Case Name: Attia, et al. v. Google, Inc., et al.
Case No.: 2014-1-CV-274103

This is an action for misappropriation of trade secrets and related causes of action. Currently before the Court are a demurrer and motion to strike by defendants Google, Inc., Larry Page, Sergey Brin, Sebastian Thrun, and Eric “Astro” Teller (collectively, the “Google Defendants”), in which defendants Flux Factory, Inc., Michelle Kaufmann, Jennifer Carlile, Augusto Roman, and Nicholas Chim (collectively the “Flux Factory Defendants”) move to join. The Google Defendants also bring a motion for sanctions pursuant to Code of Civil Procedure section 128.7.

I. Factual and Procedural Background

In the operative second amended complaint (“SAC”), plaintiffs Eli Attia (“Attia”) and Eli Attia Architect PC (“Attia PC”) allege that Attia is one of the world’s leading and most innovative architects. (SAC, ¶ 1.) Attia has spent the last 50 years creating a game-changing new technology that can fundamentally change the way buildings are created, which is called “Engineered Architecture” or “EA.” (Ibid.)

In 2009, Attia began looking for a partner, and on or about July 25, 2010, he was approached by Google X, an affiliate of defendant Google, Inc. (“Google”), through defendant Teller. (SAC, ¶¶ 24-26.) On or about August 8, 2010, Google proposed and executed with Attia a Non-Disclosure Agreement (“NDA”) permitting Google to use confidential information received from Attia to facilitate technical discussions concerning existing or future product development efforts by the parties. (Id. at ¶ 27.) Google also induced Attia to relocate with his family to Palo Alto in late 2010 so that he could work at Google’s Mountain View campus. (Id. at ¶ 28.)

On January 12, 2011, Attia entered into an Inbound Services Agreement (“ISA”) and an associated Statement of Work (“SOW”), in which Google acknowledged that the “‘Genie Project was inspired by [Attia’s] experience and Pre-Existing Intellectual Property.’” (SAC, ¶¶ 36-37.) The SOW describes certain of Attia’s proprietary information and identifies documents that contain Attia’s proprietary information, including “All presentations & brochures,” notes, emails, patents, and “other related intellectual property developed as of the SOW Effective Date.” (Id. at ¶ 37.) Under the ISA, any “invention, improvement, development, concept, discovery or other proprietary information” that Attia had an interest in before January 12, 2011 remained his property. (Ibid.)

During the negotiations regarding the ISA and SOW, Google made a request for a non-exclusive, royalty-free, perpetual, irrevocable, worldwide license, which was rejected, and then proposed a royalty for a non-exclusive license, which was also rejected; ultimately, Attia agreed to provide a “non-commercial” and nonexclusive license to use the proprietary information only until June 31, 2011. (SAC, ¶ 38.) The SOW provided that if the program was successful and any of Attia’s Pre-Existing Property was used to develop Genie, “Google, in its sole discretion, will consider seeking an exclusive license and will make reasonable efforts to negotiate for a license to a portion or all of the Pre-existing Property at mutually agreed upon price and terms.” (Id. at ¶ 39.)

Google was so satisfied with the viability of Attia’s Engineered Architecture technology that it applied to the United States Patent and Trademark Office for patents containing numerous claims reciting Attia’s Pre-existing Property, including his Engineered Architecture trade secrets, disclosed by Attia to Google pursuant to the NDA and the ISA/SOW. (SAC at ¶ 46.) However, defendants plotted to squeeze Attia out of the project and misappropriate his Pre-existing Property, including his Engineered Architecture trade secrets. (Id. at ¶ 53.) Google pretended to kill the Genie Project to give Attia the false impression that it was not planning to misappropriate Attia’s Pre-existing Property. (Id. at ¶ 57.) Rather than shutting down Project Genie, however, Google was surreptitiously taking steps to develop and promote Genie further, which Attia discovered in mid-December of 2011. (Id. at ¶¶ 58-60.)

In 2011, Google allegedly spun off Project Genie into a new company, defendant Flux Factory, Inc. (“Flux Factory”), which was co-founded and is headed by defendants and former Project Genie team members Kaufmann, Carlile, Roman, and Chim. (SAC, ¶¶ 67, 69.) Flux Factory is simply a reconstitution of Project Genie under a different name. (Id. at ¶ 69.)

