Supreme Court of California Justia
Citation 29 Cal. 4th 215, 57 P.3d 647, 127 Cal. Rptr. 2d 169

Cadence Design Systems v. Avant! Corp.

Cadence Design Systems v. Avant! Corp. (2002) , Cal.4th

[No. S098266. Nov. 21, 2002.]

CADENCE DESIGN SYSTEMS, INC., Plaintiff and Appellant, v. AVANT! CORPORATION, Defendant and Appellant.

(U.S. District Court, No. CV 95-20828)

(Ninth Circuit Court of Appeals, Nos. 99-17648 and 99-17649.)

(Opinion by Moreno, J., expressing the unanimous view of the court.)

COUNSEL

Keker & Van Nest, John W. Keker, Jeffrey R. Chanin, Michael H. Page and Ragesh K. Tangri for Plaintiff and Appellant.

Robert G. Bone and James Pooley as Amici Curiae on behalf of Plaintiff and Appellant.

Howard, Rice, Nemerovski, Canady, Falk & Rabkin, Bernard A. Burk and Jeffrey E. Faucette for Oracle Corporation, Xilinx, Inc. and 3Com Corporation as Amici Curiae on behalf of Plaintiff and Appellant.

O'Melveny & Myers, Daniel H. Bookin, Darin W. Snyder, James W. Shannon, Erika R. Frick and Hiro N. Aragaki for Defendant and Appellant.

Horvitz & Levy, H. Thomas Watson and Jason R. Litt for Truck Insurance Exchange as Amicus Curiae on behalf of Defendant and Appellant.

OPINION

MORENO, J.-

We granted the request for certification of the United States Court of Appeals for the Ninth Circuit pursuant to California Rules of Court, rule 29.5, to address the following question:

Under the California Uniform Trade Secrets Act (UTSA), Civil Code, section 3426, fn. 1 when does a claim for trade secret infringement arise: only once, when the initial misappropriation occurs, or with each subsequent misuse of the trade secret?

We conclude that in a plaintiff's action against the same defendant, the continued improper use or disclosure of a trade secret after defendant's initial misappropriation is viewed under the UTSA as part of a single claim of "continuing misappropriation" accruing at the time of the initial misappropriation. fn. 2


I. STATEMENT OF FACTS

The relevant facts, as stated in the Ninth Circuit's certification order to this court, are as follows:

Cadence and Avant! compete in the field of integrated circuit design automation. Both companies design "place and route" software, which enables computer chip designers to place and connect tiny components on a computer chip. Cadence formed in 1988 through the merger of several companies. Four senior employees left Cadence in 1991 to found Avant!, originally known as ArcSys.

In March 1994, Cadence vice president Gerald Hsu resigned from Cadence to sign on with Avant!. Because Hsu possessed valuable business trade secrets and other confidential information, Cadence informed Hsu that it objected to his working at Avant!. Concerned that Hsu would reveal proprietary Cadence information when managing Avant!, Cadence sent Avant! a draft complaint naming Avant! and Hsu as defendants. Cadence alleged trade secret misappropriation and other causes of action. In negotiating a settlement of Cadence's claims, Cadence and Avant! apparently did not discuss Avant!'s alleged use of Cadence's Framework II (DFII) trade secret source code. fn. 3

After extensive negotiations, in June 1994, the parties entered into a confidential settlement agreement (the Agreement or Release) that included a mutual general release, which provided in part:

"Cadence, [Avant!] and Hsu . . . hereby forever release and discharge each other . . . of and from any and all manner of action, claim or cause of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liabilities, demands, losses, damages, costs or expenses, including without limitation court costs and attorneys' fees, which they may have against each other at the time of the execution of this Agreement, known or unknown, including but not limited to any claims arising out of, or in connection with, or relating directly or indirectly to the following: Hsu's employment with Cadence, the cessation of Hsu's employment with Cadence, any wrongful termination of Hsu, any age or race discrimination by Cadence with respect to Hsu, any anticompetitive activity or unfair competition or trade secret misappropriation by Cadence, Hsu or [Avant!] with respect to Cadence, Hsu or [Avant!] with respect to Cadence, Hsu or [Avant!] . . . or any other actions taken by Cadence to with respect to Hsu or [Avant!] or by Hsu or [Avant!] with respect to Cadence."

The Agreement also contained in capital letters a waiver of Civil Code section 1542 with the following language:

"THESE RELEASES EXTEND TO CLAIMS WHICH THE PARTIES DO NOT KNOW OR SUSPECT TO EXIST IN THEIR FAVOR, WHICH IF KNOWN BY THEM WOULD HAVE MATERIALLY AFFECTED THEIR DECISION TO ENTER INTO THIS RELEASE.

"In connection with such waiver and relinquishment, the Parties acknowledge that they are aware that, after executing this Agreement, they or their attorneys or agents may discover claims or facts in addition to or different from those which they now know or believe to exist . . . but that it is their intention hereby fully, finally and forever to settle and release all of the claims, matters, disputes and differences known or unknown, suspected or unsuspected, which now exist, may exist, or heretofore may have existed against each other in connection with the released matters. In furtherance of this intention, the release herein given shall be and remain in effect as a full and complete release notwithstanding the discovery or existence of any such additional or different claim or fact."

In the summer of 1995, a Cadence engineer discovered a "bug" (an error) in Avant!'s ArcCell software program that was similar to a bug he had inadvertently created several years earlier when writing source code for Cadence's DFII product. In December 1995, the Santa Clara County District Attorney executed a search of Avant!'s headquarters. Among the items seized was a log that showed line-by-line copying of Cadence source code in 1991 by a former Cadence employee and Avant! founder.

In December 1995, Cadence sued Avant! for theft of its copyrighted and trade secret source code and sought a preliminary order enjoining the sale of Avant!'s ArcCell and Aquarius products. In anticipation of trial, both sides filed cross-motions for partial summary judgment concerning the effect of the Release. Avant! argued that because Cadence had released all its claims existing at the time of the Release, any claims based on continuing or future misuse of trade secrets that were stolen prior to the date of the Release were now barred. Cadence maintained that the only claims it had released were those for misappropriation occurring before the effective date of the Release, and not claims to redress Avant!'s continuing or new misuses of its trade secrets after the date of the Release.

