS, liability company; DASSAULT 17 AND (3) DENYING WITHOUT SYSTEMES SIMULIA CORP., a foreign PREJUDICE PLAINTIFFS’ MOTION 18 corporation; PHILIP SHORTER, an TO EXCLUDE OPINIONS AND individual; VINCENT COTONI; an 19 TESTIMONY OF DEFENDANTS’ individual; SASCHA MERZ, an PROPOSED EXPERTS DR. 20 individual; and TERENCE CONNELLY, HAMBRIC AND MR. BRITVEN an individual, [21] Defendants. (ECF Nos. 119, 121, 124) [23] Presently before the Court are Defendants’ Motion for Summary Judgment (“MSJ,” [24] ECF No. 119) and to Exclude Plaintiffs’ Experts (“Defendants’ Daubert Mot.,” ECF No. [25] 121) and Plaintiffs’ Motion to Exclude Opinions and Testimony of Defendants’ Proposed [26] Experts Dr. Hambric and Mr. Britven (“Plaintiffs’ Daubert Mot.,” ECF No. 124). The [27] Court held a hearing on June 29, 2021. (See ECF No. 161.) Having carefully considered [28] 1 the Parties’ arguments, the evidence, and the law, the Court GRANTS IN PART AND 2 DENIES IN PART Defendants’ Motion for Summary Judgment, DENIES WITHOUT 3 PREJUDICE Defendants’ Daubert Motion, and DENIES WITHOUT PREJUDICE 4 Plaintiffs’ Daubert Motion, as follows. 5 BACKGROUND1 6 Plaintiffs (also referred to as “ESI”) are a leading innovator in Virtual Prototyping 7 software and services. (See FAC, ECF No. 55 at 6.) Virtual Prototyping is a method in 8 the process of product development to validate a design before committing to make a 9 physical prototype. (See id.) In the case of vibro-acoustics analysis, this is done by creating 10 computer generative geometrical shapes, building the shapes into a computer model, and 11 analyzing the computer model to predict the vibration and the noise that would be observed 12 if an actual test were to be performed. (See id.) 13 ESI developed and exclusively owns the VA One Vibro-Acoustic Simulation 14 Software (“VA One”). (See id. at 10.) VA One allows users to diagnose potential noise 15 and vibration problems in the design stage of a product. (See id.) This kind of simulation 16 software is used in the auto, marine, aerospace and defense industries. (See id.) VA One 17 consists of many sub-programs. (See id.) ESI also developed and exclusively owns the 18 RAYON Boundary Element Method (“BEM”) Solver file and model format, a component 19 of VA One, which is used to describe the acoustic wave propagation in bounded and 20 unbounded acoustic spaces. (See id.) The BEM Solver file and model format is used to 21 communicate with other sub-programs of VA One. (See id. at 11.) The BEM Solver is the 22 only solver that can be used with the VA One, unless another party misappropriates the 23 underlying file and model format that comprises the BEM Solver. (See id.) ESI’s internal 24 documentation of the file and model format is a 24-page long French document, a trade 25 secret, which is in a unique and custom format that would not be replicable by anyone [27] 1 This case was transferred after the Parties submitted their briefing for the Motion for Summary Judgment, and 28 therefore, the Parties did not submit a statement of undisputed material facts pursuant to Civil Standing Order Section III.B.6. 1 without knowledge of the original software coding. (See id. at 12.) ESI has spent millions 2 of dollars and decades to perfect its BEM Solver. (See id.) 3 I. BREACH OF CONTRACT AND MISAPPROPRIATION OF TRADE SECRETS [4] Each individual Defendant worked for ESI with VA One, RAYONE BEM Solver, [5] or both. (See Opp’n to MSJ at 1.) Mr. Terrence Connelly worked as a VA One Support [6] Engineer, interfacing with customers and providing technical support on a daily basis; he [7] also worked with ESI’s BEM Solver, teaching customers to build models. (See id. at 2.) [8] Mr. Vincent Cotoni was ESI’s lead acoustic scientist and helped customers with technical [9] issues pertaining to the BEM Solver. (See id.) ESI used Mr. Cotoni’s research to make [10] ESI’s VA One talk to the BEM Solver. (See id.) Each of the individual Defendants signed [11] an employment agreement with ESI. (See FAC at 6.) In their respective employment [12] agreements, each Defendant acknowledged that he/she would be informed of or have [13] access to confidential information of ESI’s, including “trade secrets,” and that his/her [14] relationship with ESI was “one of confidence with respect to the trade secret [which] . . . [15] is . . . the exclusive property of [ESI].” (See id. at 7; ECF Nos. 73-1;73-2; 73-3; and 7316 4.) [17] Eventually, all four individual Defendants left ESI and began operating Wave Six, [18] LLC (“Wave Six”), a direct competitor to ESI, and began working on a BEM Solver to [19] replace ESI’s. (See id. at 9.) Defendants misappropriated ESI’s BEM Solver by using [20] ESI’s 24-page file and model format, a trade secret document, to parse a specific VA One [21] output file (.ray file) and