The Google Defendants had the obligation to negotiate a license to use Attia’s Pre-existing Property, including his Engineered Architecture trade secrets, and fairly compensate Attia if they wanted to continue using it. (SAC, ¶ 76.) The Google Defendants refused to do so and intentionally misappropriated Attia’s proprietary Engineered Architecture invention. (Ibid.)

The SAC sets forth the following causes of action: (1) misappropriation of trade secrets (by Attia against all defendants); (2) breach of the ISA (by plaintiffs against Google and Flux Factory); (3) declaratory relief (by plaintiffs against all defendants).

Plaintiffs filed this action on December 5, 2014. After the Court granted plaintiffs’ unopposed motion to file a first amended complaint (“FAC”), the Google Defendants demurred to each cause of action in the FAC and moved to strike its request for punitive damages. On February 1, 2016, the Court issued an order sustaining the demurrer with leave to amend as to the claim for trade secret misappropriation and without leave to amend as to a claim for breach of the NDA; overruling the demurrer as to the claims for breach of the ISA and declaratory relief; and granting the motion to strike without leave to amend.

Plaintiffs filed the SAC on February 9, 2016, and the instant motions followed.

I. Demurrer and Motion to Strike

The Flux Factory Defendants’ motion to join in the Google Defendants’ demurrer and motion to strike is GRANTED.

The Google Defendants’ request for judicial notice of documents referenced by the SAC, which plaintiffs do not oppose, is GRANTED. (Evid. Code, § 452, subd. (h); Ingram v. Flippo (1999) 74 Cal. App. 4th 1280, 1285, fn.3 [taking judicial notice of documents not attached to, but referenced by, the complaint; “[s]ince the contents of the letter and media release form the basis of the allegations in the complaint, it [thus becomes] essential that we evaluate the complaint by reference to these documents”]; Stormedia Inc. v. Superior Court (Werczberger) (1999) 20 Cal.4th 449, 457, fn.9 [where “both sides refer to the documents in their briefs and plaintiff … does not oppose the request, the request [should be] granted,” reasoning that plaintiff is thus “implicitly request[ing] judicial notice of… the documents”].)

A. Demurrer

Defendants demur to the first cause of action on the ground that it is barred by the three-year statute of limitations and otherwise fails to state a claim. (Code Civ. Proc., § 430.10, subd. (e).) The individual defendants demur to the dependent third cause of action for declaratory relief on the same ground.

With respect to the statute of limitations, the defendants contend that publication of a patent application extinguishes trade secret rights, and Attia alleges that he knew Google was filing patent applications containing the alleged trade secrets in May and June of 2011. (SAC, ¶ 64.) As urged by Attia, however, the SAC alleges that the patent applications at issue were not published until 2012. (Id. at ¶ 63.) Information in non-published patent applications can retain trade secret status. (See Jardin v. Datallegro, Inc. (S.D. Cal., Apr. 12, 2011, No. 10-CV-2552-IEG WVG) 2011 WL 1375311, at *3 [“Information in patent applications can retain trade secret status, but that protection is lost when the patent application publishes.”]; Farhang v. Indian Institute of Technology, Kharagpur (N.D. Cal., June 1, 2010, No. C-08-02658 RMW) 2010 WL 2228936, at *14 [“Based on the allegations in the SAC, plaintiffs took reasonable steps to maintain the secrecy of the core technology by filing a patent application with non-published status and only providing access to the core technology to defendants under the confidentiality obligations set forth in the NDA.”]; Innovatier, Inc. v. CardXX, Inc. (D. Colo., Aug. 1, 2011, No. 08-CV-00273-PAB-KLM) 2011 WL 3293789, at *4 [“The fact that CardXX included material in applications to the USPTO does not diminish the secrecy of the material during the period before the USPTO approved the patent or published the application. Material in a patent application remains secret unless and until it is published by the USPTO.”].) Therefore, the allegation that patent applications were filed in May and June of 2011 does not itself show that the alleged secrets became public or that the statute of limitations was triggered at that time.