The federal district court ruled on these summary judgment motions on October 13, 1999. Reversing its initial order, the district court held that all of Cadence's trade secret claims for post-Release misuse of its DFII trade secrets taken before the Release were barred by the Release. Cadence now is appealing this decision to the Ninth Circuit. If the Release barred Cadence's claims existing at the time of the Agreement, but did not bar future claims, the question still remains: What claims existed at the time of the Agreement?" Are all of Cadence's claims for Avant!'s trade secret misappropriation part of the same claim, or does each successive misuse of Cadence trade secret source code give rise to a separate claim? fn. 4


II. DISCUSSION

Avant! argues that a cause of action for misappropriation of a given trade secret by a particular plaintiff against a particular defendant arises only once, when the trade secret is initially misappropriated. In support of this position, it relies in large part on the rationale set forth in Monolith Portland Midwest Co. v. Kaiser Aluminum & Chem. Corp. (9th Cir. 1969) 407 F.2d 288 (Monolith), which applied the California common law of trade secrets. The Monolith court rejected the position exemplified by Underwater Storage, Inc. v. United States Rubber Co. (D.C.App. 1966) 371 F.2d 950, "that the wrong is the adverse use of the secret disclosed in confidence; each use is a new wrong, and a continuing use is a continuing wrong. Underlying this theory is the concept that a trade secret is in the nature of property, which is damaged or destroyed by the adverse use . . . . California does not treat trade secrets as if they were property. It is the relationship between the parties at the time the secret is disclosed that is protected. (Futurecraft Corp. v. Clary Corp. (1962) 205 Cal.App.2d 279, 23 Cal.Rptr. 198.) The protected relationship, contractual or confidential, is one to which, as Mr. Justice Holmes observed, 'some rudimentary requirements of good faith' are attached. 'Whether the plaintiffs have any valuable secret or not the defendant knows the facts, whatever they are, through a special confidence that he accepted. The property may be denied, but the confidence cannot be. Therefore the starting point for the present matter is not property . . . , but that the defendant stood in confidential relations with the plaintiffs . . . .' (E. I. Du Pont de Nemours Powder Co. v. Masland (1917) 244 U.S. 100, 102.) The fabric of the relationship once rent is not torn anew with each added use or disclosure, although the damage suffered may thereby be aggravated. The cause of action arises but once . . . ." (Monolith, supra, 407 F.2d at p. 293, italics added.)

On the other hand, Cadence asserts that the UTSA, which as discussed below was adopted by California in 1984, changed the common law view typified by Monolith, and now views trade secrets as property rather than simply as the protection of a confidential relationship. It further reasons that because trade secret misappropriation is the wrongful taking or use of protected property, each new use represents a new claim of misappropriation. As will be discussed, neither Cadence's nor Avant!'s positions are entirely correct.

In order to answer the certified question, we must examine the pertinent language of the UTSA. As the Court of Appeal explained in Glue-Fold, Inc. v. Slautterback Corp. (2000) 82 Cal.App.4th 1018, 1023 (Glue-Fold), the UTSA "was approved by the National Conference of Commissioners on Uniform State Laws in 1979 and adopted without significant change by California in 1984. (14 West's U. Laws Ann. (1990) U. Trade Secrets Act, p. 433; Stats. 1984, ch. 1724, § 1, pp. 6252-6253.)" (Fn. omitted.) Section 3426.1 defines certain key terms of the UTSA. "Trade secret" is defined as "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." (§ 3426.1, subd. (d).)

"Misappropriation" is defined as "(1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or [¶] (2) Disclosure or use of a trade secret of another without express or implied consent by a person who: (A) Used improper means to acquire knowledge of the trade secret; or (B) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was: (i) Derived from or through a person who had utilized improper means to acquire it; (ii) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (iii) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or [¶] (C) Before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake." (§ 3426.1, subd. (b).)

" 'Improper means' " is defined to "include[] theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. Reverse engineering or independent derivation alone shall not be considered improper means." (§ 3426.1, subd. (a).)

Thus, the legal protection accorded trade secrets is fundamentally different from that given to patents, in which the patent owner acquires a limited term monopoly over the patented technology, and use of that technology by whatever means infringes the patent. The owner of the trade secret is protected only against the appropriation of the secret by improper means and the subsequent use or disclosure of the improperly acquired secret. There are various legitimate means, such as reverse engineering, by which a trade secret can be acquired and used. (See 2 Callman, The Law of Unfair Competition, Trademarks, and Monopolies (1981) § 14.01, p. 14-6; id., § 14.15, p. 14-102.)

The most critical section of UTSA for purposes of this case is section 3426.6, which provides: "An action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. For the purposes of this section, a continuing misappropriation constitutes a single claim."

As the Court of Appeal recognized in Glue-Fold, supra, 82 Cal.App.4th at pp. 1023-1024, "[s]ection 3426.6 is derived almost verbatim from section 6 of the Uniform Act as originally drafted. (See 14 West's U. Laws Ann., supra, U. Trade Secrets Act, com. to § 6, p. 462.) It is therefore appropriate to accord substantial weight to the commissioners' comment on the construction of what is now section 3426.6. [Citations.] [¶] That comment is: 'There presently is a conflict of authority as to whether trade secret misappropriation is a continuing wrong. Compare Monolith Portland Midwest Co. v. Kaiser Aluminum & Chemical Corp., 407 F.2d 288 (CA9, 1969) (not a continuing wrong under California law -- limitation period upon all recovery begins upon initial misappropriation) with Underwater Storage, Inc. v. U.S. Rubber Co., 371 F.2d 950 (CADC, 1966) . . . (continuing wrong under general principles -- limitation period with respect to a specific act of misappropriation begins at the time that the act of misappropriation occurs). [¶] This Act rejects a continuing wrong approach to the statute of limitations but delays the commencement of the limitation period until an aggrieved person discovers or reasonably should have discovered the existence of misappropriation. If objectively reasonable notice of misappropriation exists, three years is sufficient time to vindicate one's legal rights." (14 West's U. Laws Ann., supra, U. Trade Secrets Act, com. to § 6, p. 462.)" (Fns. omitted.)

The UTSA does not define the term "continuing misappropriation," but its meaning appears evident in light of the definition of "misappropriation." It is the continuing use or disclosure of a trade secret after that secret was acquired by improper means or as otherwise specified in section 3426.1, subdivision (b). Thus, for statute of limitations purposes, a continuing misappropriation is viewed as a single claim. The drafters of the UTSA explicitly affirmed Monolith and rejected the contrary view that misappropriation gives rise to multiple claims each time the trade secret is misused or improperly disclosed.

