Swarmify, Inc. v. CloudFlare, Inc.

Filing 123

ORDER ON MOTION TO STRIKE. Signed by Judge Alsup on 5/31/2018. (whalc2, COURT STAFF) (Filed on 5/31/2018)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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SWARMIFY, INC.,

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For the Northern District of California

United States District Court

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No. C 17-06957 WHA

Plaintiff,
v.
ORDER ON MOTION
TO STRIKE

CLOUDFLARE, INC.,
Defendant.
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INTRODUCTION

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In this action for trade secret misappropriation, defendant moves to strike the latest list

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of asserted trade secrets that plaintiff disclosed pursuant to Section 2019.210 of the California

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Code of Civil Procedure. The motion is GRANTED IN PART and DENIED IN PART.

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STATEMENT
The issue is a recurring one, the question of the extent to which a trade secrets plaintiff

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in a federal action may be permitted to adjust its list of asserted trade secrets after having

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obtained access to the files of the accused.

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This is an action by plaintiff Swarmify, Inc., against defendant Cloudflare, Inc., for trade

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secret misappropriation and related state law claims. Swarmify fired the opening salvo in this

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action with a motion for a preliminary injunction. During briefing on that motion, Swarmify

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filed its original disclosure of six alleged trade secrets pursuant to Section 2019.210 of the

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California Code of Civil Procedure. The disclosure’s contents and the complaint’s allegations
have been described in detail in a prior order dated February 27, which denied Swarmify’s

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motion for a preliminary injunction based on failure to show likelihood of irreparable harm.

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Although it did not actually reach the merits, the February 27 order also discussed at length the

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“overbreadth of Swarmify’s various and ever-shifting descriptions of its supposed trade secrets”

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and noted that “Swarmify’s attempts to set up its purported trade secrets as elusive moving

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targets do not bode well for the merits of its claims” (see Dkt. No. 88 at 4–6).

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After the dust settled on its motion for a preliminary injunction, Swarmify filed a new

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disclosure of five alleged trade secrets under Section 2019.210. Despite the fact that Swarmify

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had already made quicksand of its asserted trade secrets — a problem explicitly called out in the

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February 27 order — the new disclosure once again drastically overhauled its descriptions of
the technology Cloudflare allegedly misappropriated. Cloudflare now moves to strike both the

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For the Northern District of California

United States District Court

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new disclosure and the deficient portions of Swarmify’s original disclosure, protesting that

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Swarmify cannot “take a second bite at the apple” after losing at the preliminary injunction

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stage but obtaining valuable information about Cloudflare’s litigation strategy and defenses

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(Dkt. No. 101). Swarmify responds that the new disclosure should be allowed because the

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February 27 order amounted to “an instruction to provide clarification on [Swarmify’s] claimed

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trade secrets.” If that was not the message of the February 27 order, Swarmify says, it would be

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“content to stand on its Original Disclosure” (Dkt. No. 107 at 2). Swarmify also insists it has

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not improperly used discovery to overhaul its Section 2019.210 disclosure and, in the

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alternative, seeks leave to amend its disclosure yet again (see id. at 13).

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This order follows full briefing and oral argument.

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ANALYSIS
Section 2019.210 provides:
In any action alleging the misappropriation of a trade secret
under the Uniform Trade Secrets Act . . . before commencing
discovery relating to the trade secret, the party alleging the
misappropriation shall identify the trade secret with
reasonable particularity.

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The parties have offered no analysis or authority to explain whether or how this provision

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should apply where, as here, discovery has already commenced in a federal action, but it is a

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point worth clarifying. The plain text of Section 2019.210 does not contemplate this scenario.
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Our court of appeals has not spoken directly on the issue, but has cited with approval Universal

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Analytics v. MacNeal-Schwendler Corp., 707 F. Supp. 1170, 1177 (C.D. Cal. 1989) (Judge

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Stephen Victor Wilson), for the proposition that the plaintiff “should describe the subject matter

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of the trade secret with sufficient particularity to separate it from matters of general knowledge

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in the trade or of special knowledge of those persons skilled in the trade.” Imax Corp. v.

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Cinema Techs., Inc., 152 F.3d 1161, 1164–65 (9th Cir. 1998). Universal Analytics, in turn, took

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that proposition from Diodes, Inc. v. Franzen, 260 Cal. App. 2d 244, 253 (1968), the “seminal

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decision” that became “the genesis of [S]ection 2019.210.” Brescia v. Angelin, 172 Cal. App.

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4th 133, 147 (2009). In other words, while Imax did not explicitly discuss Section 2019.210, it

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applied the core principle codified therein.
In doing so, Imax affirmed a district court’s decision — after commencement of

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discovery — to grant summary judgment for the defendant on a trade secret misappropriation

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claim where the plaintiff had failed to identify its alleged trade secrets with sufficient

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particularity. See 152 F.3d at 1164–68. Consistent with this approach, judges in our district —

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including the undersigned judge — faced with deficient disclosures under Section 2019.210

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have routinely entertained defense motions to defeat trade secret misappropriation claims after

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commencement of discovery, whether styled as a “motion to strike,” “motion for summary

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judgment,” or something else. See, e.g., Openwave Messaging, Inc. v. Open-Xchange, Inc.,

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2018 WL 692022, at *4 (N.D. Cal. Feb. 2, 2018) (Judge William Orrick) (examining adequacy

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of Section 2019.210 disclosure on motion for summary judgment); BladeRoom Grp. Ltd. v.