The Court previously sustained defendants’ demurrer to the trade secret claim on statute of limitations grounds because Attia had alleged that the filing of the patent applications constituted a misappropriation. In the SAC, Attia clarifies that the filing of the patent applications was conditionally authorized pursuant to his agreements with Google, and the alleged misappropriation occurred later—according to Attia, when the applications were published without compensation to him. (See SAC, ¶¶ 61, 64-65.) Defendants raise several arguments against this theory, which the Court will address in their logical order.

First, defendants contend that the conditional authorization theory violates the sham pleading doctrine, but the theory does not directly contradict Attia’s prior allegation that Google’s misappropriations included “applying for and obtaining” the patents at issue. (FAC ¶ 77; SAC, ¶ 84.) More importantly, the sham pleading doctrine does not apply to a change in legal theory as opposed to a factual allegation. (See Berman v. Bromberg (1997) 56 Cal.App.4th 936, 949 [“the ‘sham pleading rule’ should not be applied in a case, as here, where the plaintiff seeks to change his legal theory of recovery and the legal conclusions he seeks to draw from underlying factual events”].)

Next, defendants contend that Attia’s declarations submitted in connection with the patent applications show that he assigned all rights in the subject inventions without a condition of later payment. (See Decl. of Kevin L. Spark ISO Demurrer to FAC, Exs. D and F.) However, while the declarations recite that Attia had already received unspecified “consideration” for the assignment, this is a disputed fact of which the Court may not take judicial notice. (See Richtek USA, Inc. v. uPI Semiconductor Corporation (2015) 242 Cal.App.4th 651, 660 [while court may take judicial notice of the existence and contents of a document, “the truthfulness and proper interpretation of the document are disputable”].) Plaintiffs allege that consideration was never provided, and the Court must accept this allegation on demurrer.
Defendants also argue that, even accepting the theory that filing the patent applications was conditionally authorized, the conditional license expired in June 2011, so the statute was triggered at that time, when they continued to use the alleged secrets without a license. Attia does allege that Google’s license to use his proprietary information expired on June 31, 2011 unless the parties agreed to a further license (SAC, ¶¶ 38-39), which they did not (id. at ¶¶ 99-101). While Google “pretended to kill the Genie Project” in December 2011 (id. at ¶ 57), Attia does not deny that he knew the project continued during much of 2011 without a license. Nevertheless, Attia alleges that he continued to participate in the project during this time, “present[ing] Genie to several industry leaders” with Google and negotiating an ownership interest in the separate company to which the parties planned to “spin off” the project. (Id. at ¶¶ 48-52.) These circumstances could support a finding that Attia gave his implied consent to Google’s continued use of his secrets during this period, notwithstanding the lack of an express license. (See Civ. Code, § 3426.1, subd. (b)(2) [trade secret misappropriation is disclosure or use of the secret of another without express or implied consent].) It was only when Attia learned that Google “was surreptitiously taking steps to develop and promote Genie further” –a week after telling him on December 7, 2011 that it would end the project—that the statute was clearly triggered. (SAC, ¶¶ 57-58.) Attia’s alleged discovery of Google’s misappropriation was thus within three years of the filing of this action on December 5, 2014.

In order for the bar of the statute of limitations to be raised by demurrer, the complaint must show clearly and affirmatively that the action is barred. (Lee v. Hanley (2015) 61 Cal.4th 1225, 1232.) Here, the allegations of the SAC do not clearly show that Attia should have suspected the Google Defendants would use his secrets without his consent before late December 2011.

Defendants’ only remaining argument regarding the trade secret misappropriation claim is that Attia’s agreement to a contract grouping his asserted secrets with other property under the heading “Publicly available Pre-existing Property” constitutes an admission that the alleged secrets were publicly available. However, Attia alleges that he was unaware Google had added the “publicly available” language to Exhibit A of the SOW, and defendants cite no authority for the bold proposition that mislabeling secrets as publicly available in a pre-litigation context is a conclusive admission. While the “publicly available” label is certainly relevant to the issue of whether Attia took reasonable measures to protect his alleged secrets, it is not dispositive at the demurrer stage.

