Case Information
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION SNAPKEYS, LTD, Case No. 19-CV-02658-LHK Plaintiff, ORDER GRANTING IN PART AND DENYING IN PART MOTION TO v. DISMISS GOOGLE LLC, Re: Dkt. No. 35 Defendant.
Defendant Google LLC (“Google”) brings a motion to dismiss Plaintiff Snapkeys, Ltd.’s (“Snapkeys”) Second Amended Complaint. ECF No. 35 (“SAC”). Having considered the submissions of the parties, the relevant law, and the record in this case, the Court GRANTS in part and DENIES in part Google’s motion.
I. BACKGROUND
Snapkeys is a “software development company that specializes in creating smartphone and smartwatch keyboard technology.” SAC ¶ 6. Snapkeys is a foreign limited liability company based in Israel. ¶ 1. Google is a corporation organized under the laws of Delaware with its principal place of business in Mountain View, California. ¶ 2.
Beginning in July 2015, the parties engaged in preliminary discussions to promote Snapkeys’ “brand new ‘iType’ technology on Google’s Android Wear smartwatches.” Id. ¶ 8. Soon thereafter, Google sent Snapkeys a Developer Non-Disclosure Agreement (the “NDA”), which was executed by the parties on July 29, 2015. “The purpose of the NDA, as stated within the document, was ‘to facilitate technical discussions concerning existing or future product development efforts by the parties.’” Id. ¶ 10. However, the NDA “impose[d] no obligation to proceed with any business transaction.” ECF No. 35-2 at 2.
Snapkeys alleges that, over the course of the following year and a half, Google made a number of fraudulent and misleading promises that it would work with Snapkeys and promote Snapkeys’ iType keyboard technology. Id. ¶ 11. Snapkeys consequently provided Google with prototypes of the technology, including two smartwatches with the technology installed. ¶¶ 13–17. Snapkeys claims that, despite these promises, Google ultimately declined to work with Snapkeys, and instead cooperated with a competitor of Snapkeys to develop a smartwatch keyboard that was substantially similar to Snapkeys’ technology. ¶ 24. On May 16, 2019, Snapkeys filed a complaint that included, inter alia , a claim for misappropriation of trade secrets. ECF No. 1. Google claims that it then sent Snapkeys a letter that explained that Snapkeys had alredy publicized the alleged “secrets,” including on YouTube, even before Snapkeys contacted Google. ECF No. 35 at 5. Thereafter, Snapkeys filed a First Amended Complaint on July 9, 2019 that omitted the trade secrets claim. ECF No. 13. Google moved to dismiss the amended complaint on July 23, 2019. ECF No. 14. In lieu of opposing the motion to dismiss, Snapkeys filed a Second Amended Complaint on September 16, 2019. ECF No. 34.
On September 25, 2020, Google filed the instant motion to dismiss the Second Amended
Complaint. ECF No. 35 (“Mot.”). On October 25, 2019, Snapkeys filed an opposition. ECF No.
40 (“Opp’n”).
[1]
On November 22, 2019, Google filed a reply. ECF No. 43 (“Reply”).
In support of its motion to dismiss, Google asks the Court to incorporate by reference the
full NDA, which Google attaches as Exhibit A to the motion. Mot. at 3 n.1. Google argues
that Snapkeys apparently intended to attach the NDA to the Second Amended Complaint but
inadvertently left the NDA out. Snapkeys does not object. The Court agrees with Google that
the document is incorporated by reference in the Second Amended Complaint because “the
document forms the basis of the plaintiff’s claim,” i.e., for breach of the NDA.
Khoja v. Orexigen
Therapeutics, Inc.
,
II. LEGAL STANDARD
A. Dismissal Pursuant to Federal Rule of Civil Procedure 12(b)(6)
Rule 8(a) of the Federal Rules of Civil Procedure requires a complaint to include “a short
and plain statement of the claim showing that the pleader is entitled to relief.” A complaint that
fails to meet this standard may be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6).
