ElastiFlow, Inc. v. Smith

Background

ElastiFlow sued former employees Alexander Germain and Duvall Smith for allegedly violating their employment agreements through their use of ElastiFlow’s proprietary and confidential information. Germain asserted a counterclaim seeking a declaratory judgment that he did not misappropriate ElastiFlow’s trade secrets. Smith asserted the same counterclaim and another seeking a declaratory judgment that he owned certain source code, called “the Code,” and that ElastiFlow and other third parties needed a license to use the Code and derivative works.

ElastiFlow moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a claim is not adequately pleaded. The court ruled on the motions after reviewing the parties’ briefing and hearing oral argument on June 5, 2025.

Trade-secret counterclaims

The court denied the motion to dismiss Germain’s and Smith’s declaratory counterclaims concerning trade-secret misappropriation. ElastiFlow relied on cases involving the same parties in another action, but the court noted that Germain and Smith were not parties to that other action. The court was not aware of a case dismissing declaratory counterclaims in that circumstance.

Smith’s copyright counterclaim

The court granted in part and denied in part the motion to dismiss Smith’s copyright counterclaim. Smith’s ownership claim was adequately pleaded. He alleged that he wrote a significant amount of code for automated testing of ElastiFlow’s products, that the Code formed the foundation of ElastiFlow’s products and later derivative works, that he created the Code using his own equipment and other assets, and that he was an independent contractor when he wrote some or all of it.

ElastiFlow argued that a 2023 Confidential Information, Intellectual Property, and Invention Assignment Agreement assigned the Code to ElastiFlow. The court explained that the agreement’s language could operate as a present assignment of future inventions, but concluded that the agreement did not definitively resolve whether the Code met the contract’s definition of “work product” or whether it assigned Code Smith wrote before signing the agreement. At the pleading stage, the court therefore could not determine as a matter of law that ElastiFlow owned the Code.

The court dismissed the licensing portion of Smith’s counterclaim. Smith did not allege that he had registered the copyright, a requirement generally applicable before enforcing copyright ownership rights in court. The court also rejected Smith’s attempt to characterize the request, for the first time in his opposition brief, as a request concerning an implied license because the answer did not plead an implied-license theory in a way that gave ElastiFlow fair notice.

Disposition

Judge Jacquelyn Scott Corley ordered that the motion to dismiss Germain’s counterclaim and Smith’s first counterclaim was DENIED. The motion concerning Smith’s second counterclaim was DENIED except insofar as it seeks judgment that ElastiFlow or third parties require a license to use the Code; that licensing portion was dismissed. The court set July 1, 2025, as the deadline for any amended answers unless the parties stipulated to another deadline. The order disposed of Docket Nos. 28 and 31.