Lilith Games (Shanghai) Co. Ltd. v. uCool, Inc. et al

Filing 64

ORDER by Judge Samuel Conti granting in part and denying in part 29 Motion to Dismiss. Plaintiff's Third, Fourth, and Fifth claims for relief are dismissed with leave to amend. (sclc1, COURT STAFF) (Filed on 7/8/2015)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

United States District Court

For the Northern District of California

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LILITH GAMES (SHANGHAI) CO.
LTD.,

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Plaintiff,
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v.
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UCOOL, INC. AND UCOOL LTD.,

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Defendants.

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Case No. 15-CV-01267-SC
ORDER GRANTING IN PART AND
DENYING IN PART MOTION TO
DISMISS

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I. INTRODUCTION
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Now before the Court is Defendants uCool, Inc. and uCool LTD's
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("uCool") motion to dismiss Plaintiff Lilith Games Co.'s ("Lilith")
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claims for trade secret misappropriation and unfair business
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competition as alleged in Lilith's first amended complaint.
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Nos. 20 ("FAC"); 29 ("MTD").

ECF

The motion is fully briefed1 and

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appropriate for resolution without oral argument under Civil Local
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Rule 7-1(b).

In its motion and supporting papers, uCool argues

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that Lilith's second, third, fourth, and fifth claims for relief
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should be dismissed with prejudice because (1) Lilith's trade
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ECF Nos. 36 ("Opp'n"); 39 ("Reply").

Lilith's trade secret and unfair competition claims are preempted

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by the Copyright Act; and (3) Lilith's unfair competition claims

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are preempted by its trade secrets claim.

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forth below, uCool's motion to dismiss is GRANTED in part and

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DENIED in part.

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neither its misappropriation claim nor its unfair competition

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United States District Court

secret claim fails to properly allege misappropriation; (2)

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For the Northern District of California

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claims are preempted by the Copyright Act.

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competition claims, however, are preempted by its trade secrets

For the reasons set

Lilith adequately alleged misappropriation, and

Lilith's unfair

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misappropriation claim.

Dismissal as to those claims is with leave

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to amend if Lilith is able to add allegations to avoid preemption.

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II. BACKGROUND

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For the purposes of this motion, the Court takes the facts

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stated in Lilith's first amended complaint as true.

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They are, in

pertinent part, as follows:
Plaintiff Lilith is a video game developer that released the

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game Dao Ta Chuan Qi (translated as "Sword and Tower")2 in China in

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February 2014.

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source code and possesses Chinese copyright registrations.

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March 2015, Lilith decided to release Sword and Tower in other

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countries including the United States, Japan, and certain European

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countries.

Lilith owns the copyrights in Sword and Tower's
In

Defendant uCool is a video game marketer who unlawfully

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obtained access to the copyrighted software code for Sword and

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Tower and used it to create its own game, Heroes Charge, which it

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The game has also been referred to as "Dota Legends".
ECF No. 43-01 ¶ 2.

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See, e.g.,

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published in the United States in August 2014.

Sword and Tower and

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Heroes Charge both involve the same ideas, and the expression of

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those ideas in both games is virtually identical.

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Heroes Charge includes a portion of Lilith's code that triggers

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Lilith's copyright notice at a certain point while playing Heroes

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Charge.

In addition,

United States District Court

In its first claim for relief for copyright infringement,

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For the Northern District of California

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Lilith alleges that uCool unlawfully gained access to Lilith's

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copyrighted computer software code embodied in Sword and Tower and

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copied it into the source code embodied in Heroes Charge.

Because

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Sword and Tower is not a United States work as defined in 17 U.S.C.

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Section 101, Lilith brings its copyright infringement claim under

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the Berne Convention, an international agreement governing

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copyright.

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In its second claim for relief, Lilith alleges that the

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240,000 lines of software code that is embodied in Sword and Tower

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is a trade secret and that uCool knowingly misappropriated that

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trade secret in violation of California's Uniform Trade Secrets Act

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(Cal. Civ. Code § 3426, et seq.) when it used Lilith's code to

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create Heroes Charge.

