InteliClear, LLC v. ETC Global Holdings, Inc.

• Decision Date: 15 October 2020
• Docket Number: No. 19-55862,19-55862
• Citation: 978 F.3d 653
• Parties: INTELICLEAR, LLC, Plaintiff-Appellant, v. ETC GLOBAL HOLDINGS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

978 F.3d 653

INTELICLEAR, LLC, Plaintiff-Appellant,

v.ETC GLOBAL HOLDINGS, INC., Defendant-Appellee.

No. 19-55862

United States Court of Appeals, Ninth Circuit.

Argued and Submitted September 3, 2020 Pasadena, California

Filed October 15, 2020

Richard S. Order (argued) and Adam B. Marks, Updike Kelly & Spellacy P.C., Hartford, Connecticut; Kenneth A. O'Brien Jr. and Laura A. Alexander, Sheppard Mullin Richter & Hamilton LLP, Los Angeles, California; for Plaintiff-Appellant.

J. Kevin Fee (argued) and Michael E. Kenneally, Morgan Lewis Bockius LLP, Washington, D.C.; Brian M. Hom, Morgan Lewis Bockius LLP, Los Angeles, California; Kathryn A. Feiereisel, Morgan Lewis Bockius LLP, Chicago, Illinois; for Defendant-Appellee.

Before: Ronald M. Gould and Sandra S. Ikuta, Circuit Judges, and David A. Ezra,^* District Judge.

GOULD, Circuit Judge:

This appeal involves the requisite particularity with which trade secret misappropriation plaintiffs must define their trade secrets to defeat a motion for summary judgment. Deciding trade secret claims means navigating the line between the protection of unique innovative technologies and vigorous competition. Plaintiff InteliClear seeks to protect its interest in the logic and architecture of its securities tracking database, while Defendant ETC maintains that its newer system is an independent improvement to the securities tracking marketplace. Before we reach the question of whether the defendant misappropriated the plaintiff's intellectual property, we must identify InteliClear's alleged trade secrets and decide if they are protectable.

We hold that: (1) there is a triable issue of fact as to whether (a) InteliClear described its alleged trade secrets with sufficient particularity and (b) InteliClear has shown that parts of the InteliClear System are secret; and (2) the district court abused its discretion under 56(d) by issuing its summary judgment ruling before discovery occurred. Accordingly, we reverse the district court's grant of summary judgment in favor of Defendant ETC.

I

Between 2004 and 2006, InteliClear developed the "InteliClear System," a comprehensive electronic system for managing stock brokerage firm accounting, securities clearance, and securities settlement services. Martin Barretto (Barretto), InteliClear's General Manager, developed the InteliClear System to address a void in back office offerings. InteliClear used a Structured Query Language (SQL) relational database designed to handle millions of trades each business day.

On January 9, 2008, ETC's predecessor and later subsidiary obtained a license of the InteliClear System from InteliClear and signed a Software License Agreement. The agreement acknowledged that all information InteliClear provided was confidential, proprietary, and copyrighted, and through the agreement, ETC agreed to maintain that information in confidence "during and after" the terms of the agreement. The rights, duties, and obligations under the License Agreement were assigned and delegated to Defendant ETC in 2012.

On November 20, 2017, ETC sent InteliClear a notice of termination of the Software License Agreement, effective February 28, 2018. ETC committed to "remove the InteliClear database from its systems" by February 26, 2018. On March 5, 2018, ETC certified that the InteliClear System had been removed from all ETC servers and that all copies of the InteliClear System had been destroyed. But before terminating the Software License Agreement, ETC had begun building its own securities clearing software. Shortly thereafter, ETC deployed its own new electronic trading system. In February 2018, Barretto—the InteliClear System's architect—noticed similarities between ETC's new system and the system he had built for InteliClear, including a table used in the ETC system with the same "unique names" in a column as used in the InteliClear System.

