Direct Technologies, LLC v. Electronic Arts, Inc.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

DIRECT TECHNOLOGIES, LLC, Nos. 14-56266

a California limited liability 14-56745

company,

Plaintiff-Appellant, D.C. No.

8:10-cv-01336-AG-PJW

v.

ELECTRONIC ARTS, INC., a OPINION

Delaware corporation,

Defendant-Appellee.

Appeal from the United States District Court

for the Central District of California

Andrew J. Guilford, District Judge, Presiding

Argued and Submitted June 8, 2016

Pasadena, California

Filed September 6, 2016

Before: Alex Kozinski, Ronald M. Gould,

and Andrew D. Hurwitz, Circuit Judges.

Opinion by Judge Gould

2 DIRECT TECH. V. ELECTRONIC ARTS

SUMMARY*

Copyright / Trade Secrets

The panel affirmed in part and reversed in part the district

court’s summary judgment in favor of defendant Electronic

Arts, Inc., in a copyright infringement and trade secrets case.

Electronic Arts, maker of The Sims, a computer game,

contracted with a production company to produce a USB

flash drive shaped like a “PlumbBob,” a gem-shaped icon

from the game. That company contracted with Direct

Technologies, LLC, to produce a prototype. Electronic Arts

approved the prototype but had the flash drives produced by

a company in China. Direct Technologies sued under the

Copyright Act and the California Uniform Trade Secrets Act.

Reversing as to the copyright infringement claim, the

panel held that the district court erred in ruling as a matter of

law that the flash drive was not sufficiently original when

compared to the PlumbBob icon to qualify for copyright

protection as a derivative work. The panel held that there was

a genuine issue of material fact as to whether Direct

Technologies’ cut-away design for removing the flash drive

from the PlumbBob object was sufficiently non-functional

and non-trivial to warrant copyright protection. There was

also a genuine issue of material fact as to whether Direct

Technologies was sufficiently in control of its artistic

contribution to qualify as a joint author in the flash drive

prototype.

*

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

DIRECT TECH. V. ELECTRONIC ARTS 3

Affirming as to the trade secrets claim, although relying

on different grounds than the district court, the panel held that

Direct Technologies’ contribution to the PlumbBob USB

drive, a design for the flash drive’s removal from the

PlumbBob object, did not derive independent economic value

from not being generally known to the public. The panel also

held that the district court did not clearly err or otherwise

abuse its discretion in denying Electronic Arts attorneys’ fees

for the trade secrets claim.

COUNSEL

John Tehranian (argued), Christopher W. Arledge, and Peter

R. Afrasiabi, One LLP, Newport Beach, California, for

Plaintiff-Appellant.

Robert N. Klieger (argued), Hueston Hennigan LLP, Los

Angeles, California, for Defendant-Appellee.

OPINION

GOULD, Circuit Judge:

Electronic Arts (EA) is the creator of The Sims, a popular

computer game. EA contracted with a production company

called Lithomania to produce a USB flash drive shaped like

a “PlumbBob,” a gem-shaped icon from the computer game,

to promote a “Collector’s Edition” of The Sims. Lithomania

in turn contracted with Direct Technologies (DT) to produce

a prototype of the PlumbBob-shaped flash drive. EA

approved the prototype, but DT’s prototype was shipped to a

4 DIRECT TECH. V. ELECTRONIC ARTS

company in China to make essentially the same flash drives

for $0.50 cheaper per unit than DT proposed.

After DT settled breach of contract claims with

Lithomania, DT sued EA under the federal Copyright Act and

the California Uniform Trade Secrets Act (CUTSA). The

district court granted summary judgment to EA. The district

court held that the flash drive was not sufficiently “original”

when compared to the PlumbBob icon to qualify for

copyright protection. The court also held that DT had not

taken “reasonable efforts” to keep the flash drive design

secret because DT had voluntarily given the prototype to

Lithomania without explicit confidentiality restrictions. EA

then moved for attorneys’ fees under each statute, but the

district court denied fees on both claims, concluding that

DT’s claims were neither objectively specious nor brought in

bad faith.