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Tower source code confidentially, limiting access only to those

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employees who need access to perform their duties.3

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asserts that "[t]he mobile game business is extremely competitive,

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and it is well known in the industry that computer software code

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embodied in such games is considered to be the confidential

Lilith allegedly maintains the Sword and

Lilith also

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Further, those who are granted access are required to agree that
the code is owned by Lilith, will not be disclosed to any third
party, and is to be confidentially maintained.

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property of the game's owner."

FAC ¶ 23.

Lilith's third, fourth, and fifth claims for relief allege

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violations of California's Unfair Competition Law (Cal. Bus. &

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Prof. Code § 17200, et seq.).

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misappropriating Lilith's trade secrets, uCool engaged in unlawful,

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unfair, and fraudulent business practices.

Specifically, Lilith claims that by

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United States District Court

For the Northern District of California

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III. LEGAL STANDARD
A complaint must contain a "short and plain statement of the

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claim showing that the pleader is entitled to relief."

Fed. R.

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Civ. P. 8(a).

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a claim, dismissal is appropriate only when the complaint does not

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give the defendant fair notice of a legally cognizable claim and

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the grounds on which it rests.

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U.S. 544, 555 (2007).

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sufficient to state a claim, the court will take all material

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allegations as true and construe them in the light most favorable

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to the plaintiff.

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(9th Cir. 1986).

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factual allegations, it "must contain sufficient factual matter,

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accepted as true, to 'state a claim to relief that is plausible on

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its face.'"

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Twombly, 550 U.S. at 570).

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"allows the court to draw the reasonable inference that the

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defendant is liable for the misconduct alleged."

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"Determining whether a complaint states a plausible claim for

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relief . . . [is] a context-specific task that requires the

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reviewing court to draw on its judicial experience and common

On a motion under Rule 12(b)(6) for failure to state

Bell Atl. Corp. v. Twombly, 550

In considering whether the complaint is

NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898
While a complaint need not allege detailed

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
A claim is facially plausible when it

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Id. at 678.

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sense."

Id. at 679.

When granting a motion to dismiss, the court is generally

to amend the pleading was made, unless amendment would be futile.

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Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911

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F.2d 242, 246–47 (9th Cir. 1990).

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would be futile, the court examines whether the complaint could be

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United States District Court

required to grant the plaintiff leave to amend, even if no request

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For the Northern District of California

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amended to cure the defect requiring dismissal "without

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contradicting any of the allegations of [the] original complaint."

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In determining whether amendment

Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir. 1990).

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IV. DISCUSSION
uCool has moved the Court to dismiss (1) Lilith's second claim

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for relief for violations of California's Uniform Trade Secrets Act

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("CUTSA") under California Civil Code section 3426, and (2)

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Lilith's third, fourth, and fifth claims for relief for violations

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of California's Unfair Competitions Law ("UCL") under California

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Business and Professions Code section 17200.

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each in turn.

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A.

Lilith's Second Claim for Relief - Trade Secret
Misappropriation

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The Court addresses

uCool's challenge to Lilith's second claim for relief is

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twofold.

First, uCool argues that Lilith fails to state a claim

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for trade secret misappropriation under Rule 12(b)(6).

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uCool asserts that Lilith's trade secret misappropriation claim is

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preempted by the Copyright Act.

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argument persuasive.

Second,

The Court does not find either

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1.

Adequacy of Pleading Under Rule 12(b)(6)

To state a claim for misappropriation of trade secrets under

of a trade secret, and (2) misappropriation of the trade secret.

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AccuImage Diagnostics Corp. v. Terarecon, Inc., 260 F. Supp. 2d

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941, 950 (N.D. Cal. 2003) (citing Cal. Civ. Code § 3426.1(b)).

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uCool argues that Lilith's trade secret misappropriation claim

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United States District Court

the CUTSA, a plaintiff must allege two elements: (1) the existence

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For the Northern District of California

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should be dismissed with prejudice for failure to adequately allege

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the second element -- misappropriation.