make it compatible with Defendants’ “Wave6BEM Solver.” (See [22] id. at 15.) Wave6BEM Solver could interact with ESI’s VA One, which consequentially [23] replaced ESI’s BEM Solver. (See id.) Plaintiffs allege that Defendants were only able to [24] create this BEM Solver by having direct knowledge of the meaning of ESI’s file and model [25] format. (See id. at 15.) Defendants challenge that allegation, asserting that Dr. Merz [26] created the Wave6BEM Solver by reverse engineering certain model .ray files (input and [27] output files of VA One), which were created and provided by ESI’s customers, including [28] 1 Lockheed Martin. (See MSJ at 4.) Ultimately, Wave Six, LLC merged into Dassault 2 Systemes Simulia Corp. (“Dassault”). (See FAC at 9.) 3 II. COPYRIGHT INFRINGEMENT 4 In addition to products and services, ESI also provides training materials for 5 engineering products and methods. (See id. at 20.) On or around October 16, 2005, ESI 6 created training material titled Advanced Statistical Energy Analysis (“SEA Course”), 7 which was given as a short course at an Acoustical Society America (“ASA”) meeting in 8 2005 and later presented numerous times by ESI Personnel. (See id.) ESI owns registered 9 copyrights for the SEA Course, which were issued on September 15, 2017 under Copyright 10 Registration No. TX 8-403-795, and supplemented on November 6, 2017 by Copyright 11 Registration No. TX 8-436-076. (See id.) Additionally, on or around June 2, 2006, ESI 12 created a training source called VA One Training – Hybrid FE-SEA Methods (“VA One 13 Training”), which ESI personnel used many times as a training source. (See id.) ESI owns 14 a registered copyright for the VA One Training under Registration No. TX 8-404-259, 15 which was issued on September 15, 2017. (See id.) 16 On or about July 6, 2017, ESI learned that Wave Six had contributed to a published 17 reference textbook titled, “Engineering Vibroacoustic Analysis, Methods and 18 Applications,” edited by Stephen A. Hambric, Shung H. Sung, and Donald J. Nefske and 19 published by John Wiley & Sons, Ltd. in 2016 as ISBN 978-1-119-95344-9. (See id. at 21.) 20 Defendants Wave Six, Philip Shorter, and Vincent Cotoni were identified as contributors 21 and authors of two chapters in that publication: Chapter 11, titled “Statistical Energy 22 Analysis” and Chapter 12, titled “Hybrid FE-SEA.” (See id.) Defendants copied and 23 pasted much of ESI’s work in these chapters. (See id. at 22.) These chapters have the same 24 figures, in the same order, as the figures in the ESI materials. (See id.) While Defendant 25 Mr. Shorter was employed at ESI, he created the Advanced Statistical Energy Analysis 26 (SEA) Course and the VA One Training – Hybrid FE-SEA Methods. (See id. at 21.) 27 Shortly before Mr. Shorter’s resignation from ESI, he was observed copying a nearly three28 foot-high stack of documents including materials proprietary to ESI. (See id. at 21–22.) 1 On November 10, 2017, Plaintiffs filed a Verified Complaint against Defendants, 2 alleging causes of actions for misappropriation, breach of confidentiality agreement, 3 preliminary injunctive and permanent injunctive relief, copyright infringement, and civil 4 conspiracy. (See ECF No. 1.) Defendants filed a Motion to Dismiss, or in the alternative, 5 Motion for a More Definite Statement, which was denied on September 25, 2018, by Judge 6 Anthony J. Battaglia. (See ECF No. 31.) On May 31, 2019, Plaintiffs filed a First 7 Amended Verified Complaint, adding Dassault as a Defendant. (See ECF No. 55.) 8 Subsequently, on September 1, 2020, Defendants filed the instant Motion for Summary 9 Judgment (ECF No. 119, “MSJ”) and Daubert Motion (ECF No. 121, “Defendants’ 10 Daubert Mot.”) to exclude testimony of Plaintiffs’ Experts, Mr. J. Stott Matthews, Mr. 11 Robert J. Winiarski, and Dr. Kenneth Cunefare. Plaintiffs then filed a Daubert Motion 12 (ECF No. 124, “Plaintiffs’ Daubert Mot.”) to exclude testimony of Defendants’ experts, 13 Dr. Stephen Hambric and Mr. Thomas Britven. On October 6, 2020, the case was 14 transferred to the undersigned. (See ECF No. 152.) 15 MOTION FOR SUMMARY JUDGMENT 16 I. Legal Standard 17 Under Federal Rule of Civil Procedure 56(a), a party may move for summary 18 judgment as to a claim or defense or part of a claim or defense. Summary judgment is 19 appropriate where the Court is satisfied that there is “no genuine dispute as to any material 20 fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); 21 Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Material facts are those that may affect 22 the outcome of the case. Anderson, 477 U.S. at 248 . A genuine dispute of material fact 23 exists only if “the evidence is such that a reasonable jury could return a verdict for the 24 nonmoving party.” Id. When the Court considers the evidence presented by the parties, 25 “[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be 26 drawn in his favor.” Id. at 255. 