Rule 8(a) requires a plaintiff to plead “enough facts to state a claim to relief that is plausible on its
face.”
Bell Atlantic Corp. v. Twombly
,
The Court, however, need not accept as true allegations contradicted by judicially
noticeable facts,
see Shwarz v. United States
,
B. Leave to Amend
If the Court determines that a complaint should be dismissed, it must then decide whether
to grant leave to amend. Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to
amend “shall be freely given when justice so requires,” bearing in mind “the underlying purpose
of Rule 15 to facilitate decisions on the merits, rather than on the pleadings or technicalities.”
Lopez v. Smith
,
Snapkeys asserts five claims for relief against Google: (1) breach of non-disclosure agreement, (2) fraud, (3) conversion, (4) unfair competition, and (5) breach of the implied covenant of good faith and fair dealing. SAC ¶¶ 35–89.
Google moves to dismiss all five claims. First, Google argues that the California Uniform Trade Secrets Act (“CUTSA”) supersedes [2] Snapkeys’ tort claims (claims two through five). Mot. at 11–16. Second, notwithstanding any supersession, Google argues that Snapkeys fails to state a claim as to each of Snapkeys five claims. Mot. at 7–10, 16–21. The Court addresses each claim in turn.
A. Claim One: Breach of Non-Disclosure Agreement
In Snapkeys’ first claim, Snapkeys alleges that Google breached paragraphs 3 and 8 of the parties’ July 2015 Developer Non-Disclosure Agreement (the “NDA”). SAC ¶¶ 35–44.
Specifically, Paragraph 3 of the NDA requires Google to use “Confidential Information
only for the Purpose” of “facilitating technical discussions concerning existing or future product
development efforts.” Mot., Ex. A (“NDA”) at ¶ 3. Paragraph 3 also requires the parties to
“prevent any unauthorized use or disclosure of Confidential Information.”
Id.
Paragraph 8
specifies that “[n]o party acquires any intellectual property rights under this agreement except the
limited rights necessary to use the Confidential Information for the Purpose.”
Id.
¶ 8. The NDA
defines “Confidential Information” as “information . . . that the Discloser considers confidential”
but includes certain limited exceptions. ¶¶ 2, 4.
Google argues that the Court should dismiss this claim because Snapkeys’ allegations are
conclusory and fail to contain “fact allegations as to what Google supposedly did to misuse
Snapkeys’ unspecified ‘confidential information.’” Mot. at 7–10. The Court disagrees.
Snapkeys’ claim is a breach of contract claim, which requires: “(1) the existence of a
contract, (2) performance or excuse for nonperformance, (3) defendant’s breach, and (4)
damages.”
AlterG, Inc. v. Boost Treadmills, LLC
,
As an initial matter, Google provides no case law to support its argument that breach of an
NDA through improper disclosure is an “analogous claim” to “statutory trade secret
misappropriation.” Mot. at 8. Without further explanation, Google recites a string of caselaw,
almost all of which considers whether a plaintiff has sufficiently pleaded a
trade secret
by
“separat[ing] it from matters of general knowledge in the trade of special persons.”
Id.
(quoting
Vendavo, Inc. v. Price f(x) AG
, No. 17-cv-06930-RS,
The only case cited by Google in which a court even analyzed the element at issue here—
defendant’s breach—is
Space Data Corp. v. X
, Case No. 16-cv-03260-BLF,
Here, Snapkeys alleges far more specific facts than the plaintiff did in Space Data Corp. Snapkeys describes the “confidential information” as “two Snapkeys’ prototypes with its iType keyboard technology fully integrated,” as well as “information regarding the specific considerations and interface implementations used in its iType technology.” Opp’n at 10 n.16 (quoting SAC ¶ 13). Snapkeys describes Google’s conduct: Google “appropriated [the confidential information] into its own Smartwatch keyboard technology” and “provided this information to third-party competitors.” See id. at 10 n.17 (quoting SAC ¶¶ 39, 42). These allegations, if proven, plausibly violate the terms of the parties’ NDA, which prohibited “any unauthorized use or disclosure of Confidential Information.” NDA at ¶ 3. The Court finds that these allegations are adequate to plausibly plead Google’s breach of the NDA. As a result, the Court DENIES Google’s motion to dismiss this claim.