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Misappropriation can be established by alleging either
acquisition or disclosure/use:
(b) Misappropriation means:
(1) Acquisition of a trade secret of another without
express or implied consent by a person who
knows or has reason to know that the trade
secret was acquired by improper means; or

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(2) Disclosure or use of a trade secret of another
without express or implied consent by a person
who:

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(A) Used improper means to acquire knowledge of
the trade secret; or
(B) At the time of the 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

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(iii) derived from or through a person who
owed a duty to the person seeking
relief to maintain its secrecy or
limit its use.

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Cal. Civ. Code § 3426.1.

As explained below, Lilith adequately

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pleaded misappropriation by both acquisition and use.
Lilith adequately pleaded facts showing that uCool acquired

Lilith's consent.

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of ideas in both games is almost identical -- "a virtual cut and

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paste."

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Charge includes a portion of Lilith's code that triggers Lilith's

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United States District Court

and used the source code embodied in Sword and Tower without

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For the Northern District of California

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copyright notice.

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FAC ¶ 2.

For example, Lilith alleges that the expression

Moreover, the Complaint alleges that Heroes

Lilith also adequately pleaded facts showing that uCool knew

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or had reason to know that the source code was acquired by improper

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means or in breach of a duty to maintain its secrecy.

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means" is defined as "theft, bribery, misrepresentation, breach or

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inducement of a breach of a duty to maintain secrecy, or espionage

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through electronic or other means."

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Lilith's theory of misappropriation is based on the alleged "theft"

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of its source code.

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uCool stole the source code, Lilith pleaded facts providing

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"plausible grounds to infer" that uCool knew the source code in

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Heroes Charge belonged to Lilith.

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example, uCool would have known that the code belonged to Lilith

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because, according to Lilith, Heroes Charge is almost identical to

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Sword and Tower.

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source code is the confidential property of a game's owner.

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that context, it is reasonable to infer that Lilith knew the code

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was acquired through improper means or in breach of a duty because

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Lilith would not have given its competitor, uCool, free access to

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its code.

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code belonged, uCool would have known that it was in possession of

FAC ¶¶ 2, 25.

"Improper

Cal. Civ. Code § 3426.1.

In addition to alleging that

Twombly, 550 U.S. at 556.

For

Lilith also alleges that it is well known that
In

Finally, if there was any doubt as to whom the source

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Lilith's confidential property upon discovering Lilith's copyright

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notice prominently displayed within Heroes Charge.
uCool's reliance on Pellerin v. Honeywell International, Inc.

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the court dismissed the defendant's trade secret misappropriation

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counterclaim because it relied on the "inevitable disclosure

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doctrine" to show misappropriation.4

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United States District Court

is misplaced.

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For the Northern District of California

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877 F. Supp. 2d 983 (S.D. Cal. 2012).

trade secret misappropriation claim does not invoke the "inevitable

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disclosure doctrine."

Id. at 989.

In Pellerin,

But Lilith's

Instead, it alleges (either explicitly or

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through reasonable inferences) that uCool acquired and used

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Lilith's source code, was aware that the source code belonged to

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Lilith, and knew or should have known that the source code was

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Lilith's confidential property acquired through improper means or

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in breach of a duty of confidentiality.

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Be in, Inc. v. Google, Inc. is also inapposite.

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03373-LHK, 2013 WL 5568706 (N.D. Cal. Oct. 9, 2013).

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in Be in, Inc. attempted to establish misappropriation with two

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conclusory statements -- that Google's product "constitute[s] the

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misappropriation and unauthorized use of Be In's trade secrets" and

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that Google "acquired, disclosed, and/or used or intend to use

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Plaintiff's trade secrets through improper means."

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addition, the plaintiff failed to allege any type of impropriety.

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Id.

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No. 12-CVThe plaintiff

Id. at *3.

In

As already described, Lilith has alleged specific facts

In jurisdictions where it is accepted, the "inevitable disclosure
doctrine" allows a party in to prove misappropriation by
demonstrating that a former employee's new employment will
inevitably lead the former employee to rely on the former
employer's trade secrets. Id. As the court noted, California does
not recognize this doctrine and requires a party claiming trade
secret misappropriation to allege facts which establish actual
misappropriation. Id.