27 The initial burden of establishing the absence of a genuine issue of material fact falls 28 on the moving party. Celotex, 477 U.S. at 323 . The moving party may meet this burden 1 by identifying the “portions of ‘the pleadings, depositions, answers to interrogatories, and 2 admissions on file, together with the affidavits, if any,’” that show an absence of dispute 3 regarding a material fact. Id. When a plaintiff seeks summary judgment as to an element 4 for which it bears the burden of proof, “it must come forward with evidence which would 5 entitle it to a directed verdict if the evidence went uncontroverted at trial.” C.A.R. Transp. 6 Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474 , 480 (9th Cir. 2000) (quoting Houghton 7 v. South, 965 F.2d 1532, 1536 (9th Cir. 1992)). 8 Once the moving party satisfies this initial burden, the nonmoving party must 9 identify specific facts showing that there is a genuine dispute for trial. Celotex, 477 U.S. 10 at 324. This requires “more than simply show[ing] that there is some metaphysical doubt 11 as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 , 12 586 (1986). Rather, to survive summary judgment, the nonmoving party must “by her own 13 affidavits, or by the ‘depositions, answers to interrogatories, and admissions on file,’ 14 designate ‘specific facts’” that would allow a reasonable fact finder to return a verdict for 15 the non-moving party. Celotex, 477 U.S. at 324 ; Anderson, 477 U.S. at 248 . The non16 moving party cannot oppose a properly supported summary judgment motion by “rest[ing] 17 on mere allegations or denials of his pleadings.” Anderson, 477 U.S. at 256 . 18 II. Analysis 19 Plaintiffs allege claims for misappropriation of trade secrets in violation of the 20 Defend Trade Secrets Act (“DTSA”) of 2016 (Count I) and in violation of California 21 Uniform Trade Secrets Act (“CUTSA”) (Count II), (collectively, “trade secrets 22 misappropriation claims”), Preliminary Injunctive and Permanent Injunctive Relief (Count 23 IV), Civil Conspiracy (Count VI) against all Defendants, Breach of Confidentiality 24 Agreement (Count III) against the individual Defendants, and Copyright Infringement 25 (Count V) against Wave Six, Dassault, Mr. Shorter, and Mr. Cotoni. (See generally FAC.) 26 Defendants seek summary judgment in their favor as to Breach of Confidentiality 27 Agreement (Count III), Copyright Infringement (Count V), and the trade secrets 28 misappropriation claims (Counts I and II). (See generally MSJ.) 1 A. Trade Secret Misappropriation 2 Defendants argue the trade secrets misappropriation claims fail as a matter of law 3 because: (1) they are time-barred; and (2) because Plaintiffs fail to meet their burden of 4 proving misappropriation by a preponderance of evidence. (See MSJ at 13–25.) The 5 elements of trade secret misappropriation under DTSA and CUTSA are essentially the 6 same. Becton, Dickinson & Co. v. Cytek Biosciences Inc., No. 18-CV-00933-MMC, 2018 7 WL 2298500 , at *2 (N.D. Cal. May 21, 2018). A plaintiff must allege: “(1) that it is the 8 owner of a trade secret, (2) that the defendant misappropriated the trade secret, and (3) that 9 it was damaged by the defendant's actions.” Way.com, Inc. v. Singh, No. 3:18-CV-0481910 WHO, 2018 WL 6704464 , at *4 (N.D. Cal. Dec. 20, 2018) (quotations and citation 11 omitted); see CytoDyn of New Mexico, Inc. v. Amerimmune Pharm., Inc., 160 Cal. App. 12 4th 288, 297 (2008). The DTSA and CUTSA define a trade secret as information that: (1) 13 derives its economic value from not being generally known; and (2) is subject to reasonable 14 measures of secrecy by its owner. See 18 U.S.C. § 1839 (3); Cal. Civ. Code § 3426.1 (d). 15 “A plaintiff seeking relief for misappropriation of trade secrets must identify the trade 16 secrets and carry the burden of showing that they exist,” and “describe the subject matter 17 of the trade secret with sufficient particularity to separate it from matters of general 18 knowledge in the trade or of special knowledge of those persons . . . skilled in the trade.” 19 Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161 , 1164–65 (9th Cir. 1998) (quotations 20 and citations omitted). 21 1. Time-Barred 22 The Parties dispute when the statute of limitations began to run under CUTSA and 23 DTSA. The statute of limitations provision in the CUTSA states: “[a]n action for 24 misappropriation must be brought within three years after the misappropriation is 25 discovered [(“actual notice”)] or by the exercise of reasonable diligence should have been 26 discovered [(“inquiry notice”)]. Cal. Civ. Code § 3426.6 . For the purposes of this section, 27 a continuing misappropriation constitutes a single claim.” Id. The statute of limitations for 28 the DTSA mirrors that of the CUTSA and provides that an action for misappropriation 1 “may not be commenced later than 3 years after the date on which the misappropriation 2 with respect to which the action would relate is discovered or by the exercise of reasonable 3 diligence should have been discovered. 