From our examination of the above statutes, a distinction between a "misappropriation" and a "claim" emerges. A misappropriation within the meaning of the UTSA occurs not only at the time of the initial acquisition of the trade secret by wrongful means, but also with each misuse or wrongful disclosure of the secret. But a claim for misappropriation of a trade secret arises for a given plaintiff against a given defendant only once, at the time of the initial misappropriation, subject to the discovery rule provided in section 3426.6. Each new misuse or wrongful disclosure is viewed as augmenting a single claim of continuing misappropriation rather than as giving rise to a separate claim.

Cadence makes much of the language in section 3426.6 that states, "[f]or the purposes of this section, a continuing misappropriation constitutes a single claim." Based on that language, Cadence argues that a continuing misappropriation constitutes a single claim only for statute of limitations purposes. This argument cannot withstand scrutiny. The certified question asks when a claim for trade secret infringement arises. The term "claim" does not have some theoretical meaning apart from the context in which it is used. In the present case, the certified question is asked in the context of a release, which is intended to settle or prevent litigation. Therefore, "claim" must be defined in the context of litigation. If "continuing misappropriation" is viewed as a single claim for statute of limitations purposes (see Glue-Fold, supra, 82 Cal.App.4th at pp. 1026-1028), then it is difficult to fathom how it could be treated as more than one claim for purposes of litigation generally. For example, a plaintiff could not legitimately plead separate claims of misappropriation for each misuse of a trade secret, for to do so would impermissibly evade the statute of limitations. Nor can it be asserted that separate "claims" accruing at different times can have the same limitations period, because that position is contrary to the rule that each civil action possesses its own statutorily prescribed limitations period. (See Code Civ. Proc., § 312.) The only other alternative is to hold that the term "claim" means one thing in the context of litigation and something else in the context of releases. There is no indication the Legislature intended this kind of inconsistency.

In fact, the phrase "for purposes of this section" can plausibly be explained as a means of contrasting section 3426.6 with section 3426.10, the only other section to refer to "continuing misappropriation." That section states: "This title does not apply to misappropriation occurring prior to January 1, 1985. If a continuing misappropriation otherwise covered by this title began before January 1, 1985, this title does not apply to the part of the misappropriation occurring before that date. This title does apply to the part of the misappropriation occurring on or after that date unless the appropriation was not a misappropriation under the law in effect before the operative date of this title." (Ibid., italics added.) In other words, for purposes of section 3426.10, a continuing misappropriation is not necessarily a single claim. Rather, the claim must be divided in two if the continuing misappropriation took place partly before January 1, 1985 -- one common law claim for misappropriation occurring before that date, and one UTSA claim for misappropriation occurring thereafter. Indeed, if each misappropriation constituted a single claim, all that section 3426.10 would have had to have said is: This title does not apply to misappropriation occurring prior to January 1, 1985. There would be no need to refer to continuing misappropriation because, according to Cadence's theory, that concept does not exist outside the statute of limitations section and it would have been meaningless to refer to "the part of the misappropriation occurring on or after that date." (Ibid.)

Another occasion in which an act of continuing misappropriation may be said to constitute more than one claim is when multiple defendants are involved. For example, in PMC, Inc. v. Kadisha (2000) 78 Cal.App.4th 1368, officers, directors, and investors of a corporation were sued personally for a trade secret misappropriation initiated before their involvement in the corporation. They sought summary judgment in part on the grounds that they could not be held liable because the initial misappropriation had occurred before they assumed their positions. The Court of Appeal rejected that position, reasoning that the definition of misappropriation includes disclosure or use of a trade secret by persons who knew or had reason to know that the trade secret was acquired by improper means. (Id. at p. 1382, citing § 3426.1, subd. (b)(2)(B)(i)-(ii).) But Cadence's assertion that Kadisha advances its position is incorrect. That case holds only that there may be separate claims of continuing misappropriation among different defendants, with differing dates of accrual and types of tortious conduct -- some defendants liable for initial misappropriation of the trade secret, others only for later continuing use. This holding does not conflict with our conclusion that there is only a single UTSA claim against a single defendant misappropriating a single plaintiff's trade secret.

Cadence cites Penal Code section 499c, providing criminal penalties for theft of trade secrets, in support of its argument. It quotes the noncodified statutory purpose of that statute as, in part, "to make clear that articles representing trade secrets, including the trade secrets represented thereby, constitute goods, chattels, materials and property and can be the subject of criminal acts." (Stats. 1967, ch. 132, § 1, p. 1163.) Avant!'s arguments notwithstanding, it appears indisputable that trade secrets are a form of property. But the nature of the property interest and the means by which the interest can be vindicated are matters of state law. The UTSA defines an act of continuing misappropriation for litigation purposes as a single claim.

Cadence cites Remington Rand Corporation v. Amsterdam-Rotterdam Bank, N.V. (2d Cir. 1995) 68 F.3d 1478, 1485, in which the court, considering a release similar to the one at issue here, concluded the release did not shield defendants from liability for continuing wrongful use of trade secrets after the date of the release. The case was decided under either New York or New Jersey law. (68 F.3d at p. 1483, fn. 2 [acknowledging uncertainty as to which state law applied].) Neither of these states has adopted the UTSA. (14 West's U. Laws Ann. (2002 Supp.) U. Trade Secrets Act, p. 128.) Moreover, the court did not analyze the relevant state statutes, and it is unclear whether its conclusion was based on statutory interpretation or interpretation of the intent of the parties to the release. It is therefore not persuasive authority for holding that each new trade secret misuse in California gives rise to a separate claim.

Cadence also cites federal case law holding that each act of patent infringement gives rise to a separate cause of action. (Augustine Medical, Inc. v. Progressive Dynamics, Inc. (Fed. Cir. 1999) 194 F.3d 1367, 1371.) Again, this case law has little relevance to the question presented. Although there are similarities between trade secret and patent law, there are also significant differences discussed above. Quite apart from these differences, our conclusion in the present case does not rest on reasoning from general principles of intellectual property law, but rather on the construction of the specific statutory language of the UTSA. Nor is there any indication that the UTSA was patterned after patent law. fn. 5

Cadence also argues that viewing Avant!'s continuing misappropriation as a single claim effectively rewards Avant! with a license to use the misappropriated technology and to discourage parties from entering into releases in the future. But however the UTSA defines a trade secret claim, parties to a release in a trade secret dispute remain free to fashion the release as broadly or narrowly as they choose. Moreover, under our interpretation of the USTA, a trade secret infringer is by no means rewarded for its infringement with a license to use the infringed technology. Rather, a successful trade secret plaintiff is entitled to the full panoply of remedies, including injunctive relief against further misappropriation (§ 3426.2), damages for actual loss (§ 3426.3), and relief from unjust enrichment (ibid.). fn. 6

Our answer to the certified question is narrow. As stated, we do not accept Avant!'s position, at least stated in its strongest form, that only the initial misappropriation of a trade secret via the breach of a confidential relationship constitutes misappropriation -- the UTSA plainly states otherwise. The potential damages encompassed by a continuing misappropriation claim may expand with each illicit use or disclosure of the trade secret. Nor do we address how the parties intended to define the term "claim" in the present release. All we decide is that the UTSA views a continuing misappropriation of a trade secret of one party by another as a single claim.