With regard to the copyright claim, we hold that the

district court erred by concluding as a matter of law that the

flash drive was not copyrightable. There is a genuine issue of

material fact as to whether DT’s cut-away design for

removing the USB flash drive from the PlumbBob object is

sufficiently non-functional and non-trivial to warrant

copyright protection. A reasonable jury could decide these

questions in either party’s favor.

On the CUTSA claim, we affirm the district court’s grant

of summary judgment to EA, although we rely on different

grounds than did the district court. We hold that DT’s

contribution to the PlumbBob USB drive—that is, DT’s

design for the flash drive’s removal from the PlumbBob

object—does not “derive[] independent economic value,

actual or potential, from not being generally known to the

DIRECT TECH. V. ELECTRONIC ARTS 5

public.” Cal. Civ. Code § 3426.1(d)(1). Rejecting EA’s

cross-appeal, we further hold that the district court did not

clearly err or otherwise abuse its discretion in denying

attorneys’ fees for this claim.

I

The Sims is a popular video game in which players

“create virtual people called ‘Sims,’ customize the homes and

neighborhoods in which [the Sims] live, and help direct them

in their relationships, careers, and social lives as they

progress through various life stages.” When a player controls

a specific character, a green icon called a “PlumbBob”

appears over the character’s head.

6 DIRECT TECH. V. ELECTRONIC ARTS

This logo is “an iconic symbol of The Sims.” EA holds a

copyright in the PlumbBob icon.

For the release of The Sims 3, EA decided to order USB

flash drives shaped like a PlumbBob as a promotional trinket

to be sold with the game. In May 2008, EA turned to

Lithomania, a print production company, to find a

manufacturer for the PlumbBob flash drives. Lithomania

president Gina Long contacted DT and sent pictures of the

PlumbBob. DT was asked to produce prototype samples of

a PlumbBob-shaped flash drive for EA’s approval. EA

approved DT’s prototype, and the parties began negotiating

over a Vendor Agreement in August 2008.

Less than two weeks later, Lithomania sent DT’s

prototype to TREK2000, a Chinese company, without telling

DT.1 TREK2000 offered to make identical PlumbBob USB

drives for $0.50 less per unit. EA asked Lithomania whether

TREK2000 “swear[s] they can match what we already had”

from DT, and Lithomania assured EA that “they don’t think

they will have a problem matching it at all.” In the end, the

only difference between TREK2000’s product and DT’s

prototype was that the corners were “a little less sharp than

the corners of the prototype.”

Rather than tell DT that it had been cut out of the deal,

Lithomania lied, first telling DT that the project was on hold

and “who knows???” why. Then, just one day after

Lithomania told EA that it was “ready to start the

preproduction sample [with TREK2000] as soon as you

confirm an order for the manufacturing tool,” Lithomania

1

EA claims this was because of a disagreement over the use of certain

flash drive technology, although DT disputes that explanation.

DIRECT TECH. V. ELECTRONIC ARTS 7

sent DT a vendor agreement stating that Lithomania would

purchase the USB flash drives from DT. The agreement also

purported to transfer all intellectual property rights from DT

to EA. DT signed the agreement, thinking that it had sealed

the deal. Lithomania, on the other hand, told EA that it had

received a vendor agreement from DT, “so IP’s are all

protected.” EA responded, “Great. . . . Protect us all.”

For the next few weeks, Lithomania had DT sign other

agreements and assignments of IP interests. DT was never

actually told that it had lost the project. DT suspected its

loss, but it did not know for sure until DT’s owner and CEO

saw the PlumbBob drive available in stores.

DT first sued Lithomania in California state court for

fraud, breach of contract, and breach of the implied covenant

of good faith and fair dealing. That suit settled.