18 U.S.C. § 1836 (d). For purposes of this section, 4 a continuing misappropriation constitutes a single claim of misappropriation.” Id. 5 First, Defendants argue that Plaintiffs had actual notice of the alleged trade secret 6 misappropriation as of February 2013, when ESI sent letters to Defendants Shorter, Cotoni, 7 and Merz, threatening legal action for “alleged solicitation and disclosure of confidential 8 ESI information.” (See MSJ at 23 (citing ECF Nos. 24-7; 24-8; 24-9).) Plaintiffs respond 9 that the Defendants cannot credibly argue that the February 2013 letter gave actual notice 10 of misappropriation while simultaneously claiming that infringement did not begin until 11 November 2013. (See Opp’n to MSJ at 22–24.) 12 Second, Defendants claim that Plaintiffs had constructive notice of the alleged trade 13 secret misappropriation as early as September 11, 2014, when NASA issued a pre14 solicitation publication stating that NASA would be purchasing the Wave6 BEM License 15 from Wave Six, LLC and that it was seeking a BEM Solver “compatible with VA One Pre 16 and Post Processor.” (See MSJ at 23 (citing FAC at ¶¶ 80–81).) Plaintiffs respond they 17 did not know any product existed that was “compatible” with VA One or, if such a product 18 existed, how it was created or how it worked. (See Opp’n to MSJ at 23.) 19 Third, Defendants argue that ESI’s employees were on notice that Defendants were 20 creating a BEM Solver intended to be interoperable with VA One months before the “bar 21 date.” (See MSJ at 23–24.) Defendants point to an e-mail from November 4, 2014, in 22 which Mr. Sebastien Chaigne, ESI’s VA One Product Manager in 2014, says that he “knew 23 [Lockheed Martin] was using [Defendants’] stuff (knew that from last Feb),” and that he 24 “asked [Dr. Bryce Gardner from ESI] for 6 months to get in touch with them and ask what’s 25 up.” (See id. (citing Ex. 22 at ECF No. 122-23).) Defendants also point to an April 3, 2014 26 business record from Wave Six, which details a trip report in which Dr. Phil Shorter from 27 CD-Adapco recounts a conversation with Dr. Indranil Dandaroy, a non-party witness 28 employed by Lockheed Martin. (See id. (citing Ex. 21 at ECF No. 123-12).) Defendants 1 state that the report details that Dr. Gardner at ESI “called [Dr. Dandaroy] and asked if he 2 was working with CD-Adapco on a BEM Solver,” and that Dr. Dandaroy “told [Dr. 3 Gardner] that he was and that ESI needed to be a lot more reactive if they wanted to keep 4 [Lockheed Martin’s] business.” (See id.) Additionally, on November 6, 2014, Mr. Chaigne 5 wrote “I have an array of legal ways ready to be rolled out as soon as we have insights on 6 their technique.” (Id.) 7 In response, Plaintiffs contend that while Dr. Dandaroy testified during his 8 deposition that he spoke with Dr. Gardner in 2014 or 2015, he stated that he “did [not] 9 discuss the details of what [Lockheed Martin] was doing with the Wave6BEM,” did not 10 tell Dr. Gardner that “Lockheed had sent .ray files to Wave Six,” and did not tell Dr. 11 Gardner that “Lockheed would create models in VA One, solve that with Wave Six’s 12 solver, then read them back into VA One.” (See Opp’n at 24 (citing Dandaroy Deposition 13 at 229).) Thus, Plaintiffs reason that no detail of any kind about what Wave Six or 14 Lockheed Martin was working on was ever divulged. (See id.) Instead, Plaintiffs claim 15 that it was not until April 2016, when NASA gave such details, that Plaintiffs had actual 16 knowledge of the facts giving rise to their trade secret misappropriation claim. (See id.) 17 Plaintiffs further emphasize that Defendants made sure to conceal what they were working 18 on and that “nobody within ESI knew what [they are] working on.” (See id. at 24 (citing 19 Ex. 28 at ECF No. 151-29; Ex. 9 at ECF No. 151-10).) 20 Given the foregoing, the Court CONCLUDES that there is a genuine dispute as to 21 whether Plaintiffs had either actual or inquiry notice of Defendants’ alleged 22 misappropriation involving ESI’s BEM Solver three years prior to November 10, 2017, the 23 date this case was filed. 