III. CONCLUSION

We conclude that a plaintiff's claim for misappropriation of a trade secret against a defendant arises only once, when the trade secret is initially misappropriated, and each subsequent use or disclosure of the secret augments the initial claim rather than arises as a separate claim.

Kennard, Acting. C. J., Baxter, J., Chin, J., Brown, J., Nares, J., fn. * and Nott, J., fn. ** concurred.

­FN 1. All statutory references are to the Civil Code unless otherwise indicated.

­FN 2. Shortly before the filing of this opinion, we were informed by the parties to this case that they have settled the underlying litigation, although they do not seek dismissal of proceedings in this court. When parties settle a case after oral argument, we may nonetheless exercise our discretion to issue an opinion "to resolve the legal issues raised, which are of continuing public interest and are likely to recur." (People v. Eubanks (1996) 14 Cal.4th 580, 584, fn. 2.) The certified question asks us to decide a general point of law regarding an aspect of California's trade secret statute. Accordingly, although the matter is apparently rendered moot, we exercise our discretion to resolve the legal question.

­FN 3. Computer software programs are written in specialized languages called source code. The source code, which humans can read, is then translated into language that computers can read. The computer readable form, which operates on a binary system, is called object code.

­FN 4. In the present case, it is unclear from the above facts whether the acquisition of the trade secret was itself improper and therefore a misappropriation, or whether the subsequent use of the secret was the initial misappropriation. In any case, the parties agree that Avant! had both acquired and used the trade secret prior to signing the Release. We will assume for purposes of addressing the certified question that the initial misappropriation occurred with the first use of the secret and will, for purposes of this case, equate "initial misappropriation" with "initial use."

­FN 5. Patent law has no equivalent to section 3426.6. The limitations on patent actions set forth in 35 United States Code section 286 differ considerably from section 3426.6. It provides in pertinent part: "Except as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action." (35 U.S.C., § 286.) "This provision has been said not to constitute a 'statute of limitations' in the usual sense of the term, in that 35 U.S.C. section 286 does not say that no suit shall be maintained. . . . . The limitation contained in the 35 U.S.C. section 286 . . . does not bar infringement actions, but merely limits recovery of damages to infringements occurring during the six years preceding any damages action brought." (Rosenberg, 3 Patent Law Fundamentals (Rev. 2d ed. 2001) § 17.06 [1][d], p. 17-100.) The federal statute does not employ "continuing misappropriation" or any equivalent concept.

­FN 6. Cadence also cites in support of its position a letter from Assemblyman Elihu Harris, the sponsor of the UTSA, to Governor Deukmejian urging him to sign Assembly Bill No. 501 (1983-1984 Reg. Sess.), the UTSA, in order to bring "clarity and uniformity into this important area of law." (Assemblyman Harris, Letter to Gov. Deukmejian, Sept. 12, 1984, p. 2.) From this and other general statements in that letter, Cadence wishes to deduce a general policy of strengthening trade secret protection that would lead to support of its position. We are not persuaded. We do not discern how these general statements have any particular bearing on the certified question. Moreover, even if we assume that the UTSA was generally intended to strengthen trade secret protection (a point Avant! disputes), nothing we say in the present opinion vitiates such protection, as discussed immediately above.

­FN *. Associate Justice, Court of Appeal, Fourth Appellate District, Division 1, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

­FN **. Associate Justice, Court of Appeal, Second Appellate District, Division 2, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

Request by the United States Court of Appeals for the Ninth Circuit for the answer to a certified question of state law pursuant to rule 29.5 of the California Rules of court. The certified question is: "Under the California Uniform Trade Secrets Act ('USTA'), Cal. Civ. Code section 3426, when does a claim for trade secret infringement arise: only once, when the initial misappropriation occurs, or with each subsequent misuse of the trade secret?"

Opinion Information
Date:Citation:Docket Number:Category:Status:Cross Referenced Cases:
Thu, 11/21/200229 Cal. 4th 215, 57 P.3d 647, 127 Cal. Rptr. 2d 169S098266Question of Law - Civilcomplete

HUANG v. S.C. (PEOPLE) (S075332)


Parties
1Cadence Design Systems (Plaintiff and Appellant)
Represented by John W. Keker
Keker & Van Nest
710 Sansome Street
San Francisco, CA

2Cadence Design Systems (Plaintiff and Appellant)
Represented by Jeffrey R. Chanin
Keker & Van Nest
710 Sansome Street
San Francisco, CA

3Cadence Design Systems (Plaintiff and Appellant)
Represented by Michael Henry Page
Keker & Van Nest, LLP
710 Sansome Street
San Francisco, CA

4Cadence Design Systems (Plaintiff and Appellant)
Represented by Clement S. Roberts
Keker & Van Nest, LLP
710 Sansome Street
San Francisco, CA

5Cadence Design Systems (Plaintiff and Appellant)
Represented by Ragesh Kumar Tangri
Keker & Van Nest, LLP
710 Sansome Street
San Francisco, CA

6Avant! Corporation (Defendant and Appellant)
Represented by Daniel H. Bookin
O'Melveny & Myers
275 Battery Street
San Francisco, CA

7Avant! Corporation (Defendant and Appellant)
Represented by Michael M. Carlson
Morrison & Foerster
425 Market Street
San Francisco, CA

8Avant! Corporation (Defendant and Appellant)
Represented by Erika R. Frick
O'Melveny & Myers LLP
275 Battery Street
San Francisco, CA

9Avant! Corporation (Defendant and Appellant)
Represented by William M. Goodman
Topel & Goodman
832 Sansome St.,4Th Fl
San Francisco, CA

10Avant! Corporation (Defendant and Appellant)
Represented by Robert Francois Kramer
Morrison & Foerster
425 Market Street
San Francisco, CA

11Avant! Corporation (Defendant and Appellant)
Represented by Jack W. Londen
Morrison & Foerster
425 Market Street
San Francisco, CA