Defendants’ demurrer to the first cause of action is consequently OVERRULED. The individual defendants’ demurrer to the third cause of action for declaratory relief is wholly dependent on the demurrer to the first cause of action, and is also OVERRULED.

B. Motion to Strike

As an initial matter, plaintiffs’ opposition to the motion to strike is untimely. While the Court will exercise its discretion to consider the late filing this time, plaintiffs are cautioned to comply with filing deadlines in the future.

Defendants move to strike the SAC’s allegation that “Google inserted [the “publicly available” language discussed above] at the last minute with the fraudulent intent of undermining any later claim by Mr. Attia that Google misappropriated his trade secrets.” (SAC, ¶ 35.) Defendants correctly contend that a change to a draft agreement that was disclosed in a redline document cannot have been “fraudulently” concealed. (See Cohen v. Wedbush, Noble, Cooke, Inc. (9th Cir. 1988) 841 F.2d 282, 287 [“We know of no case holding that parties dealing at arm’s length have a duty to explain to each other the terms of a written contract.”], overruled on another ground by Ticknor v. Choice Hotels Intern., Inc. (9th Cir. 2001) 265 F.3d 931; Brown v. Wells Fargo Bank, NA (2008) 168 Cal.App.4th 938, 959 [“Generally, it is not reasonable to fail to read a contract; this is true even if the plaintiff relied on the defendant’s assertion that it was not necessary to read the contract.”], italics original.) The Court will consequently strike the “fraudulent” language from the SAC.
Nevertheless, plaintiffs obviously included this allegation in response to defendants’ argument, raised in connection with their prior demurrer, that the “publicly available” language constitutes an admission by plaintiffs. It was defendants who raised this issue, and plaintiffs are entitled to respond to their argument. Google does not dispute that it added the “publicly available” language during the end of negotiations, without specifically clearing this change with plaintiffs, or that it did so in order to bolster its position that the property identified by Attia in Exhibit A to the SOW is not a trade secret. Consequently, as discussed further below, plaintiffs had a good faith basis to include these portions of the allegation, and the Court will not strike them.

Defendants also move to strike plaintiffs’ prayer for punitive damages, which was struck from the FAC without leave to amend. Plaintiffs urge that this prayer is really a request for exemplary damages for willful trade secret violations pursuant to Civil Code 3426.3, subdivision (c). However, exemplary statutory damages are not “punitive damages,” and plaintiffs did not have leave to re-assert a claim for punitive damages in the SAC. The Court will again strike this language.

The motion to strike is accordingly GRANTED WITHOUT LEAVE TO AMEND IN PART AND DENIED IN PART. The following language is hereby struck from the SAC without leave to amend:

-“fraudulent” (SAC, p. 11, l. 16) and

-paragraph 116 of the prayer for relief in its entirety.

II. Motion for Sanctions

Finally, the Google Defendants move for sanctions pursuant to Code of Civil Procedure section 128.7 on that basis that plaintiffs’ allegation regarding the “fraudulent” insertion of the “publicly available” language in Exhibit A to the SOW is factually and legally baseless.

Under section 128.7, “a court may impose sanctions for filing a pleading if the court concludes the pleading was filed for an improper purpose or was indisputably without merit, either legally or factually.” (Peake v. Underwood (2014) 227 Cal.App.4th 428, 440.) A claim is factually frivolous if it is not well grounded in fact and it is legally frivolous if it is not warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law. (Ibid.) In either case, to obtain sanctions, the moving party must show that asserting the claim was objectively unreasonable. (Ibid.) A claim is objectively unreasonable if any reasonable attorney would agree that it is totally and completely without merit. (Ibid.)

In the Court’s view, plaintiffs’ position that they did not notice the last-minute change to the heading of Exhibit A—and that Google intended this—is directly responsive to defendants’ argument that plaintiffs’ failure to object to the change constitutes a binding admission that none of the property listed in the exhibit is a secret. While calling Google’s actions in adding the language “fraudulent” was overzealous, plaintiffs do not assert a claim for fraud or any other legally frivolous claim. Consequently, the Court does not find that the challenged allegation is factually or legally frivolous.

The motion for sanctions is accordingly DENIED.