24 2. Failure to Meet Evidentiary Burden 25 Defendants also claim that Plaintiffs have failed to meet their burden of establishing 26 misappropriation by a preponderance of the evidence. (See MSJ at 13–29.) However, 27 “misappropriation and misuse can rarely be proved by convincing direct evidence. In most 28 cases plaintiffs must construct a web of perhaps ambiguous circumstantial evidence from 1 which the trier of fact may draw inferences . . . that it is more probable than not that what 2 plaintiffs allege happened did in fact take place.” Hanger Prosthetics & Orthotics, Inc. v. 3 Capstone Orthopedic, Inc., 556 F. Supp. 2d 1122, 1136 (E.D. Cal. 2008) (internal citations 4 omitted); see also Computer Sciences Corp. v. Computer Associates, Int'l, Inc., Nos. CV 5 98-1374-WMB SHX, 1999 WL 675446 , at *12 (C.D. Cal. Aug. 12, 1999) (“[D]irect 6 evidence of trade secret misappropriation is often hard to come by, and . . . 7 misappropriation may therefore be inferred from ambiguous circumstantial evidence . . .”). 8 First, Defendants argue Plaintiffs fail to establish that the 24-page BEM Solver 9 document is a trade secret because Dr. Cunefare failed to conduct a proper analysis as to 10 the document’s status as a trade secret, including the fact that he made no effort to ascertain 11 whether Plaintiffs made reasonable efforts under the circumstances to maintain the secrecy 12 of the document. (See MSJ at 20.) While Plaintiffs do allege the 24-page trade secret 13 document is one component of the trade secret that was misappropriated, Plaintiffs more 14 broadly allege that their BEM Solver is the product at issue and there are other documents 15 related to the BEM Solver that Plaintiffs allege are trade secrets that were infringed, such 16 as the VA One Theory Manual and VA One User’s Guide. (See Order Denying 17 Defendants’ Motion to Dismiss at 10, ECF No. 31; Opp’n to MSJ at 7 (citing Cunefare 18 Report at ¶¶ 35; 41–51).) Further, as Judge Battaglia found, Plaintiffs have properly alleged 19 that Defendants misappropriated their BEM Solver. (See ECF No. 31.) Defendants have 20 therefore failed to show the absence of disputed material fact as to their claim that Plaintiffs 21 have fail to meet the first element of misappropriation—ownership of trade secrets. 22 Second, Defendants contend Plaintiffs failed to take reasonable steps to protect their 23 trade secrets, because none of their experts identified that the 24-page trade secret 24 document was confidential or a trade secret, none of their witnesses knew that the 25 document was an alleged trade secret, and no evidence shows they took any efforts to 26 maintain the secrecy of the document. (See MSJ at 20.) Plaintiffs claim they took 27 reasonable steps to maintain the confidentiality of its trade secrets, including 28 confidentiality agreements, and the use of EULAs. (See Opp’n at 18 (citing MAI Sys. Corp. 1 v. Peak Comp., Inc., 991 F.2d 511, 521 (9th Cir. 1993) (finding confidentiality agreement 2 supported “reasonable efforts”).) Moreover, Plaintiffs state Defendants concede the 243 page document was confidential and cite to the testimony by Drs. Connelly, Cotoni, Shorter 4 and the declaration of Mr. Nicolas Zerbib.2 Among these, Mr. Zerbib’s declaration states 5 that Dr. Shorter asked him if he had access to the source code for ESI’s BEM Solver, the 6 trade secret document, and Mr. Zerbib told him he was not able to do so even within ESI, 7 because it was confidential and could only be shared with those who had access to it. (See 8 ECF No. 151-7.) Hence, genuine issues of material fact exist as to the reasonableness of 9 Plaintiffs’ effort to maintain the secrecy of their trade secrets. 10 Third, Defendants reason that Dr. Cunefare, Plaintiffs’ technical expert, does not 11 opine on any trade secret that was misappropriated by Defendants. Rather, Defendants 12 claim that Dr. Cunefare provides three possible paths Defendants could have taken to create 13 the Wave6BEM parser code and make it interoperable with VA One, but does not offer 14 any affirmative opinion as to which path Defendants actually took. (See MSJ at 13–15.) 15 Plaintiffs, however, point to Dr. Cunefare’s opinion that his analysis of the source code for 16 the Wave Six proves Defendants must have used information from explicit ESI proprietary 17 documentation. (See Opp’n at 8 (citing Dr. Cunefare Deposition and Report).)3 18 Defendants further argue that there is no evidence supporting any of the postulated 19 paths. As to the first postulated path—that the individual Defendants could have used prior 20 knowledge based on employment with ESI—Defendants argue that there is no evidence 21 the individual Defendants had any knowledge of the input and output files or the internal 22 working of ESI’s BEM Solver while employed at ESI, and even if they did, use of prior 23 generalized knowledge cannot sustain a misappropriation claim pursuant to Cal. Bus. & 24 Prof. Code § 16600. (See MSJ at 13–15.) Plaintiffs reply that prior generalized knowledge [25] 26 2 Plaintiffs further claim that even if the 24-page document did not say the word confidential, employees knew it was a confidential document. (See Opp’n at 18 (citing Mattel, Inc. v. MGA Ent., Inc., 782 F. Supp. 2d 911, 959 (C.D. Cal. 2011) 27 (An employee’s failure to mark documents as confidential or trade secret does not preclude a finding of reasonable efforts.)) 