12Avant! Corporation (Defendant and Appellant)
Represented by David Alan Makman
Morrison & Foerster LLP
425 Market Street
San Francisco, CA

13Avant! Corporation (Defendant and Appellant)
Represented by Thomas Joseph Jr. Nolan
Nolan, Armstrong & Barton, LLP
600 University Avenue
Palo Alto, CA

14Avant! Corporation (Defendant and Appellant)
Represented by Darin W. Snyder
O'Melveny & Myers
275 Battery Street, Suite 2500
San Francisco, CA

15Avant! Corporation (Defendant and Appellant)
Represented by Thomas Lee Treffert
Morrison & Foerster LLP
425 Market Street
San Francisco, CA

16Avant! Corporation (Defendant and Appellant)
Represented by Douglas R. Young
Farella, Braun & Martel
235 Montgomery Street
San Francisco, CA

17United States Court Of Appeals For The Ninth Circuit (Overview party)
95 Seventh Street
San Francisco, CA 94103

18Truck Insurance Exchange (Amicus curiae)
Represented by Jason Roger Litt
Horvitz & Levy LLP
15760 Ventura Blvd., 18th Floor
Encino, CA

19Bone, Robert G. (Amicus curiae)
Boston University School of Law
765 Commonwealth Avenue
Boston, MA 02215

20Oracle Corporation (Amicus curiae)
Represented by Bernard A. Burk
Howard, Rice, Nemerovski, Canady, Falk & Rabkin
3 Embarcadero Center, 7th Floor
San Francisco, CA

21Xilinx, Inc. (Amicus curiae)
Represented by Bernard A. Burk
Howard, Rice, Nemerovski, Canady, Falk & Rabkin
3 Embarcadero Center, 7th Floor
San Francisco, CA

223com Corporation (Amicus curiae)
Represented by Bernard A. Burk
Howard, Rice, Nemerovski, Canady, Falk & Rabkin
3 Embarcadero Center, 7th Floor
San Francisco, CA

23Pooley, James (Amicus curiae)
Represented by James Henry A. Pooley
Attorney at Law
630 Hansen Way, Second Floor
Palo Alto, CA

24California Employment Law Council (Amicus curiae)
Represented by Paul Grossman
Paul Hastings Janofsky Walker, LLP
555 S Flower Street, 23rd Floor
Los Angeles, CA

25Accpac International, Inc. (Amicus curiae)
Represented by David Robinson Simon
ACCPAC
6700 Koll Center Parkway, 3rd floor
Pleasanton, CA