DT then brought this case against EA, seeking a

declaratory judgment that DT was “joint author of a

copyrighted work” in the PlumbBob drive and was “entitled

to an equal share of the profits related to the PlumbBob

USB.” The district court dismissed for failure to state a

claim, holding that DT did not “sufficiently allege[] that it is

a joint owner of the USB Drive” because it had signed a

vendor agreement transferring all rights in the USB drive to

EA. On appeal, we vacated and remanded, holding that DT

could prevail “if the contract was fraudulently induced, such

that it was invalid from the beginning.” 525 F. App’x 560,

561 (9th Cir. 2013).

On remand, DT amended its complaint to add a claim for

Trade Secret Misappropriation under the California Uniform

Trade Secret Act (CUTSA), Cal. Civ. Code §§ 3426–3246.11.

8 DIRECT TECH. V. ELECTRONIC ARTS

EA moved for summary judgment on both claims. On the

copyright claim, EA argued: (1) that “DT did not contribute

any independently copyrightable expression to the PlumbBob

Drive”; (2) that even if DT did, it was not a joint author; and

(3) that DT had assigned any copyright interest it had to

Lithomania. The district court granted summary judgment on

the copyright claim, concluding that DT’s contributions to the

drive were either trivial or functional, and that even if not, DT

was not a joint author.

On the trade secrets claim, the district court at first denied

summary judgment, holding that a reasonable jury “could

find that Plaintiff had done enough to protect the secrets of

the samples” and that DT could prove misappropriation if EA

“knew Lithomania had a duty to maintain the samples’

secrecy or limit their use.” But after additional discovery, EA

filed a renewed motion for summary judgment, which the

district court granted, holding that there was “no reasonable

dispute of material fact that DT did not take reasonable

efforts to maintain the secrecy of its prototypes.” DT

appealed both claims.

EA then moved for attorneys’ fees on both claims under

the respective statutes. The district court denied fees for both

claims. The district court found that DT’s copyright claim

was not frivolous or unreasonable and that DT’s motivations

were not improper. The court also found that DT’s trade

secrets claim was not objectively specious and that DT did

not bring the claim in bad faith. EA cross-appeals the denial

of attorneys’ fees on only the trade secrets claim.

DIRECT TECH. V. ELECTRONIC ARTS 9

II

The federal copyright claim

Because EA holds a copyright in the original 2-D

PlumbBob icon, the question at the heart of this claim is

whether DT’s 3-D rendition of the PlumbBob as a USB flash

drive is entitled to copyright protection as a derivative work.

See 17 U.S.C. § 101 (defining derivative work). If DT

contributed material “distinguished from the preexisting

material employed in the work,” DT can claim a copyright in

its contributions. 17 U.S.C. § 103(b). DT alleges that two

aspects of its work make the PlumbBob-shaped drive original

enough to warrant copyright protection: (1) the USB drive

had 12 equal sides, whereas the icon had 20 unequal sides;

and (2) DT designed the USB drive to fit into the PlumbBob

with a “futuristic cut away look . . . at a unique angle.”

We have established a two-step inquiry for determining

whether a derivative work is original enough to receive

copyright protection. First, courts address the question

whether any aspects of the work seeking copyright protection

“are purely functional, utilitarian or mechanical.” Entm’t

Research Grp., Inc. v. Genesis Creative Grp., Inc., 122 F.3d

1211, 1221 (9th Cir. 1997) (hereinafter ERG) (citing

17 U.S.C. § 101 (describing the limitations on copyrighting

mechanical or utilitarian aspects of a work)). If so, “any

differences in appearance between a derivative work and the

preexisting work which are not conceptually separable from

any utilitarian, functional or mechanical purposes” are set

aside and excluded from the determination “whether

sufficient artistic differences exist to constitute ‘originality.’”

Id. at 1222.