28 3 The fact that Dr. Cunefare does give an opinion as to which specific path Defendants took is beside the point. Dr. 1 of the industry is different from specific knowledge or memorization of trade secrets, that 2 is, information “learned as an employee.” (See Opp’n to MSJ at 22.) 3 The Court agrees with Plaintiffs. Prior knowledge from a previous employer is 4 distinct from prior generalized industry knowledge and that misappropriation can be 5 predicated on the use of prior knowledge of trade secrets from a previous employer. 6 WeRide Corp. v. Kun Huang, 379 F. Supp. 3d 834, 847 (N.D. Cal. 2019), modified in part, 7 No. 5:18-CV-07233-EJD, 2019 WL 5722620 (N.D. Cal. Nov. 5, 2019) (distinguishing 8 trade secrets of source code from common knowledge in the industry or publicly available 9 code); Greenly v. Cooper, 77 Cal. App. 3d 382, 392 (Ct. App. 1978) (stating to afford 10 protection to the employer, the information need not be in writing but may be in the 11 employee's memory (citing George v. Burdusis 21 Cal.2d 153 (1942)). Further, Plaintiffs, 12 at the very least, point to evidence that Mr. Cotoni conceded that in working for Wave Six, 13 he did use some of his experience. (See Opp’n to MSJ at 22 (citing Cotoni Deposition at 14 127:1–25).) Plaintiffs have put forth sufficient evidence to show that genuine issues of 15 material fact exist as to whether Defendants used knowledge and information gained 16 through their prior employment at ESI to develop the Wave6BEM. 17 As to the second postulated path—that the individual Defendants could have used 18 reverse engineering based on the VA One .ray model files provided by ESI customers— 19 Defendants argue that the model files were ESI customers’ property and not subject to any 20 requirement for confidentiality Defendants owed under the EULAs, which only prohibited 21 ESI-supplied software. (See MSJ at 16–17.) Additionally, Defendants assert that their 22 technical expert, Dr. Hambric, was able to reverse engineer the input and output file 23 formats for Wave6BEM without ever consulting the 24-page trade secret document. 24 Defendants contrast Dr. Hambric’s analysis with that of Plaintiff expert Dr. Cunefare, who 25 not only failed to try and reverse engineer the Wave6BEM input/output file formats, but 26 who also failed to offer an opinion as to whether the Defendants could have conducted 27 such reverse engineering. (See id.) [28] 1 In response, Plaintiffs claim that Lockheed Martin signed EULAs with ESI. (See 2 Opp’n to MSJ at 19.) Plaintiffs cite the EULA agreement signed by Lockheed Martin and 3 ESI, (see id. (citing ECF Nos. 151-24, 151-25)), and the Proprietary Information 4 Agreement signed by Lockheed Martin in which it states Lockheed Martin will not share 5 ESI proprietary information outside of its organization. (See id. (citing ECF No. 151-26).) 6 Plaintiffs explain that the EULAs state Lockheed Martin “may not reverse engineer, 7 decompile, or dissemble any compute model” and “it was strictly forbidden from 8 reproducing or communicating all or part of the Software Product . . . which included 9 software code and any technical documentation or associated manuals enabling 10 performance of the program and/or . . . the database delivered,” to Lockheed Martin. (See [11] id. (citing ECF Nos. 151-24, 151-25).) Plaintiffs also claim Defendants induced Lockheed 12 Martin to send Wave Six the .ray model files, to reverse engineer and create interoperable 13 software. (See Opp’n at 20 (citing Dandaroy Deposition at 46:6–25 stating he did not know 14 whether it was permitted under EULA to send the .ray files); Connelly Deposition at 93:8– 15 94:25 stating it is his understanding Dr. Shorter asked Lockheed Martin to send him the 16 .ray files).) Indeed, as Plaintiffs note, CUTSA and DTSA recognize “indirect trade secret 17 misappropriation,” a claim for which a plaintiff needs to establish, inter alia, the defendant 18 acquired the trade secret from someone other than the plaintiff. Navigation Holdings, 19 LLC, 445 F. Supp. 3d at 79. Plaintiffs therefore raise issues of material fact that the .ray 20 model files were ESI’s property and subject to a requirement for confidentiality owed under 21 the EULAs.4 22 Lastly, as to the third postulated path—that Defendants used the 24-page trade secret 23 document—Defendants argue there is no evidence that any of the individual Defendants 24 used or consulted the document to create the Wave6BEM parser code, and hence, Plaintiffs [25] 26 4 Plaintiffs are correct that their expert did not need to disprove the possibility of reverse engineering. Reverse engineering is a defense to a misappropriation of trade secrets claim. Bal Seal Eng'g, Inc. v. Nelson Prod., Inc., No. 27 813CV01880JLSKESX, 2018 WL 4697255 , at *4 (C.D. Cal. Aug. 3, 2018). The evidence before the Court sufficiently establishes the existence of disputed material facts regarding the issue of reverse engineering. For example, Dr. Cunefare 28 opined that Wave Six’s source code contains evidence that the authors did not exclusively rely on the .ray model files and that 1 fail to show the 24-page trade secret document was misappropriated. (See MSJ at 18.) 