Opinion Authors
OpinionJustice Carlos R. Moreno

Disposition
Nov 21 2002Opinion filed

Dockets
Jun 12 2001Request to answer question of state law filed
from the Ninth Circuit Court of Appeals.
Jun 12 2001Received letter from:
Jul 3 2001Filed:
"Opposing request for certification or, in the alternative, requesting restatement of the state law question" by defendant and appellant (Appellee) Avant! Corporation. **40n**
Oct 31 2001Letter sent to counsel re:
certification of interested entities or persons w/form.
Oct 31 2001Request for certification accepted
For purposes of briefing and oral argument, appellant Cadence Design Systems, Inc., is deemed petitioner to this court. George, C.J., and Werdegar, J., were recused and did not participate. Hon. Nathan D. Mihara, Associate Justice of CA6 assigned by the Acting Chief Justice. votes: Kennard, Brown, Moreno, Mihara, JJ.
Nov 4 2001Received:
record from U.S. Court of Appeal for the Ninth Circuit - 1 box.
Nov 8 2001Certification of interested entities or persons filed
by Avant! Corp.
Nov 8 2001Application for Extension of Time filed
by appellant Cadence Design Systems, Inc. asking to Dec. 30, 2001 to file opening brief on the merits.
Nov 9 2001Certification of interested entities or persons filed
By counsel for petitioner Cadence Design Systems
Nov 13 2001Extension of Time application Granted
to and including December 30, 2001to file opening brief on the merits by appellant Cadence Design Systems, Inc.
Nov 15 2001Received:
Amended Proof of Service to appellants extension request filed 11/8/01.
Dec 28 2001Opening brief on the merits filed
by counsel for plaintiff and appellant Cadence Design Systems.
Dec 28 2001Request for judicial notice filed (in non-AA proceeding)
by counsel for plaintiff and appellant Cadence Design Systems.
Jan 10 2002Request for extension of time filed
by counsel for appellant (Avant!) asking to Feb. 28, 2002 to file answer brief on the merits.
Jan 15 2002Extension of time granted
to and including Feb. 28, 2002 for appellant Avant! Corp to file answer brief on the merits.
Feb 28 2002Answer brief on the merits filed
by counsel for defendant and appellant (Avant! Corp).
Mar 8 2002Request for extension of time filed
by counsel for plaintiff and appellant (Cadence Design) asking to April 9, 2002 to file reply brief on the merits. **Ok to grant - order being prepared.**
Mar 8 2002Filed:
Application for extra pages for reply brief by counsel for plaintiff and appellant.
Mar 12 2002Extension of time granted
to and including April 9, 2002 for plaintiff and appellant to file reply brief on the merits.
Mar 14 2002Opposition filed
Avant!'s opposition to Cadence's application for extra pages for reply brief and application to file surreply brief.
Mar 15 2002Opposition filed
Cadence's opposition to Avant!'s application to file surreply brief.
Mar 19 2002Order filed
Application of appellant, Avant!, to file surreply brief is denied.
Mar 19 2002Order filed
Application of appellant, Cadence Design Systems, to file reply brief over the page limit is denied.
Apr 9 2002Reply brief filed (case fully briefed)
by appellant Cadence Design Systems, Inc.
Apr 30 2002Request for extension of time filed
by counsel for both parties - requesting extension to May 23, 2002 for all amici curiae to file briefs. (ok to grant - order being prepared)
May 3 2002Extension of time granted
On application of appellants it is ordered that the time to serve and file a/c briefs is extended to and including May 23, 2002. Answers due within 20 days of the filing of the briefs.
May 23 2002Received application to file Amicus Curiae Brief
from Professor Robert G. Bone in support of appellant Avant! Corp. (Message left with attorney to file an application to appear pro hac vice.)
May 23 2002Received application to file Amicus Curiae Brief
from Oracle Corp., Xilinx, Inc. and 3Com Corp. in support of appellant Cadence Design Systems. (appli & brief under same cover)
May 23 2002Received application to file Amicus Curiae Brief
from James Pooley in support of appellant Cadence Design Systems. 5/24/02 recv'd amended proof of service.
May 23 2002Received application to file Amicus Curiae Brief
from Truck Insurance Exchange in support of appellant Avant! Corp. (appli & brief under same cover)
May 24 2002Association of attorneys filed for:
counsel for appellant Avant! associates Jack W. Londen, Michael M. Calson, Robert F. Kramer, Thomas L. Treffert, David A. Makman and the firm of Morrison & Forrexter LLP as co-counsel.
May 24 2002Received:
Amended Proof of Service from amicus curiae James Pooley.
May 29 2002Permission to file amicus curiae brief granted
Oracle Corp., Xilinx, Inc. and 3Com Corp. in support of appellant Cadence Design Systems.
May 29 2002Amicus Curiae Brief filed by:
Oracle Corp., Xilinx, Inc. and 3Com Corp. in support of appellant Cadence Design Systems. Answer due within 20 days.
May 29 2002Permission to file amicus curiae brief granted
James Pooley in support of appellant Cadence Design Systems.
May 29 2002Amicus Curiae Brief filed by:
James Pooley in support of appellant Cadence Design Systems. Answer due within 20 days.
May 29 2002Permission to file amicus curiae brief granted
Truck Insurance Exchange in support of appellant Avant! Corp.
May 29 2002Amicus Curiae Brief filed by:
Truck Insurance Exchange in support of appellant Avant! Corp. Answer due within 20 days.
May 30 2002Application to appear as counsel pro hac vice (granted case)
by amicus Professor Robert G. Bone regarding application to file amicus brief received 5/23/02.
May 31 2002Application to appear as counsel pro hac vice granted
The application of Robert G. Bone of the State of Massachusetts for admission Pro Hac Vice to appear on behalf of an amicus is hereby granted.
May 31 2002Permission to file amicus curiae brief granted
Professor Robert G. Bone in support of appellant Avant! Corp.
May 31 2002Amicus Curiae Brief filed by:
Professor Robert G. Bone in support of appellant Avant! Corp. Answer due within 20 days.
Jun 4 2002Filed:
LATE application from California Employment Law Council to join amicus curiae brief of Oracle Corp et al. in support of appellant Cadence Design. (ok to grant - order being prepared)
Jun 4 2002Request for extension of time filed
By counsel for both parties requesting until July 10, 2002 to file responses to amicus curaie briefs. **request denied. order being prepared. Counsel for parties notified via phone.**
Jun 6 2002Telephone conversation with:
Hiro Aragaki, counsel for Avant!, informing the court that they will be filing on objection tomorrow to the application from CA Employment Law Council received 6/5.
Jun 7 2002Opposition filed
by appellant Avant!. Opposition to LATE application from California Employment Law Council to join amicus curiae brief of Oracle Corp et al. in support of appellant Cadence Design. (Failed to serve California Employment Law Council. Counsel to send amended proof of service.)
Jun 10 2002Received:
Amended proof of service from appellant Avant! for opposition filed 6/7/02.
Jun 10 2002Order filed
Appellant's request for extension of time to file responses to amicus curiae briefs is hereby denied.
Jun 12 2002Received:
LATE application from ACCPAC International, Inc. to join amicus curiae brief of Oracle Corp et al. in support of appellant Cadence Design. (to court for pemission to file)
Jun 13 2002Order filed
The application of California Employment Law Council for permission to join amicus curia brief of Oracle Corporation, Xilinx, Inc. and 3Com Corporation in support of appellant Cadence Design Systems is hereby granted.
Jun 17 2002Order filed
The application of ACCPAC International, Inc. for permission to join amicus curia brief of Oracle Corporation, Xilinx, Inc. and 3Com Corporation in support of appellant Cadence Design Systems is hereby granted.
Jun 18 2002Response to amicus curiae brief filed
by appellant Avant! answering brief of amici James Pooley & Oracle Corp et al.
Jun 18 2002Response to amicus curiae brief filed
by appellant Cadence answering brief of amici Truck Insurance Exchange.
Jun 20 2002Response to amicus curiae brief filed
by appellant Cadence answering brief of amici Robert G. Bone.
Jun 20 2002Received:
Notice of errata to answering brief of Avant! filed on 6/18/02 answering to amicus James Pooley & Oracle Corp et al.
Jul 8 2002Received:
letter from amicus Robert G. Bone regarding answer brief filed by Cadence.
Aug 5 2002Case ordered on calendar
9-4-02, 9am, S.F.
Aug 9 2002Received letter from:
counsel for appellant Cadence Design Systems re request to continue oral argument.
Aug 14 2002Letter sent to:
counsel for applt re request to reschedule oral argument is denied.
Aug 19 2002Filed:
applt Cadence Design Systems' application to divide time for oral argument with amicus curiae.
Aug 19 2002Filed:
Letter from counsel for amicus Truck Insurance Exchange re additional authorities.
Aug 22 2002Filed:
pre oral argument letter from appellant Cadence Design. Counsel to fax proof of service. 8/23/02 received proof of service via fax. Hard copy to follow.
Aug 26 2002Order filed
The request of aplt. to allow two counsel to argue on behalf of aplt. at oral argument is granted.
Aug 26 2002Order filed
The request of aplt. to allocate to A/C Oracle Corp. et al 10 min of aplt's 30-min alloted time for oral argument is granted.
Aug 26 2002Filed letter from:
Counsel for appellant Cadence Design Sytems regarding recent decisions filed by this court.
Aug 30 2002Received letter from:
Appellant regarding additional authorities.
Sep 3 2002Received:
from respondent - opposition to appellants letter received 8/30/02 regarding new authorities.
Sep 4 2002Cause argued and submitted
Sep 13 2002Filed letter from:
Cadence Design Systems - responding to the August 30, 2002 letter brief of Avant! Corporation.
Nov 15 2002Filed letter from:
appellant Avant! regarding settlement agreement.
Nov 15 2002Filed letter from:
appellant Cadence Design Systems regarding settlement agreement.
Nov 21 2002Opinion filed
We conclude that a plaintiff's claim for misappropriation of a trade secret against a defendant arises only once, when the trade secret is initially misappropriated, and each subsequent use or disclosure of the secret augments the initial claim rather than arises as a separate claim. Majority Opinion by Moreno, J. -- joined by Baxter, Chin, Kennard, Brown, Gilbert Nares (assigned), Michael G. Nott (assigned), JJ.
Nov 26 2002Filed letter from:
amicus Robert G. Bone regarding correcting clerical error in the list of attorneys at the end of the Court's opinion.
Dec 5 2002Filed letter from:
Jeffrey Chanin, counsel for appellant regarding omission of his name from the list of counsel who argued at the end of the Court's Nov. 21, 2002 opinion.
Dec 23 2002Case Final