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Facebook, Inc., 2018 WL 514923, at *3–5 (N.D. Cal. Jan. 23, 2018) (Judge Edward Davila)

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(same); Waymo LLC v. Uber Techs., Inc., 2017 WL 5000352, at *7–9 (N.D. Cal. Nov. 2, 2017)

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(Judge William Alsup) (granting overlapping motions to strike and for summary judgment on

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trade secret misappropriation claim); Jobscience, Inc. v. CVPartners, Inc., 2014 WL 1724763,

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at *2–4 (N.D. Cal. May 1, 2014) (Judge William Alsup) (granting motion to strike and

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dismissing trade secret misappropriation claim) (Jobscience I); Art of Living Found. v. Does

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1–10, 2012 WL 1565281, at *23 (N.D. Cal. May 1, 2012) (Judge Lucy Koh) (inviting motion

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for summary judgment on trade secret misappropriation claim).
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Insofar as controlling law on this subject remains ambiguous, district courts may also

has in fact done so. See, e.g., Jobscience, Inc. v. CVPartners, Inc., 2014 WL 852477, at *4–5

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(N.D. Cal. Feb. 28, 2014) (Jobscience II). Approaching the issue as one of case management

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also works well because, technicalities aside, Section 2019.210 ultimately aims to address

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practical problems that tend to arise in trade secret litigation. See Advanced Modular

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Sputtering, Inc. v. Superior Court, 132 Cal. App. 4th 826, 835 (2005) (“[T]he law is flexible

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enough for the referee or the trial court to achieve a just result depending on the facts, law, and

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equities of the situation.”). Among other things, it “promotes well-investigated claims and

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dissuades the filing of meritless trade secret complaints,” “prevents plaintiffs from using the

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exercise discretion in case management to enforce Section 2019.210, and the undersigned judge

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United States District Court

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discovery process as a means to obtain the defendant’s trade secrets,” and “enables defendants

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to form complete and well-reasoned defenses.” Id. at 833–34. “Experience has shown that it is

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easy to allege theft of trade secrets with vagueness, then take discovery into the defendants’

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files, and then cleverly specify what ever happens to be there as having been trade secrets stolen

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from plaintiff.” Jobscience I, 2014 WL 1724763, at *2.

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The foregoing practical concerns bear on the instant motion. First, Swarmify should not

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be allowed to drag Cloudflare into court based on meritless arguments, only to reboot its alleged

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trade secrets lineup and try again when the opening skirmish illuminates glaring flaws in

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Swarmify’s case. Second, Swarmify represents that it has not used information gained in

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discovery to redefine its alleged trade secrets, and Section 2019.210 draws the line at

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“discovery.” But even if that representation could be relied upon, redefining alleged trade

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secrets based on information gained by moving for a preliminary injunction, thereby forcing the

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accused to disclose the details of its technology and defenses, raises a similar concern of abuse.

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Third, Swarmify’s bait-and-switch tactic prejudices Cloudflare, which invested significant time,

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effort, and legal strategy in opposing Swarmify’s motion for a preliminary injunction but must

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now rebuild its defenses to react to Swarmify’s new disclosure, having already shown much of

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its hand to the opposing side. These concerns all indicate that Swarmify’s new disclosure

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should not be permitted — at least, not without consequence.
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On the other hand, the new disclosure as a whole has not become so unmoored from the

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core technology described in the original disclosure that this action, which remains in its early

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stages, would become unsalvageable if allowed to proceed. Moreover, another practical

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advantage unique to post-discovery enforcement of Section 2019.210 has also become

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particularly germane to our case.

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Gamesmanship, even if well-disguised at the outset, tends to come into clearer focus as

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litigation progresses. For example, it becomes easier to pinpoint how vaguely-alleged trade

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secrets may have functioned as moving targets, and how the plaintiff may have taken advantage

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of the shifting sands of litigation to evade counterarguments. These developments may cast the
unreasonableness of the initial disclosure into sharp relief in light of how the alleged trade

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secrets evolved over time. In such cases, a plaintiff that merely postpones reckoning with

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Section 2019.210 early on may eventually find that the consequences of their evasions come

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home to roost in the form of an adverse ruling on the entire trade secret misappropriation claim.

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See, e.g., Waymo, 2017 WL 5000352, at *7–9. As the February 27 order foreshadowed,

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Swarmify has already gone quite a ways down this path.

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After weighing the foregoing factors, this order holds that Swarmify may proceed on its

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new disclosure if it so chooses. To proceed on the new disclosure, however, Swarmify must

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follow three conditions. First, the new disclosure would be the final definition of Swarmify’s

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alleged trade secrets for this case. No further amendments would be permitted. Cloudflare,

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however, would still be able to reference the original disclosure in its arguments — for

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example, to show the jury the shifting-sands nature of Swarmify’s case. Second, Swarmify

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would pay Cloudflare its reasonable attorney’s fees for defending the motion for a preliminary

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injunction premised on a defunct list of alleged trade secrets. Third, Cloudflare would be

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entitled to additional expedited discovery, including repeat depositions if necessary, to rebuild

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its defenses with the new disclosure in mind.

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By JUNE 7 AT NOON, Swarmify shall file and serve a statement electing to either
proceed on its new disclosure on the conditions set forth above or instead stand on its earlier

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trade secret disclosure. There must be no equivocations or caveats. All appellate rights, of

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course, shall be reserved as to both sides.

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CONCLUSION

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For the foregoing reasons, defendant’s motion to strike is GRANTED IN PART and

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DENIED IN PART.

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IT IS SO ORDERED.

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Dated: May 31, 2018.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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For the Northern District of California

United States District Court

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