IP Law Daily Facebook fails to escape data center trade secrets misappropriation case
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Monday, January 29, 2018

Facebook fails to escape data center trade secrets misappropriation case

By Joseph Arshawsky, J.D.

Besides dismissing a single trade secret and rejecting a restitution claim under the unfair competition laws, the federal district court in San Jose, California, has denied Facebook’s motion for summary judgment directed against California Uniform Trade Secrets Act (CUTSA) claims brought by modular data center operators BladeRoom Group Limited and Bripco (UK) Limited (together, "BladeRoom"). In a heavily redacted opinion, the court found that BladeRoom had sufficiently identified its allegedly misappropriated trade secrets and had raised sufficient genuine issues of disputed fact to survive summary judgment on misappropriation and breach of contract claims (BladeRoom Group Ltd. v. Facebook, Inc., January 23, 2018, Davila, E.).

Facebook built a warehouse-sized data center ("LLA2") housing an array of computer servers in a small Swedish city, and BladeRoom alleges that Facebook and its co-defendants purportedly enticed BladeRoom to reveal its collection of innovative designs and methods for the construction of a modular data center known as the "Armature" technology with promises of acquisition and partnership, only to then appropriate the technology and incorporate them into LLA2. BladeRunner filed this suit against Facebook and the other parties involved, and Facebook moved for summary judgment, which was for the most part denied.

Misappropriation of trade secrets. To demonstrate a prima facie claim of misappropriation under CUTSA, BladeRoom had to prove: (1) that it owned a trade secret; (2) that Facebook acquired, disclosed, or used BladeRoom’s trade secret through improper means; and (3) Facebook’s actions damaged BladeRoom.

Identification of trade secrets. First, the court dealt with the combination trade secrets. BladeRoom disclosed 13 combination trade secrets, each of which consisted of some permutation of its 25 separately-asserted trade secrets. Facebook challenged this disclosure for omitting "any explanation of the significance or novelty of these combinations, or how the parts work together to create a trade secret." The court previously rejected this argument in other contexts, and rejected it here again. The sufficiency of BladeRoom’s disclosures was previously litigated and decided, and the court would not revisit its finding that BladeRoom’s discovery disclosures sufficiently detailed its claimed trade secrets. The court also rejected Facebook’s apparent attempt to apply "the same novelty rubric applied in patent infringement cases" to these trade secrets. Here, the combination trade secrets consist of nothing more than arrangements of BladeRoom’s other trade secrets, which were determined to be adequately disclosed. In sum, the court found that the combination trade secrets were described with sufficient particularity.

Second, the court dealt with "know-how" trade secrets. Facebook charged that BladeRoom’s "trade secrets repeatedly used the phrase ‘know-how’ but never say what the know-how is." The court also previously found that the "know-how" trade secrets were sufficiently articulated, thereby defeating Facebook’s argument. The court also found that BladeRoom’s discovery responses, when read along with its disclosure, precisely and specifically described what it claims as the know-how necessary to perform the operations contemplated by its trade secrets. The court therefore rejected summary judgment on the basis that the "know-how" secrets were not identified.

Trade Secret 9.2. Trade Secret 9.2 is a subset of Trade Secret 9, which generally claims the design of software for use in an atmospheric control system. The court agreed with Facebook that Trade Secret 9.2 lacked the requisite particularity. Facebook’s motion was therefore granted as to that trade secret, and to any combination trade secret incorporating Trade Secret 9.

Acquisition of trade secrets. The court rejected Facebook’s motion for summary judgment on grounds that BladeRoom cannot prove misappropriation by improper acquisition. Facebook need not have addressed each specific instance of alleged misappropriation separately. CUTSA specifies in its definition of "improper means" that a trade secret can be misappropriated through misrepresentation. BladeRoom’s theory is that Facebook, along with its co-defendants, acquired its trade secrets by misrepresenting its motivation for engaging it in discussions concerning the Armature technology. Viewing the redacted evidence in the light most favorable to BladeRoom, a reasonable jury could find that Facebook improperly acquired BladeRoom’s trade secrets through misrepresentation. Given that BladeRoom produced enough evidence to create a genuine issue of material fact, the court denied Facebook’s motion on grounds of acquisition.

Disclosure of trade secrets. "Here, the existence of a non-disclosure agreement between BladeRoom and Facebook defining the parties’ confidentiality obligations with respect to disclosed trade secrets is undisputed." BladeRoom argues that Facebook misappropriated its trade secrets by disclosing information to its co-defendants, and enough evidence supports that contention to defeat summary judgment. Those third-party disclosures violated Facebook’s express contractual obligations not to do so.

Use of trade secrets. Facebook argued that LLA2 does not use certain trade secrets, by undertaking a patent infringement analysis. BladeRoom was correct that such an analysis is inappropriate in the trade secret context. "Trade secret misappropriation through use can occur under CUTSA in a wide variety of ways, including employing the confidential information in manufacturing, production, research or development, marketing goods that embody the trade secret, or soliciting customers through the use of trade secret information." A reasonable jury could find that LLA2 was substantially derived from BladeRoom’s trade secrets. The jury could infer that Facebook’s implemented data center design shifted to a model closely resembling BladeRoom’s modular technology after Facebook acquired the trade secrets. A reasonable jury could also find several marked similarities between LLA2 and BladeRoom’s trade secrets. Because the evidentiary record discloses a triable issue of fact as to whether Facebook violated CUTSA by improperly using BladeRoom’s trade secrets, Facebook’s summary judgment motion on this aspect was denied.

Breach of contract. The parties’ obligations were mutual but also separable and independent, that is even if BladeRoom was in default, it could still sue for breach of the confidentiality provisions. Given the evidence of disclosure and use, a jury could find that Facebook breached the non-disclosure agreement.

Unlawful and unfair competition. The court rejected Facebook’s attempt to dismiss the unlawful and unfair competition claims on the same grounds as above. Facebook was entitled to summary judgment on restitution, because there was no evidence that BladeRoom paid it any money.

Lost profits. A jury would not need to resort to speculation or surmise to find that Facebook’s alleged disclosure of BladeRoom’s confidential information caused lost profits related to a subsequent project in Oregon.

The case is No. 5:15-cv-01370-EJD.

Attorneys: Stephanie Powers Skaff (Farella Braun and Martel LLP) and Anthony David Giles (Law Office of Anthony Giles) for BladeRoom Group Ltd. and Bripco [UK] Ltd. Mark Frederick Lambert (Cooley LLP) for Facebook, Inc. Arjun Sivakumar (Brown Rudnick LLP) and John Christopher Jaczko (Procopio Cory Hargreaves & Savitch LLP) for Emerson Electric Co. Dylan Kletter (Brown Rudnick LLP) for Emerson Network Power Solutions, Inc.

Companies: BladeRoom Group Ltd.; Bripco [UK] Ltd.; Facebook, Inc.; Emerson Electric Co.; Emerson Network Power Solutions, Inc.

MainStory: TopStory TradeSecrets TechnologyInternet CaliforniaNews

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