A. Claim Two: Fraud
In Snapkeys’ second claim, Snapkeys alleges that Google made a number of
misrepresentations to Snapkeys, which constituted fraud. SAC ¶¶ 45–63. Google argues that
dismissal of Snapkeys’ fraud claim is appropriate on two grounds. First, Google argues that
Snapkeys’ fraud claim is superseded by CUTSA. Mot. at 12–13. Second, relying on the terms of
the NDA, Google argues that Snapkeys fails to plausibly plead justifiable reliance, which is an
element of fraud. at 16–18. Because the Court agrees with Google’s first argument that
Snapkeys’ fraud claim is superseded by CUTSA, the Court need not consider Google’s second
argument.
The Court first sets for the standard for CUTSA supersession and then considers whether
Snapkeys’ fraud claim is superseded.
1. CUTSA Supersession Standard
“Under California law, CUTSA provides the exclusive civil remedy for conduct falling
within its terms and supersedes other civil remedies based upon misappropriation of a trade secret.
It therefore supersedes claims—including Section 17200 claims—
based on the same nucleus of
facts as trade secret misappropriation.
”
Waymo LLC v. Uber Tech., Inc.
,
As this Court has recognized, suppression based on CUTSA is not strictly limited to
“information [that] ultimately satisfie[s] the definition of trade secret.”
SunPower
, 2012 WL
6160472, at *7. Instead, “[i]f the basis of the alleged property right is in essence that the
information is ‘not . . . generally known to the public,’ . . . then the claim is sufficiently close to a
trade secret claim” to trigger the “preclusive effect of CUTSA.” at *5;
see also Mattel, Inc. v.
MGA Entm’t, Inc.
,
set forth above, “[t]o survive preemption, [a claim] must ‘allege wrongdoing that is materially
distinct from the wrongdoing alleged in a CUTSA claim.’”
Prostar
,
Snapkeys’ fraud claim requires: “(1) misrepresentation . . . ; (2) knowledge of falsity
(scienter); (3) intent to defraud (i.e., to induce reliance); (4) justifiable reliance; and (5) resulting
damage.”
Prostar
,
Snapkeys argues that its fraud claim is not superseded because the claim does not directly
depend on “the existence of any trade secret.”
See
Opp’n at 13. For example, Snapkeys points to
Google’s alleged misrepresentations, such as Google’s promise that Google “would provide
Snapkeys an early access program agreement” and “would introduce Snapkeys to [Google’s]
original equipment manufacturers.” at 12 (quoting SAC ¶ 47). Providing no caselaw,
Snapkeys argues that because Google’s purported representations “were fraudulent with or
without any confidential information actually being exchanged,” the CUTSA does not apply. However, contrary to Snapkeys’ position, the subject of the misrepresentations are of no moment
to the CUTSA supersession analysis, which instead asks whether, “stripped of facts supporting
trade secret misappropriation, the remaining factual allegations can be reassembled to
independently support other causes of action.”
Waymo LLC
,
As a result, the Court agrees with Google that Snapkeys’ fraud claim is superseded by the CUTSA. Moreover, the Court finds that amendment of this claim would be futile in light of the supersession, the Court DENIES Snapkeys’ leave to amend this claim. See Leadsinger , 512 F.3d at 532.
B. Claim Three: Conversion
In Snapkeys’ third claim, Snapkeys alleges that it incorporated its keyboard technology
into two smartwatches (the “prototypes”), which were given to Google but which Google never
returned. SAC ¶¶ 64–71. Google argues that dismissal of Snapkeys’ conversion claim is
appropriate on two grounds. First, Google argues that Snapkeys’ conversion claim is superseded
by CUTSA. Mot. at 13–14. Second, Google argues that Snapkeys fails to plausibly plead that it
had a right to possession of the prototypes. at 20. The Court will consider whether Snapkeys
has stated a claim for conversion before considering whether the conversion claim is superseded
by the CUTSA.
