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Direct Technologies, LLC v. Electronic Arts, Inc.

United States Court of Appeals, Ninth Circuit

September 6, 2016

Direct Technologies, LLC, a California limited liability company, Plaintiff-Appellant,
v.
Electronic Arts, Inc., a Delaware corporation, Defendant-Appellee.

          Argued and Submitted June 8, 2016 Pasadena, California

         Appeal from the United States District Court No. 8:10-cv-01336-AG-PJW, for the Central District of California Andrew J. Guilford, District Judge, Presiding

          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.

          Before: Alex Kozinski, Ronald M. Gould, and Andrew D. Hurwitz, Circuit Judges.

         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.

         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.

          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 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 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.

         (IMAGE OMITTED)

         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 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 ...


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