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establishing that uCool knowingly acquired and used Lilith's trade

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secrets without Lilith's consent through improper means (or from a

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person who used improper means or breached a duty of

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confidentiality).
Finally, uCool's citation to MedioStream, Inc. v. Microsoft

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2012).

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United States District Court

Corp. is also unhelpful.

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For the Northern District of California

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869 F. Supp. 2d 1095, 1114 (N.D. Cal.

that "[t]he mere fact that information was kept confidential [is]

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not sufficient" to establish improper means or impropriety.

uCool claims that MedioStream stands for the proposition

Reply

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at 5.

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defendant in that case had reason to believe that the plaintiff's

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trade secret had been properly licensed.5

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order to establish impropriety, the plaintiff had to plead

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additional facts showing the defendant had reason to know that the

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license was invalid.

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used Lilith's source code without consent.

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defendant in MedioStream, there are no facts alleged in this case

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suggesting that uCool believed Lilith had consented to uCool using

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its code; nor does uCool claim as much.

Id.

Id.

As a result, in

Here, Lilith alleges uCool knowingly
In contrast to the

For the above reasons, Lilith adequately pleaded facts

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MedioStream is distinguishable, however, because the

establishing a claim for trade secret misappropriation.
2.

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Preemption by the Copyright Act

The Ninth Circuit applies a two part test to determine when a

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state law has been preempted by the Copyright Act: "First, the

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content of the protected right must fall within the subject matter

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5

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The defendant purchased the product containing the trade secret
from a former licensee without any knowledge that the seller no
longer held a valid license. Id.

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of copyright as described in 17 U.S.C. §§ 102 and 103 [and s]econd,

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the right asserted under state law must be equivalent to the

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exclusive rights contained in section 106 of the Copyright Act."

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Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137, 1150 (9th

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Cir. 2008).

at issue come within the "subject matter of copyright" as defined

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United States District Court

The first prong of this test is satisfied wherever the works

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For the Northern District of California

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by 17 U.S.C. §§ 102-103, even where the works at issue (or some

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parts of those works) may not actually be protected under the

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Copyright Act.

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U.S.P.Q. 2d 1628, 1634 (C.D. Cal. 2001); Selby v. New Line Cinema

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Corp., 96 F.Supp.2d 1053, 1058-59 (C.D. Cal. 2000); Firoozye v.

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Earthlink Network, 153 F. Supp. 2d 1115, 1124-25 (N.D. Cal. 2001).

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Lilith admits that "[t]here is no dispute that Lilith's source code

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over which it claims a trade secret . . . falls within the subject

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matter of the Copyright Act."

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remains is to assess the trade secret misappropriation claim under

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the second prong of the preemption analysis.

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See, e.g., Entous v. Viacom International Inc., 58

Opp'n at 9.

Accordingly, all that

The second prong of the analysis is satisfied wherever the

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rights protected by state law are "equivalent" to those protected

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by the Copyright Act.

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cause of action must protect rights which are qualitatively

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different from the copyright rights."

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Rhodes and Gardner, Inc., 820 F.2d 973, 977 (9th Cir. 1987).

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Specifically, "[t]he state claim must have an 'extra element' which

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changes the nature of the action."

In order to avoid preemption, "the state

Del Madera Properties v.

Id.

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Courts have regularly held that the element of secrecy within

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a trade secret misappropriation claim constitutes an extra element

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v. Payday, Inc., 886 F.2d 1081, 1090 n.13 (9th Cir. 1989); Trandes

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Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 660 (4th Cir. 1993);

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Computer Assocs. Int'l, Inc. v. Altai, Inc., 982 F.2d 693, 717 (2d

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Cir. 1992); Firoozye, 153 F. Supp. 2d at 1130-31; see also 1 Melvin

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B. Nimmer & David Nimmer, Nimmer on Copyright § 1.01, at 1-39 to 1-

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40 (1999) ("Actions for disclosure and exploitation of trade

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United States District Court

that changes the nature of the copyright action.

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For the Northern District of California

1

See S.O.S., Inc.

secrets require a status of secrecy, not required for copyright,

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and hence, are not pre-empted.

This conclusion applies whether or

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not the material subject to the trade secret is itself

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copyrightable.").