10 DIRECT TECH. V. ELECTRONIC ARTS

Second, when addressing originality, courts apply the two

Durham factors from the Second Circuit:

First, to support a copyright the original

aspects of a derivative work must be more

than trivial. Second, the original aspects of a

derivative work must reflect the degree to

which it relies on preexisting material and

must not in any way affect the scope of any

copyright protection in that preexisting

material.

Id. at 1220 (quoting Durham Indus., Inc. v. Tomy Corp.,

630 F.2d 905, 909 (2d Cir. 1980)). “[T]he amount of creative

input by the author required to meet the originality standard

is low” but “not negligible.” Satava v. Lowry, 323 F.3d 805,

810 (9th Cir. 2003); see also Sid & Marty Krofft Television

Prods., Inc. v. McDonald’s Corp., 562 F.2d 1157, 1163 n.5

(9th Cir. 1977).

A. Functionality

In ERG, we discussed at length how the functionality

standard applies to 3-D representations of 2-D objects. That

case involved costumes derived from drawings of famous

cartoon characters such as the Pillsbury Doughboy, Geoffrey

the Giraffe, and Cap’n Crunch. When analyzing the

differences between the costumes and the drawings, we

concluded that differences in “form, texture and

proportionality” were “necessitated by the fact that a human

body must fit inside the costumes.” 122 F.3d at 1223. Those

differences were thus functional or utilitarian and had to be

excluded from the originality analysis. On the contrary, we

recognized that the facial expressions on the costumes were

DIRECT TECH. V. ELECTRONIC ARTS 11

a “truly ‘artistic’ difference” that was not merely functional.

Id. We held that that non-functional artistic difference could

be considered in our originality analysis.2

Here, DT alleges that it made a non-functional

contribution to the USB drive by designing the flash drive to

fit into the PlumbBob with a “futuristic cut away look . . . at

a unique angle.”

2

For examples of other cases discussing functionality, see Lamps Plus,

Inc. v. Seattle Lighting Fixture Co., 345 F.3d 1140, 1146–47 (9th Cir.

2003) (holding that additions designed to turn a ceiling lamp into a table

lamp were functional), and Pickett v. Prince, 207 F.3d 402, 405 (7th Cir.

2000) (Posner, C.J.) (stating that the differences between a guitar based on

Prince’s symbol and Prince’s symbol may be “nothing more than the

functional difference between a two-dimensional symbol and a guitar in

the shape of that symbol,” but also positing that perhaps “the juxtaposition

of the symbol and the guitar is enough to confer on the ensemble sufficient

originality” for copyright protection).

12 DIRECT TECH. V. ELECTRONIC ARTS

We hold that there is a genuine issue of material fact

regarding whether the manner in which DT designed the USB

flash drive stick to fit into the PlumbBob object was merely

functional or utilitarian. See Poe v. Missing Persons,

745 F.2d 1238, 1242–43 (9th Cir. 1984) (explaining that

functionality is a question of fact for a jury); see also N.

Coast Indus. v. Jason Maxwell, Inc., 972 F.2d 1031, 1034–35

(9th Cir. 1992) (explaining that originality is a question of

fact for a jury).

Of course, the mere feature of having a USB flash drive

that can be removed from the PlumbBob object is not

copyrightable; that is a functional attribute “necessitated by

the fact” that the 3-D PlumbBob was designed for use as a

USB flash drive. ERG, 122 F.3d at 1223. But the “cut away”

manner in which the flash drive is to be removed is

potentially non-functional. DT claims that it designed this

feature to have a “futuristic” appearance. The record shows

that DT considered at least four other design options that had

different aesthetic characteristics.

DIRECT TECH. V. ELECTRONIC ARTS 13

And the designer, Erik Jones, submitted a sworn declaration

explaining that his ultimate choice was made “for aesthetic

reasons.” Like the court found with the costume faces in

ERG, a jury could find that this design feature was “truly

‘artistic.’” Id. There is a genuine issue of material fact

whether the unique and creative manner in which DT

designed the USB drive to fit into the PlumbBob was non-

functional and could potentially qualify for copyright

protection.