Briefs
Dec 28 2001Opening brief on the merits filed
by counsel for plaintiff and appellant Cadence Design Systems.
Feb 28 2002Answer brief on the merits filed
by counsel for defendant and appellant (Avant! Corp).
Apr 9 2002Reply brief filed (case fully briefed)
by appellant Cadence Design Systems, Inc.
May 29 2002Amicus Curiae Brief filed by:
Oracle Corp., Xilinx, Inc. and 3Com Corp. in support of appellant Cadence Design Systems. Answer due within 20 days.
May 29 2002Amicus Curiae Brief filed by:
James Pooley in support of appellant Cadence Design Systems. Answer due within 20 days.
May 29 2002Amicus Curiae Brief filed by:
Truck Insurance Exchange in support of appellant Avant! Corp. Answer due within 20 days.
May 31 2002Amicus Curiae Brief filed by:
Professor Robert G. Bone in support of appellant Avant! Corp. Answer due within 20 days.
Jun 18 2002Response to amicus curiae brief filed
by appellant Avant! answering brief of amici James Pooley & Oracle Corp et al.
Jun 18 2002Response to amicus curiae brief filed
by appellant Cadence answering brief of amici Truck Insurance Exchange.
Jun 20 2002Response to amicus curiae brief filed
by appellant Cadence answering brief of amici Robert G. Bone.
If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website
May 23, 2011
Annotated by atticus honore

KEY PLAYERS AND PARTIES:

Cadence Design Systems, Inc., a software company that designs “place and route” software used for Integrated Circuit design.

Avant! Corporation (formerly know as ArcSys), a company that was founded by four former senior employees at Cadence that competes with Cadence in the design of “place and route” software in the Integrated Circuit design space.

Gerald Hsu (non-party), a former Cedence vice-president who resigned from Cadence to go to work for Avant!

FACTS:

Cadence and Avant! are software companies that directly compete in the field of integrated circuit design automation, designing “place and route” software, which allows chip designers to place and connect components on computer chips. Cadence was formed in 1988. In 1991, four senior employees left Cadence to found Avant!

In 1994, Cadence vice-president Gerald Hsu resigned from Cadence to go the work at Avant!. Because Hsu had knowledge of valuable trade secrets and other confidential information, Cadence informed Hsu that it objected to his employment at Avant!.

Concerned that Hsu would reveal proprietary information while managing Avant!, Cadence sent Avant! a draft complaint alleging trade secret misappropriation and other causes of action.

The parties negotiated a settlement of Cadence’s claims, entering into an Agreement releasing each other of all claims the may have had against each other at the time of the Release Agreement. Further, the Release Agreement contained a waiver of Cal. Civ. Code § 1542 stating that the release extended to claims which the parties did not know or suspect to existed in their favor, which if known would have materially affected their decision to enter into the release.

Following the execution of the Release Agreement, evidence was obtained that demonstrated line-by-line copying of Cadence source code in 1991, prior to the Agreement, by a former Cadence employee and Advent! founder. Based on this evidence, Cadence brought and action against Avant! for misappropriation of trade secrets in U.S. District Court.

PROCEDURAL HISTORY:

Plaintiff Cadence brought an action against Defendant Avant! for misappropriation of its trade secrets, relating to Cadence’s Foundation II source code, in U.S. District Court for the Northern District of California. Both parties filed motions for summary judgment based on the Release Agreement. The district court resolved in favor of Avant!, holding that all of Cadence’s trade secret claims for post-Release misuse of its Foundation II trade secrets taken before the Release were barred by the Release.

Cadence appealed this decision to the U.S. Court of Appeals for the Ninth Circuit, who sought certification of a question to the California Supreme Court under California Rules of Court, Rule 29.5, to address the claims arising under the California Uniform Trade Secret Act (UTSA, Cal. Civ. Code § 3426).

Shortly before the issuance of the opinion for this case, Cadence withdrew the appeal before the Ninth Circuit and the parties settled. Nevertheless, the California Supreme Court used its discretion to issue an opinion to resolve the legal issue raised by the question.

ISSUE:

Whether, under The California Uniform Trade Secret Act (UTSA, Cal. Civ. Code § 3426), a claim for trade secret infringement arises only once, when the initial misappropriation occurs, or with each subsequent misuse of the trade secret.

RELEVANT STATUTORY LANGUAGE:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. Cal. Civ. Code § 1542.

“An action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. For the purposes of this section, a continuing misappropriation constitutes a single claim.” Cal. Civ. Code § 3426.6

HOLDING:

Under the UTSA, in a plaintiff’s action against the same defendant, the continued improper use or disclosure of a trade secret after defendant’s initial misappropriation is part of a single claim of “continuing misappropriation” accruing at the time of the initial misappropriation.

ANALYSIS:

The Court relied heavily on the wording of UTSA/Cal. Civ. Code § 3426.6 relating to limitations on bringing a claim, which states “For the purposes of this section, a continuing misappropriation constitutes a single claim.” The Court, following Glue-Fold (linked below), recognized that Cal. Civ. Code §3426.6 was derived almost verbatim from the Uniform Trade Secrets Act and, therefore, looked to the comments of the Uniform Act’s commission for guidance. The comments states that the Act rejects a continuing wrong approach to the statute of limitations.

The Court found that while the UTSA does not define “continuing misappropriation,” the meaning is clear in light of the definition of “misappropriation” under the UTSA. The Court resolved that, under the UTSA, a “continuing misappropriation” is the continuing use or disclosure of a trade secret after that secret was acquired by improper means or as otherwise specified in Cal. Civ. Code § 3426.1. Thus, for statue of limitations purposes, a “continuing misappropriation” is viewed as a single claim. The drafters of the UTSA explicitly affirmed Monolith (linked below) and rejected the contrary view that misappropriation gives rise to multiple claims each time the trade secret is misused or improperly disclosed.

The Court further reasoned that if “continuing misappropriation” is viewed as a single claim under the UTSA for statute of limitations purposes, then it could not be treated as more than one claim for the purposes of the litigation generally, as that could lead to plaintiffs pleading separate claims that would evade the statute of limitations or plead separate claims accruing at different times which would have the same statute of limitations, in contravening Cal. Code Civ. Proc. § 312. Thus, “continuing misappropriation” must give rise to only a single claim regarding the litigation generally.

