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Turnkey Solutions Corp. v. Hewlett Packard Enterprise Co.

United States District Court, D. Colorado

August 9, 2017

TURNKEY SOLUTIONS CORPORATION, Plaintiff,
v.
HEWLETT PACKARD ENTERPRISE COMPANY, Defendant.

          ORDER DENYING DEFENDANT'S MOTIONS FOR PARTIAL SUMMARY JUDGMENT AND PLAINTIFF'S MOTION TO STRIKE AND ORDERING ADDITIONAL BRIEFING

          CHRISTINE M. ARGUELLO UNITED STATES DISTRICT JUDGE.

         This matter is before the Court on Defendant's Motions for Partial Summary Judgment (Doc. ## 134, 176) and Plaintiffs' Motion to Strike the rebuttal opinions of Defendant's expert, James Bach (Doc. # 183). For the following reasons, the motions are denied.

         I. BACKGROUND

         This case arises over a dispute between Hewlett Packard Enterprise Company (HPE) and TurnKey Solutions Corporation (TurnKey) over the proprietary nature of features of TurnKey's core product software, cFactory. (Doc. # 147, p. 3; Doc. # 1, p. 1-3.) cFactory is a program that tests on the functionality of complex enterprise software. (Doc. # 1, p. 1, 3-4.) HPE also offers software that assists in functional software testing, including United Functional Testing and Business Process Testing. (Doc. # 147, p. 2.) cFactory operates as an add-on to those, and other, HPE products. (Doc. # 179, p. 2.)

         On May 16, 2012, HPE and TurnKey entered into a Software License and Distribution Agreement for Third Party Branded Products (OEM Agreement). (Doc. # 1, ¶ 25.) The OEM Agreement authorized HPE to “use, reproduce, display, distribute, import, and disclose” various TurnKey software programs, in exchange for royalties and subject to certain conditions, including confidentiality provisions. (Id. at ¶ 26; Doc. # 136-1, p. 6-8, 14-15.)

         In October 2014, at HPE's request, TurnKey hosted two web conferences wherein TurnKey provided HPE with detailed information about the software portfolio underlying cFactory. (Doc. # 1, ¶ 40; Doc. # 134, p. 3.) Later that year, HPE hosted a conference in Spain where it presented its plans to launch a new version of its BPT software - Version 12.5. (Doc. # 1, ¶ 47.) Various TurnKey conference attendees became concerned that Version 12.5 incorporated several confidential features of cFactory. (Id., ¶ 48; Doc. # 134, p. 3.) TurnKey expressed those concerns to HPE, and on March 5, 2015, HPE provided TurnKey with a private web demonstration of the proposed Version 12.5. (Doc. # 1, ¶ 57; Doc. # 134, p. 3-4.) A TurnKey employee recorded that demonstration. (Doc. # 134, p. 4; Doc. # 147, p. 15-18.)

         Shortly thereafter, TurnKey initiated this lawsuit alleging that HPE, in developing Version 12.5, misused TurnKey's confidential software information. (Doc. # 1.) TurnKey also contends that HPE fraudulently induced TurnKey into disclosing that information at the October 2014 conferences by falsely assuring TurnKey that HPE had no intention of creating a product that competed with cFactory. (Id.) Based primarily on these allegations, TurnKey raises three claims for relief: (1) Misappropriation of Trade Secrets; (2) Breach of the OEM Agreement; and (3) Fraud. (Id., p. 13-15.)

         HPE denies TurnKey's allegations and requests that this Court grant summary judgment in its favor on all three claims. HPE also requests that the Court limit TurnKey's claims and damage award based on patent preemption and a presumption against the extraterritorial application of laws.

         In addition, both parties have disclosed expert reports supporting their positions. Of import to this Order, TurnKey asserts that HPE's rebuttal report by expert James Bach is improper under Rule 26 and request that the Court strike it accordingly.

         The Court addresses each of the parties' contentions in turn.

         II. MOTIONS FOR PARTIAL SUMMARY JUDGMENT

         A. SUMMARY JUDGMENT STANDARD

         Summary judgment is warranted when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is “material” if it is essential to the proper disposition of the claim under the relevant substantive law. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). A dispute is “genuine” if the evidence is such that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v. Muskogee, Okl., 119 F.3d 837, 839 (10th Cir. 1997). When reviewing motions for summary judgment, a court must view the evidence in the light most favorable to the non-moving party. Id. However, conclusory statements based merely on conjecture, speculation, or subjective belief do not constitute competent summary judgment evidence. Bones v. Honeywell Int'l, Inc., 366 F.3d 869, 875 (10th Cir. 2004).

         The moving party bears the initial burden of demonstrating the absence of a genuine dispute of material fact and entitlement to judgment as a matter of law. Id. In attempting to meet this standard, a movant who does not bear the ultimate burden of persuasion at trial does not need to disprove the other party's claim; rather, the movant need simply point out to the Court a lack of evidence for the other party on an essential element of that party's claim. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)).

         Once the movant has met its initial burden, the burden then shifts to the nonmoving party to “set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). The nonmoving party may not simply rest upon its pleadings to satisfy its burden. Id. Rather, the nonmoving party must “set forth specific facts that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant.” Adler, 144 F.3d at 671. “To accomplish this, the facts must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein.” Id.