EA’s arguments to the contrary do not persuade us. EA

argues that the record contains evidence that the choice of

design “was driven by functional considerations.” EA cites

testimony from a DT employee, Shaun Secours, who said that

he talked with Jones and that Jones’s decision was “just for

the functionality of the drive, there’s no other way we can

make this come out. Otherwise, the portion that you are

plugging into the computer will be too fat and you — it

would interfere with cables and other USB slots and it

wouldn’t be — people wouldn’t use it.” But Secours was not

the designer of the drive; Jones was, and as stated above,

Jones declared that his design decisions were made for

14 DIRECT TECH. V. ELECTRONIC ARTS

aesthetic reasons. This type of factual dispute supports our

conclusion that this issue is inappropriate for resolution on

summary judgment. See Doe v. Cutter Biological, Inc.,

971 F.2d 375, 381 (9th Cir. 1992) (explaining that the

existence of conflicting testimony on an issue “underscores

the inappropriateness of a grant of summary judgment”).

Secours’s assertion that the final design reflected the only

way to design the drive while maintaining its functionality is

certainly debatable—at least two of the other options that

Jones considered appear to have been able to function as a

normal USB flash drive. If Jones said one thing and Secour

said another on the same subject, it is the role of the jury, not

a court on summary judgment, to determine the facts.

In sum, it cannot properly be said as a matter of law that

the manner in which DT designed the flash drive to emerge

from the PlumbBob object was merely utilitarian or

functional. A reasonable jury could answer that question in

either party’s favor.3

B. Originality

As discussed above, when determining whether a

derivative work is sufficiently original to warrant copyright

protection, the pertinent question is whether “the difference

between the [derivative] work and the preexisting work is

non-trivial.” N. Coast Indus., 972 F.2d at 1033. In North

Coast Industries, we held that the district court erred by

concluding that a minor difference in the arrangement of

3

Because we view the facts in the light most favorable to the non-

moving party when analyzing whether summary judgment is appropriate,

we will consider this design feature when discussing the originality of the

PlumbBob drive.

DIRECT TECH. V. ELECTRONIC ARTS 15

rectangular shapes on two different clothing patterns was

trivial as a matter of law; the question of triviality should

have been sent to a jury. Id. at 1034–35. To the contrary, our

opinion in ERG held that the differences in facial expressions

between cartoons and their derivative costumes were trivial

as a matter of law because “no reasonable trier of fact would

see anything but the underlying copyrighted character when

looking at ERG’s costumes.” 122 F.3d at 1223. We

distinguished North Coast Industries by explaining that the

different geometric shapes on the clothes in that case were

“so crucial to the derivative work” that “a reasonable trier of

fact [c]ould find the derivative works to be recognizably the

derivative creator’s own product.” Id. at 1224.

Turning to the facts of this case, we reject DT’s first

argument that its PlumbBob drive merits copyright protection

because it has 12 rather than 20 sides. While some images of

the PlumbBob have 20 unequal sides, others have only 12.

The PlumbBob has apparently evolved throughout multiple

editions of The Sims—also including, for instance, changes

in whether the icon is translucent or solid. Even assuming

that DT’s version has a slightly different shape than the

drawing presented by EA, we have held that a character’s

copyright encompasses its “distinctive character traits and

attributes, even if the character does not maintain the same

physical appearance in every context.” DC Comics v. Towle,

802 F.3d 1012, 1020 (9th Cir. 2015). The number of sides on

DT’s USB flash drive is not a copyrightable contribution in

this case.

On the other hand, if a jury determines that the manner in

which DT designed the USB drive to fit into the PlumbBob

object is artistic and non-functional, see Sec. II.A & n.3,

supra, we hold that there is a genuine issue of material fact as

16 DIRECT TECH. V. ELECTRONIC ARTS

to whether DT’s USB drive is sufficiently original to warrant

copyright protection. That aesthetic feature is “something

recognizably the artist’s own,” and a reasonable jury could

determine that it meets the “low” standard for originality.