First, the Court finds that Snapkeys has adequately pleaded the conversion claim. “Under
California law, ‘[t]he elements of a conversion claim are (1) the plaintiff's ownership or right to
possession of the property at the time of the conversion; (2) the defendant's conversion by a
wrongful act or disposition of property rights; and (3) damages.’”
Mission Produce, Inc. v.
Organic All., Inc.
, No. 15-CV-01951-LHK,
Second, the Court holds that Snapkeys’ conversion claim is not superseded by the CUTSA
because Snapkeys plausibly alleged that the prototypes had value independent from any trade
secret. Courts consider whether the conversion claim is based upon “tangible, non-trade secret
property” or “intangible” trade secrets or information.
See UCAR Tech. (USA) Inc. v. Li
, Case No.
5:17-CV-01704-EJD,
“Snapkeys’ conversion claim is predicated on the fact that Defendant was entrusted with
Snapkeys’ personal, tangible property,” which Snapkeys alleges Google either destroyed or
misused. Opp’n at 14. Google argues that Snapkeys’ conversion claim is superseded because
“Snapkeys does not contend that it is a smartwatch manufacturer [or] that the smartwatches in and
of themselves created any value.” Mot. at 14. Contrary to Google’s argument, Snapkeys does
allege that the smartwatch prototypes were valuable and had required a substantial financial
investment to produce.
See
SAC ¶¶ 64–71. The Court agrees that Snapkeys’ allegations, along
with all reasonable inferences in Snapkeys’ favor, are enough to distinguish the smartwatches at
issue here from objects like computer disks, reports, or inventory lists, which Google cites as
examples of tangible physical objects that have no substantial value independent from the
information contained therein. Mot. at 14 n.6;
Henry Schein, Inc. v. Cook
, Case No. 16-CV-
03166-JST,
However, the Court notes that the Second Amended Complaint at times conflates the value of the prototype smartwatches and the value of the underlying technology. See, e.g. , SAC ¶ 65 (“Snapkeys entrusted its first confidential smartwatch prototype with its iType technology to Mr. Wright at Google’s headquarters in California.”). As discussed above, Snapkeys’ conversion claim survives only insofar as Snapkeys seeks recovery for the value of its tangible physical property, rather than the value of the trade secrets or any other confidential information embedded in those prototypes. As a result, the Court DENIES Google’s motion to dismiss Snapkeys’ conversion claim to the extent that it is premised on the value of the physical smartwatch prototypes. C. Claim Four: Unfair Competition In Snapkeys’ fourth claim, Snapkeys alleges that Google violated California’s unfair competition law (“UCL”), Cal. Bus. & Prof. Code § 172000, through its fraudulent misrepresentations and promises to Snapkeys, which Google allegedly made for the purpose of gaining insight into Snapkeys’ technology and delaying Snapkeys for competitive advantage. SAC ¶¶ 72–80.
“California’s UCL provides a cause of action for business practices that are (1) unlawful,
(2) unfair, or (3) fraudulent.”
Backhaut v. Apple, Inc.
,
Instead, Snapkeys alleges that Google is liable under the fraudulent and unfair prongs of the UCL. Opp. at 23–25. Google responds that Snapkeys fails to state a claim as to each prong. Reply at 12–13. Google does not allege that Snapkeys’ claim under the fraudulent and unfair prongs are superseded by CUTSA. The Court considers each prong in turn.
1. Fraudulent Conduct
“The California Supreme Court has held that a business practice is ‘fraudulent’ in violation
of the UCL if “members of the public are likely [to be] deceived by the practice.”
Capella
Photonics, Inc. v. Cisco Sys., Inc.
,
Snapkeys does not identify what was “misleading” about this alert. In fact, Snapkeys’
allegation that the Google default keyboard was “
also
capable of collecting the same user
information” concedes that the alert was accurate with respect to Snapkeys’ keyboard.