         B. MISAPPROPRIATION OF TRADE SECRETS

         HPE contends that TurnKey's misappropriation claim fails as a matter of law because TurnKey has failed to identify any secrets relating to its software that would be entitled to protection.

         1. Law

         The elements of a trade secret misappropriation claim are: “(i) that [TurnKey] possessed a valid trade secret, (ii) that the trade secret was disclosed or used without consent, and (iii) that [HPE] knew, or should have known, that the trade secret was acquired by improper means.” Gates Rubber Co. v. Bando Chem. Indus, Ltd., 9 F.3d 823, 847 (10th Cir. 1993). The Colorado Uniform Trade Secrets Act (“CUTSA”)[1] defines a trade secret as

scientific or technical information, design, process, procedure, formula, improvement . . . or other information relating to any business or profession which is secret and of value. To be a ‘trade secret' the owner thereof must have taken measures to prevent the secret from becoming available to persons other than those selected by the owner to have access thereto for limited purposes.

Colo. Rev. Stat. § 7-74-102(4).

         Factors considered in determining the existence of a trade secret include: (1) the extent to which the information is known outside the business; (2) the extent to which it is known to those inside the business; (3) the precautions taken by the holder of the trade secret to guard the secrecy of the information; (4) the savings effected and the value to the holder in having the information as against competitors; (5) the amount of effort or money expended in obtaining and developing the information; and (6) the amount of time and expense it would take for others to acquire and duplicate the information. Colo. Supply Co. v. Stewart, 797 P.2d 1303, 1306 (Colo.App. 1990). “Indispensible to an effective allegation of a trade secret is proof that the matter is, more or less, secret.” Hertz v. Luzena Grp., 576 F.3d 1103, 1109 (10th Cir. 2009).

         Trade-secret status is a question of fact for determination by the trier of fact. Network Telecommunications, Inc. v. Boor-Crepeau, 790 P.2d 901, 902 (Colo.App. 1990); see also Harvey Barnett, Inc. v. Shidler, 338 F.3d 1125, 1129 (10th Cir. 2003) (citing Colo. Supply Co., 797 P.2d at 1306 (“Trade-secret status is a question of fact.”); Dodson Int'l Parts, Inc. v. Altendorf, 347 F.Supp.2d 997, 1011 (D. Kan. 2004) (trade secret conclusion is made after a “fact-intensive inquiry”); Defiance Button Machine Co. v. C & C Metal Products Corp., 759 F.2d 1053, 1063 (2d Cir. 1985) (secrecy is a basic element of the factual inquiry); Kodekey Electronics, Inc. v. Mechanex Corp., 486 F.2d 449, 454 n. 4, 455 (10th Cir.1973) (what constitutes a trade secret is a question of fact for the trial court, not the appellate court); Public Systems, Inc. v. Towry, 587 So.2d 969, 972 (Ala. 1991) (same); All W. Pet Supply Co. v. Hill's Pet Prod. Div., Colgate-Palmolive Co., 840 F.Supp. 1433, 1437-38 (D. Kan. 1993) (“The existence of a trade secret under the Uniform Trade Secrets Act is a question of fact for determination by the trier of fact.”).

         2. Analysis

         Having reviewed the pertinent filings and exhibits, the Court concludes that HPE has not met its burden of demonstrating the absence of a genuine dispute as to material facts governing TurnKey's trade secret misappropriation claim. For starters, the parties vehemently dispute two interrelated issues essential to the claim: (1) whether TurnKey has adequately identified information that rises to the level of a trade secret, and (2) whether TurnKey adequately protected that information from public dissemination.

         HPE argues that TurnKey has not identified any information about its software that it does not regularly disclose to its users and the public. HPE states that TurnKey's trade secret descriptions “offer[] nothing more than the basic capabilities of cFactory, information that is self-revealing to anyone using the software for its intended purpose” and that is not, therefore, secretive. (Doc. # 176 at 12.) TurnKey, however, disagrees, stating that its “trade secrets are cFactory's underlying methodologies: sequential tasks it directs the computer running it to perform to produce the capabilities” that are ultimately viewed by the user - methodologies for which TurnKey has now received two U.S. method patents. (Doc. # 179, p. 1.) TurnKey's trade secrets are thus not cFactory's observable capabilities, but rather the underlying architecture of the software - the invisible tasks that the software performs to produce those capabilities. In other words, in arguing that it has identified trade secrets, TurnKey highlights the “how, ” not the “what” of cFactory. (Doc. # 179, p. 10; Doc. # 172-2, p. 36).

         In so contending, TurnKey does not dispute that elements of its software are known to the public, such as the program's result - its output. But, a plaintiff alleging misappropriation of a trade secret need not prove that every element of information in a compilation is unavailable elsewhere. Boeing Co. v. Sierracin Corp., 108 Wash.2d 38, 738 P.2d 665, 675 (1987). In determining the existence of trade secrets, courts do not look at individual components of a process, but the entirety of the process, as “a trade secret can include a system where the elements are in the public domain, but there has been accomplished an effective, successful and valuable integration of [those] elements and the trade secret gave the claimant a competitive advantage which is protected from misappropriation.” Rivendell Forest Prods., Ltd. v. Georgia-Pacific Corp., 28 F.3d 1042, 1046 (10th Cir. 1994); Innovatier, Inc. v. CardXX, Inc., No. 08-CV-00273-PAB-KLM, 2011 WL 3293789, ...


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