Satava, 323 F.3d at 810; see also N. Coast Indus., 972 F.2d

at 1034–35.

EA argues that the district court correctly determined that

DT failed the second prong of the Durham test that

“derivative works are not copyrightable if they ‘affect the

scope of any copyright protection in th[e] preexisting

material.’” ERG, 122 F.3d at 1224 (quoting Durham,

630 F.2d at 909). EA parrots the district court in saying that

DT’s design was “so similar to the well known and

copyrighted PlumbBob [it’s] based on” that if it were

copyrightable, DT would have “a monopoly on all USB[

drives] shaped like the PlumbBob, and perhaps even any

other 3-D embodiment of the PlumbBob.” That statement is

incorrect. As a derivative copyright holder, DT would only

have a copyright in its unique contribution—the artistic

manner in which it designed the USB flash drive to fit into

the PlumbBob object. See 17 U.S.C. § 103(b). Anyone else

would be free to create a USB flash drive that used a different

method or design for flash-drive removal, and DT’s copyright

would obviously not preclude others from making a 3-D

PlumbBob without a flash drive.

We conclude that the question of originality warrants

decision by a jury.

C. Joint authorship

In the alternative, EA argues that even if the differences

between the 2-D and 3-D PlumbBobs were not trivial, DT

DIRECT TECH. V. ELECTRONIC ARTS 17

was not a joint author as required by the Copyright Act. The

district court adopted this argument as an alternative basis for

granting summary judgment.

We have set forth three criteria to determine authorship

for copyright purposes, of which the most important factor is

who is “exercising control”: that is, who is “‘the inventive or

master mind’ who ‘creates, or gives effect to the idea.’”

Aalmuhammed v. Lee, 202 F.3d 1227, 1234 (9th Cir. 2000)

(quoting Burrow-Giles Lithographic Co. v. Sarony, 111 U.S.

53, 61 (1884)). EA argues that it “had ultimate control and

final decision-making authority over the design of the

PlumbBob Drives,” dictating shape, color, “and all other

material particulars.” While the record suggests that Long at

some point requested that the USB drive be a flat stick

removable from the top of the Drive rather than have the

Drive split in the center to reveal the USB, such evidence,

viewed in the light most favorable to DT, does not prove that

EA held ultimate control over the drive’s design. A

reasonable factfinder could find that EA was merely in a

position to offer suggestions, but did not ultimately “give[]

effect to the idea” of how the USB flash drive fit into the

PlumbBob object. Aalmuhammed, 202 F.3d at 1234 (quoting

Burrow-Giles, 111 U.S. at 61).

EA also argues that the “audience appeal” of the

PlumbBob drive did not derive from DT’s contributions to

the shape of the design port. See id. (listing audience appeal

as a factor to consider in determining joint authorship). But

a reasonable factfinder could conclude that the drive design

DT ultimately adopted was more aesthetically pleasing than

the designs it rejected, suggesting that DT’s contribution

helped entice consumers to purchase the Collector’s Edition

of the game.

18 DIRECT TECH. V. ELECTRONIC ARTS

We hold that there is a genuine issue of material fact as to

whether DT was sufficiently in control of its artistic

contribution to qualify as a joint author in the resulting USB

drive prototype. Again, this issue warrants decision by a jury.

D. The assignment contract

EA argues finally that DT’s copyright claim fails because

DT assigned away its copyright interest in the PlumbBob

drives in the vendor agreement it signed with Lithomania.

The district court did not address this claim, but we consider

it because we may affirm on any basis apparent in the record.

Hell’s Angels Motorcycle Corp. v. McKinley, 360 F.3d 930,

933 (9th Cir. 2004).