KEY RELATED CASES AND STATUTES:

Monolith Portland Midwest Co. v. Kaiser Aluminum & Chem. Corp., 407 F.2d 288 (9th Cir. 1969)
http://scholar.google.com/scholar_case?case=13925781475457482973&q=Monol...

Glue-Fold, Inc. v. Slautterback Corp., 82 Cal.App.4th 1018 (2000)
http://scholar.google.com/scholar_case?case=3295921454415961756&q=Glue-F...

Underwater Storage, Inc. v. United States Rubber Co., 371 F.2d 950 (D.C. Cir. 1966)
http://scholar.google.com/scholar_case?case=10023701622156502689&q=Under...

Cal. Civ. Code § 3426
http://www.leginfo.ca.gov/cgi-bin/waisgate?WAISdocID=290763835+0+0+0&WAI...

Cal. Civ. Code § 1542
http://www.leginfo.ca.gov/cgi-bin/waisgate?WAISdocID=290847995+0+0+0&WAI...

Cal. Code Civ. Proc. § 312
http://www.leginfo.ca.gov/cgi-bin/waisgate?WAISdocID=2910791741+0+0+0&WA...

TAGS:

Trade Secret
Claim
Misappropriation
Cal. Civ. Code § 1542
Cal. Civ. Code § 3426
UTSA
Statute of Limitations
Release of Claims
Source Code

May 27, 2011
Annotated by aaron kleven

FACTS

Cadence Design Systems, Inc., specializes in integrated circuit design automation. In March of 1994, Gerald Hsu, a vice-president of Cadence, left his position to take a post with Avant!, a competitor of Cadence. Concerned that Hsu would reveal proprietary information, Cadence sent Avant! a draft complaint naming Avant! and Hsu as defendants and alleging trade secret misappropriation among other causes of action. This led to extensive negotiations between the parties, resulting in a settlement agreement. The agreement, entered in June of 1994, released the parties from all claims they might have against each other in connection with Hsu’s move to Avant!. Language in the agreement expressly extends this release to claims of which the parties might not yet have been aware at the time of signing.

In the summer of 1995, Cadence came to suspect Avant! of copying one of its software products. A subsequent search by the Santa Clara District Attorney confirmed that code had been copied by a former Cadence employee in 1991. In December of 1995, Cadence sued for theft of copyright and trade secrets and sought a preliminary injunction to enjoin the sale of the resulting Avant! product. Avant! argued that since the alleged misappropriation occurred before the signing of the 1994 Release, any claim arising from it had been discharged by the agreement. Cadence argued that the Release had not covered new or continuing misuses of its trade secrets, taking place after the date of the Release.
The federal district court agreed with Avant!, and held that claims for the post-Release use of secrets acquired pre-Release were barred by the agreement. Cadence has appealed to the Ninth Circuit. The question: If the Release discharged those claims existing at the time of the Agreement, but did not bar future claims, what claims existed at the time of the agreement? Does each misuse of the misappropriated source code give rise to a new claim, or are they parts of a single claim, dating back to the original misappropriation.

PROCEDURAL HISTORY

Cadence sued Avant! in the U.S. District Court for the Northern District of California, for theft of copyrighted trade secrets.

The District Court ruled in favor of Avant!, holding that Cadence had relinquished its right to all post-Release claims arising from a pre-Release misappropriation.

Cadence appealed to the U.S. Court of Appeals for the Ninth Circuit.

The Ninth Circuit requested an answer to a certified question of state law form the California Supreme Court, pursuant to rule 29.5 of the California Rules of court, regarding these claims under the California Uniform Trade Secret Act (UTSA, Cal. Civ. Code § 3426).

Though the parties had reached a settlement by the time the Court addressed the question, the Court exercised its discretion to resolve the legal question.

ISSUE

"Under the California Uniform Trade Secrets Act ('USTA'), Cal. Civ. Code § 3426, when does a claim for trade secret infringement arise: only once, when the initial misappropriation occurs, or with each subsequent misuse of the trade secret?"

HOLDING

In a plaintiff's action against the same defendant, the continued improper use or disclosure of a trade secret after defendant's initial misappropriation is viewed under UTSA as part of a single claim of "continuing misappropriation" accruing at the time of the initial misappropriation.

ANALYSIS

The Court links the subsequent use of trade secrets to the original theft via the definition of “misappropriation,” found in UTSA, Cal. Civ. Code § 3426.1, described as, “the “continuing use or disclosure of a trade secret after that secret was acquired by improper means…“ Hence, each misappropriation harkens back to the original act, rather than standing alone. This overturned the ruling in Monolith Portland Midwest Co. v. Kaiser Aluminum & Chem. Corp. (9th Cir. 1969) 407 F.2d 288.

The Court also looks to the UTSA statute of limitations for misappropriation claims, found at Cal. Civ. Code § 3426.6, which requires that an action be brought within 3 years after the misappropriation has been discovered, or should have been discovered by reasonable means. The Court concludes that here, “misappropriation” refers to the initial misappropriation and each misuse, as a single whole and not a series of disparate acts. UTSA does not contemplate a separate statue of limitations for each discreet misuse of a misappropriated secret, but a single statue of limitations, running for the whole. This follows the ruling in Glue-Fold, Inc. v. Slautterback Corp. (2000) 82 Cal.App.4th 1018, 1023.
The court also notes a distinction in the language between the terms “misappropriation” and “claim.” While a misappropriation continues to occur over time with each misuse, a claim between a given plaintiff and defendant arises only once, at the time of the initial misappropriation. So, a single misappropriation may be comprised of a series of misuses, but only one claim arises from the whole.

The Court distinguishes the treatment of trade secrets from the treatment of patents, noting that while patents provide a temporary monopoly, trade secrets are protected only from improper acquisition and use.

The Court rejects Cadence’s theory that misappropriation constitutes a single claim only for statue of limitations purposes, asserting that the meaning of “claim” must refer to the ordinary meaning in the litigation context, and therefore apply to the entirely of litigation.
The Court acknowledges that if there are multiple defendants, a single plaintiff may have claims against each, and therefore have multiple claims arising from the same misappropriation. For example PMC, Inc. v. Kadisha (2000) 78 Cal.App.4th 1368.

The court also rejects Avant!’s theory that only the initial misappropriation gives rise to claim, pointing out each misuse may compound the damages under UTSA.

TAGS

Trade Secrets
UTSA
Misappropriation
Claim
Cal. Civ. Code § 3426
Proprietary
Release of Claims
Multiple Claims
Single Claim