InteliClear contacted ETC in April 2018 about its suspicion that ETC had improperly used the InteliClear System to build its own system. After months of negotiation, ETC agreed to allow Capsicum Group, LLC, a computer technology and forensics expert hired by InteliClear, to compare the two systems and investigate. Consultants from Capsicum investigated the two systems in September and October 2018. Capsicum then issued a Summary Report, finding "abundant evidence" that elements of the ETC system were identical to elements of the InteliClear System. Samuel Goldstein, Capsicum's founder and CEO, stated in his declaration: "In fact, so striking were the similarities that it appeared to us that ETC's system had been constructed by a programmer who had one eye on the InteliClear System as it was running and the other eye on the system he was building, like a painter looking back and forth at a live model while depicting her on the canvas."

After receiving the Capsicum report, in December 2018, InteliClear filed the underlying suit against ETC in federal court. InteliClear alleged that ETC misused InteliClear's securities trading tracking system. InteliClear brought claims against ETC for: (1) misappropriation under the federal Defend Trade Secrets Act ("DTSA"); (2) misappropriation under the California Uniform Trade Secrets Act ("CUTSA"); and (3) unfair competition.

The district court dismissed InteliClear's unfair competition claim, reasoning that it was preempted by the CUTSA, but denied ETC's motion to dismiss as to InteliClear's trade secret misappropriation claims. The day after discovery began, on May 21, 2019, ETC moved for summary judgment on InteliClear's remaining claims. ETC contended that InteliClear did not identify its trade secrets with sufficient particularity, and that InteliClear did not show that the InteliClear System was a trade secret or that ETC had access to InteliClear's source code. In response to ETC's motion, InteliClear submitted a sealed declaration from Barretto describing the system's features in more detail. To date, no discovery has occurred.

The district court granted ETC's motion for summary judgment and held that InteliClear failed to sufficiently identify which elements of the InteliClear System were allegedly trade secrets. The district court also denied InteliClear's motion to defer ruling until after completion of discovery under Rule 56(d) because the court determined that discovery would not resolve the underlying deficiencies—i.e. , the failure to state the alleged trade secrets with sufficient particularity. Because the district court dismissed InteliClear's claims on that basis, it did not reach the issue of whether a genuine dispute existed with respect to misappropriation or damages. We address the district court's decisions on summary judgment and Rule 56(d) discovery below.

II

We review a district court's grant of a motion for summary judgment de novo . Jada Toys, Inc. v. Mattel, Inc. , 518 F.3d 628, 632 (9th Cir. 2008). We determine whether, viewing the evidence in the light most favorable to the nonmoving party, there are any genuine issues of material fact. Fed. R. Civ. P. 56. A genuine dispute of material fact exists only "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The moving party bears the initial burden of identifying portions of the record that demonstrate the absence of a fact or facts necessary for one or more essential elements of each claim. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party meets this burden, the opposing party must then set out specific facts showing a genuine issue for trial to defeat the motion. Anderson , 477 U.S. at 250, 106 S.Ct. 2505.

III

InteliClear brings claims for trade secret misappropriation under both the federal DTSA and the California CUTSA. Courts have analyzed these claims together because the elements are substantially similar. See, e.g. , ChromaDex, Inc. v. Elysium Health, Inc. , 301 F. Supp. 3d 963, 970–71 (C.D. Cal. 2017). We conclude that it is appropriate to do so here.

We start from the important premise that the definition of what may be considered a "trade secret" is broad. See Forro Precision, Inc. v. Int'l Bus. Machines Corp. , 673 F.2d 1045, 1057 (9th Cir. 1982). Under the DTSA, a "trade secret" is defined as: "all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing." The information must "derive[ ] independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure of use of the information." 18 U.S.C. § 1839(3). Therefore, the definition of trade secret consists of three elements: (1) information, (2) that is valuable because it is unknown to others, and (3) that the owner has attempted to keep secret. See 18 U.S.C. §§ 1839(3), (5).

To succeed on a claim for misappropriation of trade secrets under the DTSA, a plaintiff must prove: (1) that the plaintiff possessed a trade secret, (2) that the defendant misappropriated the trade secret; and (3) that the misappropriation caused or threatened damage to the plaintiff. See 18 U.S.C. § 1839(5). The district court did not reach elements two and three—misappropriation and damage—because it found that InteliClear failed to show it possessed a trade secret by not identifying its secrets with sufficient particularity.

A

To prove ownership of a trade secret, plaintiffs "must identify the trade secrets and carry the burden of showing they exist." MAI Sys. Corp. v. Peak Computer,...