See id.
(emphasis added). As such, the Court construes Snapkeys’ allegation to be a theory of fraudulent
omission: specifically, that Google’s omission of the alert for Google’s default keyboard was
misleading. “For an omission to be actionable under the UCL, ‘the omission must be contrary to a
representation actually made by the defendant, or an omission of a fact the defendant was obliged
to disclose.’”
In re Yahoo! Inc. Customer Data Sec. Breach Litig.
, Case No. 16-MD-02752-LHK,
Accordingly, because Snapkeys fails to state a claim under the “fraudulent” prong of the
UCL, the Court GRANTS Google’s motion to dismiss Snapkeys’ UCL claim as to the
“fraudulent” prong. The Court GRANTS Snapkeys leave to amend its “fraudulent” prong UCL
claim only to the extent that Snapkeys can identify how Google’s alert was misleading, and that
any omission alleged to be fraudulent was “contrary to a representation actually made by the
defendant, or an omission of a fact the defendant was obliged to disclose.’”
In re Yahoo! Inc.
Customer Data Sec. Breach Litig.
,
Here, Snapkeys alleges that Google made a series of misrepresentations and promises for
three reasons: to “1) obtain confidential information from Snapkeys; 2) buy Defendant and its
third-party partner time to catch up with Plaintiff’s technology superiority; and 3) creating
misleading alert messages when a consumer tried to enable the Snapkeys iType keyboard.” Opp’n
at 15–16. The first of these allegations—that Google made misrepresentations to obtain
confidential information from Snapkeys—is superseded by the CUTSA because it alleges
wrongdoing that is not “materially distinct” from a claim of trade secret misappropriation.
SunPower
,
As to Snapkeys’ remaining allegations, the Court finds that Snapkeys failed to state a claim
under the unfair prong of the UCL. The Ninth Circuit has affirmed dismissal of a UCL unfair
prong claim based on conclusory allegations of competitive harm.
See Levitt v. Yelp! Inc.
, 765
F.3d 1123, 1136–37 (9th Cir. 2014). In
Levitt
, a number of businesses alleged that the defendant’s
conduct “harms competition by favoring businesses that . . . purchase advertising [from the
defendant] to the detriment of competing business that decline to purchase advertising.” at
1136. The Ninth Circuit characterized this as a “general allegation” that failed to allege that such
conduct amounts to a “violation of antitrust laws ‘or otherwise significantly threatens or harms
competition.’” at 1137 (quoting
Cel-Tech
,
So too here. Snapkeys’ claim is completely devoid of any allegation about how Google’s
conduct harmed competition, e.g., in the smartwatch keyboard market.
See
SAC ¶¶ 72–80.
Instead, Snapkeys only alleges that Google’s conduct harmed Snapkeys, while also explicitly
stating that Google assisted Snapkeys’ competitors, “who possessed an inferior product.”
See id.
In
Levitt
, the Ninth Circuit held that the plaintiffs’ generalized allegations of “harm to
competition” were too conclusory and thus insufficient to plead a UCL unfair prong claim.
See
Because Snapkeys fails to state a claim under the “unfair” prong of the UCL, the Court
GRANTS Google’s motion to dismiss Snapkeys’ UCL claim as to the “unfair” prong. The Court
GRANTS Snapkeys leave to amend its “unfair” prong UCL claim only to the extent that Snapkeys
can plead facts showing that Google’s conduct “threatens an incipient violation of an antitrust law,
or violates the policy or spirit of one of those laws because its effects are comparable to or the
same as a violation of the law, or otherwise significantly threatens or harms competition.’”
