The Southern District of California recently confirmed that the California Uniform Trade Secrets Act (“CUTSA”) does not preempt other civil claims to extent they are based on wrongful conduct relating to non-trade secret intellectual property.
The case involves an employee leaving a company and allegedly commercializing its trade secret with a competitor. Defendant Mr. Corey was an original co-founder of Plaintiff Javo – which sold coffee, tea, and botanical extracts. He played a key role in developing Javo’s proprietary process for making extracts. The process involved using a specially made extraction vessel and particular levels of water quality, temperature and pressure. In 2011, as a result of Chapter 11 bankruptcy proceedings, Javo terminated Mr. Corey’s employment. Importantly to this case, his employment agreement had included an assignment of all his rights and interests in any trade secrets to Javo.
Mr. Corey went on to work for the Defendant, California Extraction Ventures (“CEV”). Shortly thereafter, Mr. Corey filed patent applications disclosing some of Javo’s allegedly proprietary information, including purported trade secret information, as well as other confidential (but not trade secret) information. Rather than assign the patent applications to Javo, Mr. Corey assigned them to CEV, his new employer. Eventually seven patents issued, and seven additional applications were published.
When Javo found out about Mr. Corey’s patents, Javo sued CEV and Mr. Corey for violating the Defendant Trade Secrets Act (“DTSA”) and CUTSA, as well as for intentionally interfering with contractual relations. In its motion to dismiss, CEV argued that Javo’s contractual interference claim should be dismissed as preempted by CUTSA.
To decide the issue, the court looked to whether the CUTSA claim and the contract claim were based on “the same nucleus of facts.” The court explained, “At the pleading stage, the preemption analysis asks whether, stripped of facts supporting trade secret misappropriation, the remaining factual allegations can be reassembled to independently support other claims for relief.” Javo Beverage Co. v. California Extraction Ventures, Inc., No. 19-CV-1859-CAB-WVG, 2019 WL 6467802, at *4 (S.D. Cal. Dec. 2, 2019). “Claims are not preempted . . . when based upon a broader spectrum of misconduct than misappropriation.” Id.
The court decided not to dismiss Javo’s contractual interference claim because it involved allegations outside the scope of Javo’s trade secret misappropriation claims. For example, Javo had alleged that CEV interfered with Mr. Corey’s duty to assign to Javo his patents – which contained confidential (but not trade secret) information. Javo’s contractual interference claim thus avoided dismissal “to the extent the allegations are based upon non-trade secret information.” Id. at *5.
This case serves as a useful reminder that trade secret claims can preempt other civil claims – but only when they are based on the same nucleus of facts. And avoiding preemption can potentially open the door to additional remedies not specifically provided for by trade secret law.