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source code was maintained as a secret.

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("Lilith closely guards its software code and maintains it as

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strictly confidential at all times.

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personnel are permitted access to Lilith's computer software

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code . . . .").

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is not preempted by the Copyright Act.

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Here, Lilith has pleaded facts showing that its
See, e.g., FAC ¶ 10

Indeed, only authorized

Thus, Lilith's trade secret misappropriation claim

uCool's preemption argument relies on Jobscience, Inc. v.

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CVPartners, Inc., No. C 13-04519-WHA, 2014 WL 93976, at *4 (N.D.

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Cal. Jan. 9, 2014) and Kema, Inc. v. Koperwhats, No. C-09-1587-MMC,

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2010 WL 726640, at *3 (N.D. Cal. Mar. 1, 2010).

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Jobscience and Kema, however, are different from this case in an

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important way.

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to adequately plead the existence of a trade secret because the so-

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called trade secrets in those cases were not maintained

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confidentially.

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2010 WL 726640, at *3.

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plaintiffs were claiming as a trade secret was open to public

The facts in

In both Jobscience and Kema, the plaintiffs failed

See Jobscience, Inc., 2014 WL 93976, at *5; Kema,
Specifically, the source code that the

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1

inspection at the U.S. Copyright Office.

Id.

Without the element

2

of secrecy, the plaintiff's claims were preempted by the Copyright

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Act.

Id.
In contrast, Lilith has not alleged facts that defeat the

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Jobscience and Kema, its source code is not available for public

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inspection with the U.S. Copyright Office.

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United States District Court

confidentiality of its trade secrets.

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For the Northern District of California

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allege that it owns Chinese copyrights, there is nothing about

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owning a copyright that is antithetical to maintaining the same

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code as a trade secret, assuming it is not available for public

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inspection as a result.

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suggest that the Sword and Tower code is open to the public.6
B.

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Unlike the plaintiffs in

Although Lilith does

Nowhere in its complaint does Lilith

Lilith's Third, Fourth, and Fifth Claims for Relief Violations of California's Unfair Competition Law

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California's Unfair Competition Law ("UCL") prohibits any

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16

"unlawful, unfair or fraudulent business act or practice."

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Bus. & Prof. Code § 17200.

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or local law may serve as the basis for a UCL claim."

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Partners v. Lieberman, No. 09-04200 CW, 2010 WL 1881770, at *10

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(N.D. Cal. May 10, 2010) (citing Saunders v. Super. Ct., 27 Cal.

21

App. 4th 832, 838–39 (1994)).

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misappropriating its trade secrets uCool has engaged in unlawful,

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unfair, and fraudulent business practices in violation of the UCL.

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Cal.

"Violation of almost any federal, state
Sleep Sci.

Lilith alleges that by

Code deposited with the Chinese Copyright Office is not available
to the public. See Article 7 of Retrieval Measures on Registration
Records of Computer Software Copyright (promulgated by the
Copyright Protection Center of China and effective from March 10,
2009) ("The following content of the software registration records
is not open to the public for retrieval: (1) source code; . . . (4)
materials involving the software registrant’s technical secret or
trade secret . . . .").

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uCool contends, however, that Lilith's UCL claims should be

2

dismissed because they are preempted by the Copyright Act and the

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CUTSA.

4

by the Copyright Act for the same reasons its trade secret

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misappropriation claim is not preempted by the Copyright Act.

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UCL claims are, however, preempted by the CUTSA.

As explained below, Lilith's UCL claims are not preempted

1.

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United States District Court

For the Northern District of California

8
9

Its

Preemption by the Copyright Act

uCool first argues that Lilith's UCL claims are preempted by
the Copyright Act because they "provide no 'extra element' required

10

to overcome preemption by the Copyright Act."

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Because Lilith's UCL claims are predicated on its trade secret

12

misappropriation claim, those claims also have the extra element of

13

secrecy that precludes preemption by the Copyright Act.

14

Firoozye, 153 F. Supp. at 1131 ("[T]he plaintiff's unfair

15

competition claim is not preempted to the extent it is based on the

16

. . . misappropriation of trade secret claims.").
2.

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20
21

Not so.