DT claims that fraud in the inducement invalidates this

vendor agreement, but EA draws a distinction between fraud

in the inducement and fraud in the execution. EA states,

“even if DT had been fraudulently induced to enter into the

Vendor and Confidentiality and Anti-Piracy Agreements,

those agreements would still bar DT’s claim.” This argument

is barred by law of the case. In our prior memorandum

disposition, we reasoned that “if the contract was fraudulently

induced, such that it was invalid from the beginning, there

would be no valid contract for EA to enforce.” 525 F. App’x

at 561. That statement in our prior decision forceloses EA’s

argument here.

To reiterate the facts that led to this contract: Lithomania

knew it was going to be sending DT’s prototype to a Chinese

company for manufacturing, but rather than disclose that to

DT, it sent DT a vendor agreement stating that Lithomania

would purchase the USB drives from DT while asking DT to

sign over its intellectual property rights. Lithomania then

DIRECT TECH. V. ELECTRONIC ARTS 19

bragged to EA that it had secured this contract, stating that

“IP’s are all protected,” to which EA responded “Great. . . .

Protect us all.” As we stated in the prior appeal, “[b]ecause

DT may be able to prove that the contract is unenforceable,

this case is inappropriate for dismissal.” Id. at 561–62.

Nothing has changed materially since then. The vendor

agreements are not a proper basis for summary judgment.

For these reasons, we reverse the district court’s grant of

summary judgment on the copyright claim.

III

The California trade secret claim

In California, the tort of misappropriation of a trade secret

is governed by statute. A trade secret is defined as

information, including a formula, pattern,

compilation, program, device, method,

technique, or process, that:

(1) Derives independent economic value,

actual or potential, from not being generally

known to the public or to other persons who

can obtain economic value from its disclosure

or use; and

(2) Is the subject of efforts that are reasonable

under the circumstances to maintain its

secrecy.

Cal. Civ. Code § 3426.1(d). The district court ruled that no

reasonable jury could find that DT took reasonable efforts to

20 DIRECT TECH. V. ELECTRONIC ARTS

maintain the secrecy of its prototype. As we explain below,

we decline to affirm on that basis.

To be sure, the record shows that DT did not do much, if

anything, to explicitly protect its prototype design. EA points

to substantial evidence that DT “placed no limitations on

what could be done with the prototypes that DT sold to

Lithomania,” and EA stresses that DT did not label the

prototypes as confidential “or otherwise communicate to

Lithomania that it regarded them as such.” DT does not

contest this evidence, but the thrust of DT’s claim is that it

reasonably relied on implicit business expectations that

Lithomania would keep the prototype secret—that is,

expectations that Lithomania would not send the prototype to

a Chinese competitor to manufacture effectively the same

product at a lower price. As we explained in Pachmayr Gun

Works, Inc. v. Olin Mathieson Chem. Corp., 502 F.2d 802

(9th Cir. 1974), “courts will consider the factual

circumstances of each case on an individual basis, to

determine whether a confidential relationship may reasonably

be implied” such that an entity has the duty to maintain the

secrecy of confidential information. Id. at 808. We quoted

the Seventh Circuit for the proposition that

Where the facts show that a disclosure is

made in order to further a particular

relationship, a relationship of confidence may

be implied, e.g., disclosure to a prospective

purchaser to enable him to appraise the value

of the secret, disclosure to a prospective

lender to assure him of the prospects of a

borrower’s business, disclosure to agent,

partner, or joint adventurer.

DIRECT TECH. V. ELECTRONIC ARTS 21

Id. (quoting Cloud v. Standard Packaging Corp., 376 F.2d

384, 388–89 (7th Cir. 1967)).

EA contends that this common law theory of trade secret

misappropriation has been preempted by California’s trade

secret statute, which was passed after Pachmayr was decided.

EA claims that the statute requires plaintiffs “to prove as an

essential element of a CUTSA claim that it made affirmative

efforts to maintain the secrecy of its purported trade secret.”