See Cel-Tech
,
D. Claim Five: Breach of Implied Covenant of Good Faith and Fair Dealing 1 In Snapkeys’ fifth claim, Snapkeys alleges that Google breached an implied covenant of 2
good faith and fair dealing stemming from the parties’ NDA. SAC ¶¶ 81–89. Google argues that 3
dismissal of Snapkeys’ claim is appropriate on two grounds. First, Google argues that the claim is 4
impermissibly duplicative of its breach of contract claim. Mot. at 16 n.7; Reply at 11. Second, 5
Google argues that the claim contradicts explicit provisions in the NDA. Mot. at 19 n.8; Reply at 6
11. Because the Court agrees with Google’s first argument, that Snapkeys’ claim is duplicative of its breach of contract claim, the Court need not address Google’s second argument.
Under California law, the elements of a cause of action for breach of the covenant of good
faith and fair dealing are: “(1) the parties entered into a contract; (2) the plaintiff fulfilled his
obligations under the contract; (3) any conditions precedent to the defendant’s performance
occurred; (4) the defendant unfairly interfered with the plaintiff's rights to receive the benefits of
the contract; and (5) the plaintiff was harmed by the defendant’s conduct.”
Rosenfeld v.
JPMorgan Chase Bank, N.A.,
Here, the Court agrees with Google that Snapkeys fails to state a claim because it is
duplicative of Snapkeys’ breach of contract claim.
See supra
Section III.A. Snapkeys alleges that
Google “induced the disclosure of [Snapkeys’] confidential Smartwatch prototypes through bad
faith and fraudulent means, and did so with the intent to misappropriate this confidential
information, and provide this confidential information to third-party competitors.” ¶ 88. In
fact, Snapkeys repeatedly alleges throughout this claim that Snapkeys was induced into allowing
Google to misappropriate Snapkeys’ technology.
See, e.g.
, SAC ¶¶ 84, 85, 86, 88. This is the
exact allegation at the heart of Snapkeys’ breach of contract claim. SAC ¶¶ 35–44;
supra
Section III.A. Thus, Snapkeys’ allegations as to breach of the implied covenant of good faith and
fair dealing “do not go beyond the statement of a mere contract breach, [and] simply seek[s] the
same damages or other relief already claimed in a companion contract cause of action.”
See
Careau & Co.
,
As a result, the Court GRANTS Google’s motion to dismiss Snapkeys’ claim of breach of
the implied covenant of good faith and fair dealing. Moreover, because the Court finds that
amendment of this claim would be futile in light of Snapkeys’ existing breach of contract claim,
the Court DENIES Snapkeys’ leave to amend this claim.
See Leadsinger
,
to amend. The Court thus dismisses this claim with prejudice; • Google’s motion to dismiss Snapkeys’ third claim for conversion in DENIED; • Google’s motion to dismiss Snapkeys’ fourth claim for unfair competition is GRANTED with leave to amend; and
• Google’s motion to dismiss Snapkeys’ fifth claim for breach of the implied covenant of good faith and fair dealing is GRANTED without leave to amend. The Court thus dismisses this claim with prejudice.
Should Snapkeys choose to file an amended complaint to amend its UCL claim and delete the dismissed claims, Snapkeys must do so within 30 days of this Order. Snapkeys is directed to file a redlined complaint as an attachment to its amended complaint. Leave to amend is restricted to the defects discussed in this Order and in Google’s motion to dismiss. Snapkeys may not add new parties or claims or amend other claims without obtaining prior express leave of the Court. IT IS SO ORDERED.
Dated: March 4, 2020
______________________________________ LUCY H. KOH United States District Judge
Notes
[1] Snapkeys’ brief contains thirty footnotes, which consume a third or even half of multiple pages. Moreover, Snapkeys’ brief violates Civil Local Rule 3-4(c)(2), which prohibits footnotes “smaller than 12-point standard font.” Snapkeys’ brief may also violate Civil Local Rule 7-2(b), which limits briefs to 25 pages. The Court will strike future filings that violate the Civil Local Rules.
[2] The parties use the term “preempted.” As explained in
Silvaco Data Systems v. Intel Corp.
,
“[t]he [California] Supreme Court has criticized the use of ‘preempt’ to describe the supersession
of one state law by another.”