See

Preemption by the California Uniform Trade Secrets
Act

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19

MTD at 11.

uCool also argues that Lilith's UCL claims are preempted by
the CUTSA.

On this point, the Court agrees.

The UCL "borrows violations of other laws and treats them as

22

unlawful practices that the unfair competition law makes

23

independently actionable."

24

Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999).

25

however, preempts state law claims insofar as they are based on

26

misappropriation of a trade secret.

27

Retail, Inc., 544 F. Supp. 2d 1064, 1070 (E.D. Cal. 2008).

28

CUTSA expressly does not preempt "(1) contractual remedies . . .

Cel-Tech Commc'ns, Inc. v. Los Angeles

13

The CUTSA,

See Ali v. Fasteners for
The

of a trade secret, or (3) criminal remedies."

3

3426.7(b).

4

"'[t]he preemption inquiry . . . focuses on whether [they] are no

5

more than a restatement of the same operative facts supporting

6

trade secret misappropriation.'"

7

0450-CW, 2012 WL 2061527, at *5 (N.D. Cal. June 7, 2012) (quoting

8

United States District Court

(2) other civil remedies that are not based upon misappropriation

2

For the Northern District of California

1

Convolve, Inc. v. Compaq Computer Corp., No. 00CV5141(GBD), 2006 WL

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839022, at *6 (S.D.N.Y. (applying California law))).

Cal. Civ. Code §

For those causes of action not specifically exempted,

PQ Labs, Inc. v. Yang Qi, No. 12-

Accordingly,

10

the Court must compare Lilith's trade secret misappropriation claim

11

with its UCL claims "to determine if the latter are based on

12

confidential information other than a trade secret or if there is

13

some material distinction between the wrongdoing alleged in the

14

claims."

15

Id.

Lilith's UCL claims are based exclusively on Lilith's trade

16

secret misappropriation claim.

FAC ¶ 31 ("uCool has engaged in an

17

unlawful business practice by misappropriating Lilith's trade

18

secret."); FAC ¶ 37 ("uCool has engaged in an unfair business

19

practice by misappropriating Lilith's trade secret."); FAC ¶ 44

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("uCool has engaged in a fraudulent business practice by

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misappropriating Lilith's trade secret.").

22

the same factual allegations in its UCL and CUTSA claims, the UCL

23

claims are preempted by the CUTSA and hereby dismissed with leave

24

to amend.

25

1025, 1035 (N.D. Cal. 2005) (dismissing unfair competition claims

26

because they "are based on the identical facts alleged in its claim

27

for misappropriation of trade secrets."); Sleep Sci. Partners v.

28

Lieberman, No. 09-04200-CW, 2010 WL 1881770, at *10 (N.D. Cal. May

Because Lilith alleges

See Digital Envoy, Inc. v. Google, Inc., 370 F. Supp. 2d

14

CUTSA to the extent that it is based on the misappropriation of

3

Plaintiffs' trade secrets."); PQ Labs, Inc., 2012 WL 2061527, at *5

4

(dismissing unfair competition claim with leave to amend because it

5

was "premised upon the same nucleus of facts as the . . . cause of

6

action for misappropriation of trade secrets.").

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to file an amended complaint, it must identify the conduct of

8

United States District Court

10, 2010) (statutory unfair competition claim "is preempted by

2

For the Northern District of California

1

uCool, if any, that applies the UCL in a manner that avoids

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preemption.

If Lilith decides

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V. CONCLUSION
As set forth above, the Court GRANTS in part and DENIES in part

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uCool's motion to dismiss.

Lilith's second claim for relief

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adequately pleads facts establishing a claim for misappropriation

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of trade secrets.

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element of secrecy, it is not preempted by the Copyright Act.

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Lilith's UCL claims, however, are preempted by Lilith's claim for

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trade secret misappropriation because they are no more than a

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restatement of the same operative facts.

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third, fourth, and fifth claims for relief are hereby dismissed

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with leave to amend.

Further, because it contains the additional

Accordingly, Lilith's

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IT IS SO ORDERED.

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Dated: July __, 2015

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UNITED STATES DISTRICT JUDGE

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