2 However, Plaintiffs present various opinions by Dr. Cunefare that Defendants must have 3 used example ESI VA One input and output files before they received the .ray model files 4 to create their Wave6BEM Solver. (See Opp’n to MSJ at 8–9; Cunefare Report.) 5 For the reasons set forth above, the Court DENIES Defendants’ Motion for 6 Summary Judgment as to the trade secrets misappropriation claims (Counts I and II). 7 B. Breach of Contract 8 Defendants argue that the non-solicitation provisions of the individual Defendant’s 9 employment contracts with ESI are void under Cal. Bus. & Prof. Code § 16600 . 10 Defendants also assert that Plaintiffs have failed to produce evidence supporting their 11 claims for breach of the non-solicitation covenants as alleged in the First Amended 12 Complaint. (See MSJ at 11–13.) Plaintiffs counter that they are only seeking to enforce 13 the Defendants’ confidentiality agreements and that Section 16600 does not preclude 14 restrictions that protect an employer’s trade secrets, proprietary information, and 15 confidential information. (See Opp’n to MSJ at 6–7.) 16 Although California courts have consistently “condemn[ed]” agreements that place 17 restraints on the pursuit of a business or profession, Richmond Techs., Inc. v. Aumtech Bus. 18 Sols., No. 11-CV-02460-LHK, 2011 WL 2607158 , at *18 (N.D. Cal. July 1, 2011) (citing 19 Edwards v. Arthur Andersen LLP, 44 Cal.4th 937946 (2008)), “[a]n equally lengthy line 20 of cases has consistently held former employees may not misappropriate the former 21 employer's trade secrets to unfairly compete with the former employer.” Id. (citing 22 Retirement Group v. Galante, 176 Cal.App.4th 1226, 1237 (Cal.Ct.App.2009)). 23 “Accordingly, ‘courts have repeatedly held a former employee may be barred from 24 soliciting existing customers to redirect their business away from the former employer and 25 to the employee's new business if the employee is utilizing trade secret information to 26 solicit those customers.’” Id. Further, “courts have applied this principle to create a ‘trade 27 secret exception’ to Section 16600, pursuant to which a non-compete or non-solicitation 28 clause may be valid under Section 16600 if it is necessary to protect a trade secret.” Id. 1 (citing Asset Marketing Systems, Inc. v. Gagnon, 542 F.3d 748, 758 (9th Cir. 2008)) 2 (“Under California law, non-competition agreements are unenforceable unless necessary 3 to protect an employer's trade secret.”) Hence, while the non-solicitation provision in the 4 EULAs may be unenforceable under California law, the provisions which protect ESI’s 5 trade secrets may be enforced. As set forth above, Plaintiffs have alleged that the 6 Defendants misused the 24-page document, the VA One Theory manual and VA One 7 User’s Guide (See Opp’n to MSJ at 7), all of which Plaintiffs claim are trade secrets. There 8 is a genuine dispute between the parties as to whether Defendants breached their respective 9 confidentiality agreements with ESI by improperly utilizing those claimed trade secrets. 10 As such, the Court DENIES Defendants’ Motion for Summary Judgment as to the Breach 11 of Confidentiality Agreement Claim (Count III). 12 C. Copyright Infringement [13] Defendants request summary judgment regarding Plaintiffs’ request for statutory [14] damages and attorney’s fees for failure to timely register copyrights pursuant to 17 U.S.C. [15] § 412 and a dismissal of ESI’s copyright infringement allegations for failure to provide any [16] evidence to support actual damages. (See MSJ at 8–10.) Those requests are addressed in [17] turn. [18] 1. Statutory Damages [19] Defendants claim statutory damages and attorney’s fees are not available to [20] Plaintiffs due to their delay in registering their copyrights, pursuant to 17 U.S.C. § 412.5 [21] Under 17 U.S.C. § 504 (a) and (c), a copyright owner may elect to recover statutory [22] damages instead of actual damages and any additional profits. Under 17 U.S.C. § 412 (2), [23] to recover statutory damages or attorney’s fees, the copyrighted work must have been [24] registered prior to commencement of the infringement, unless the registration is made [25] within three months after first publication of the work. Frank Music Corp., 772 F.2d at [28] 1 520 (precluding an award of attorneys' fees as well); 3 Polar Bear Prods., Inc. v. Timex 2 Corp., 384 F.3d 700 , 707 n. 5 (9th Cir. 2004). 