That is not, however, the language of the statute. The

statute instead requires “efforts that are reasonable under the

circumstances to maintain its secrecy.” Cal. Civ. Code

§ 3426.1(d)(2). It may be that in some factual circumstances,

a rational jury could find that when an implied relationship of

confidentiality exists between two business partners,4 it is

“reasonable under the circumstances” for the prospective

seller to not make additional efforts to maintain secrecy of the

prototype. But because we can affirm on an alternate ground,

see Hell’s Angels, 360 F.3d at 933, we decline to address

whether the CUTSA statute preempts Pachmayr, and we

assume without deciding that DT raised a genuine issue of

material fact as to whether it had such an implied confidential

relationship with Lithomania.5

4

For instance, “disclosure to a prospective purchaser to enable him to

appraise the value of the secret.” Pachmayr, 502 F.2d at 808 (quoting

Cloud, 376 F.2d at 389).

5

EA also argues that Pachmayr is “inapposite” because it concerned

“unfair competition or breach of confidence,” but the claim very clearly

was for “Unfair Competition – Misappropriation of Trade Secret.”

502 F.2d at 807.

22 DIRECT TECH. V. ELECTRONIC ARTS

We instead affirm the district court’s grant of summary

judgment on alternate grounds. CUTSA defines trade secrets

as having “independent economic value, actual or potential,

from not being generally known to the public or to other

persons who can obtain economic value from its disclosure or

use.” Cal. Civ. Code § 3426.1(d)(1); see Altavion, Inc. v.

Konica Minolta Sys. Lab. Inc., 171 Cal. Rptr. 3d 714, 743 (Ct.

App. 2014) (“[T]he information alleged to be a trade secret”

must be “‘valuable because it is unknown to others.’”)

(quoting DVD Copy Control Ass’n Inc. v. Bunner, 10 Cal.

Rptr. 3d 185, 192 (Ct. App. 2004)). EA argues that DT’s

design is not a trade secret because it has no “actual or even

potential value to DT outside of a single ephemeral project

for a single customer.” DT has not presented any evidence

that there was value in the secrecy of its design. We affirm

the district court’s grant of summary judgment on this

ground.

Attorneys’ fees

EA argues that it is entitled to attorneys’ fees on DT’s

trade secrets claim under Cal. Civ. Code § 3426.4, which

authorizes attorneys’ fees when “a claim of misappropriation

is made in bad faith.” California courts have held that bad

faith “requires objective speciousness of the plaintiff’s claim,

as opposed to frivolousness, and its subjective bad faith in

bringing or maintaining the claim.” Gemini Aluminum Corp

v. Cal. Custom Shapes, Inc., 116 Cal. Rptr. 2d 358, 368 (Ct.

App. 2002). A “specious” action “may superficially appear

to have merit,” id., so attorneys’ fees may be proper even if

the claim is not frivolous.

The district court held that DT’s claim was not

objectively specious and found that DT did not bring the

DIRECT TECH. V. ELECTRONIC ARTS 23

claim in bad faith, explaining that “Plaintiff had reason to

believe its action against Defendants was valid.” The district

court did not clearly err or abuse its discretion in drawing

these conclusions. Even assuming that bad faith includes

recklessness (which the parties dispute), there is no evidence

to suggest that DT brought the claim for an improper purpose

such as to extort a settlement. The allegations here are

consistent with the normal scope of vigorous advocacy, and

these are not the type of specious claims that could justify an

attorneys’ fee award under California law. The district court

did not clearly err or otherwise abuse its discretion in denying

EA an attorneys’ fee award.

IV

We reverse the district court’s grant of summary

judgment on the copyright claim and remand for further

proceedings consistent with this opinion. We affirm the

district court’s grant of summary judgment on the trade secret

claim and we affirm the denial of attorneys’ fees.

AFFIRMED IN PART, REVERSED IN PART,

REMANDED. Each party shall bear its own costs on appeal.

See Fed. R. App. P. 39(a)(4).