3 At issue here are the SEA Course and the VA One Training, which Plaintiffs allege 4 were infringed when a third-party published “Engineering Vibroacoustic Analysis, 5 Methods and Applications” in 2016. As the Certificates of Registration provided by 6 Plaintiffs with their First Amended Complaint demonstrate, SEA Course was registered on 7 September 15, 2017, and first published on March 4, 2004, (see ECF No. 73-6), and VA 8 One Training was registered on September 15, 2017, and first published on June 2, 2006. 9 (See ECF No. 73-7.) Because the alleged infringement commenced in 2016, when the 10 third-party book was published, the copyrighted work, SEA Course and VA One Training 11 were not registered prior to the commencement of infringement. Further, the registrations 12 of the copyrighted work were not made within three months after the first publication of 13 the work. Accordingly, the Court GRANTS the Motion for Summary Judgment as to 14 statutory damages and attorney’s fees.6 15 2. Dismissal of Copyright Infringement 16 Asserting that Plaintiffs have failed to put forth any evidence to support actual 17 damages, Defendants urge dismissal of Plaintiffs’ copyright infringement allegations 18 (Count V). (See MSJ at 16.) Defendants note that Plaintiff’s own witness, Dr. Bryce 19 Gardner, testified ESI has no knowledge of any lost profits as a result of the publication of 20 the book, and that Defendants Drs. Cotoni and Shorter waived any royalties from the sale 21 of the book. (See MSJ at 16–17.) Plaintiffs respond that they are entitled to recover 22 “indirect profits” stemming from the loss goodwill, reputation, credibility, and more, and 23 that the editor of the book is a witness who will testify at trial. (See Opp’n to MSJ at 25.) 24 Under 17 U.S.C. § 504 (b), “[e]xcept as otherwise provided by this title, an infringer 25 of copyright is liable for either: (1) the copyright owner's actual damages and any additional 26 profits of the infringer, as provided by subsection (b); or (2) statutory damages, as provided 27 by subsection (c).” Sub-section (b) provides for additional “indirect” profits as follows: [28] 1 The copyright owner is entitled to recover the actual damages suffered by him 2 or her as a result of the infringement, and any profits of the infringer that are 3 attributable to the infringement and are not taken into account in computing 4 the actual damages. In establishing the infringer's profits, the copyright owner 5 is required to present proof only of the infringer's gross revenue, and the 6 infringer is required to prove his or her deductible expenses and the elements 7 of profit attributable to factors other than the copyrighted work. [8] 17 U.S.C. § 504 (b). In the Ninth Circuit, a copyright infringement plaintiff who seeks to 9 recover indirect profits under Section 504(b) “must proffer some evidence [at the summary 10 judgment stage] to create a triable issue regarding whether the infringement at least 11 partially caused the profits that the infringer generated as the result of the infringement.” 12 Mackie v. Rieser, 296 F.3d 909, 911 (9th Cir. 2002). 13 In addition to the book editor’s anticipated testimony and the expected cross14 examination of Drs. Cotoni and Shorter, Plaintiffs draw the Court’s attention to the report 15 authored by Mr. Winiarski, which discusses “damages of lost profits, unjust enrichment, 16 attorney’s fees, and treble damages.” (See Opp’n at 10.) Plaintiffs have therefore put forth 17 evidence to create a triable issue regarding infringement-related damages. The 18 Defendants’ request for dismissal of the copyright infringement cause of action (Count V) 19 is DENIED. 20 / / / 21 / / / 22 / / / 23 / / / 24 / / / 25 / / / 26 / / / 27 / / / 28 / / / 1 CONCLUSION 2 In light of the foregoing, the Court GRANTS IN PART AND DENIES IN PART 3 Defendants’ Motion for Summary Judgment (ECF No.119). Specifically, the Court 4 |1|GRANTS Defendants’ Motion for Summary Judgment as to Count V to the extent 5 || Plaintiffs seek statutory damages and attorney’s fees and DENIES Defendants’ Motion for 6 Summary Judgment as to Counts I, II, and HI in their entirety and as to Count V to the 7 || extent Plaintiffs seek remedies other than statutory damages or attorney’s fees. Lastly, the 8 ||Court DENIES WITHOUT PREJUDICE Defendants’ Daubert Motion (ECF No. 121) 9 || and Plaintiffs’ Daubert Motion (ECF No. 124). 10 IT IS SO ORDERED. 1] Dated: November 9, 2021 —_—_ 12 | od (2 □□□ 13 Honorable Todd W. Robinson 14 United States District Judge