Snapkeys, LTD v. Google LLC

Background

Snapkeys alleged that it develops smartphone and smartwatch keyboard technology and that the parties began discussing possible promotion of Snapkeys’ iType technology on Google’s Android Wear smartwatches in July 2015. The parties signed a Developer Non-Disclosure Agreement on July 29, 2015. The agreement allowed technical discussions about existing or future product development, required the parties to prevent unauthorized use or disclosure of confidential information, and stated that it created no obligation to proceed with a business transaction.

Snapkeys alleged that Google made fraudulent and misleading promises that it would work with Snapkeys and promote its technology. Snapkeys said it provided Google with prototypes, including two smartwatches containing the iType technology. According to Snapkeys, Google later declined to work with it and cooperated with a competitor to develop a substantially similar smartwatch keyboard.

Google moved to dismiss Snapkeys’ Second Amended Complaint under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. The court incorporated the full nondisclosure agreement into its review because the agreement formed the basis of Snapkeys’ contract claim.

Claim One: Breach of the Nondisclosure Agreement

The court denied Google’s motion to dismiss this claim. Snapkeys alleged that the confidential information included two prototypes containing its iType technology and information about the technology’s specific design and interface. It also alleged that Google used the information in its own smartwatch keyboard and provided it to third-party competitors.

The court held that these allegations plausibly described unauthorized use or disclosure violating the agreement. It rejected Google’s argument that Snapkeys had to plead the information as a statutory trade secret because the agreement protected information that Snapkeys considered confidential, subject to the agreement’s exceptions.

Claim Two: Fraud

The court held that California’s Uniform Trade Secrets Act superseded Snapkeys’ fraud claim. Under the court’s analysis, that statute provides the exclusive civil remedy for conduct based on trade-secret misappropriation and supersedes other claims based on the same underlying facts unless those claims allege materially different wrongdoing.

Snapkeys alleged that Google falsely promised to enter a business relationship in order to obtain Snapkeys’ confidential information for Google’s own use or to provide it to competitors. The court concluded that these allegations depended on the alleged acquisition of confidential information and therefore fell within the statutory definition of trade-secret misappropriation, which includes using a misrepresentation to acquire knowledge of a trade secret.

The court granted Google’s motion to dismiss the fraud claim and denied Snapkeys leave to amend it. The court therefore dismissed the fraud claim with prejudice.

Claim Three: Conversion

The court denied Google’s motion to dismiss the conversion claim. Conversion is a claim alleging wrongful interference with someone’s ownership or right to possess property. Snapkeys alleged that it gave Google possession of two physical prototype smartwatches but did not transfer ownership rights. The court found that this adequately alleged Snapkeys’ ownership or right to possess the prototypes when the alleged conversion occurred.

The court also held that the conversion claim was not necessarily superseded by the California Uniform Trade Secrets Act because Snapkeys plausibly alleged that the physical prototypes had value apart from the information embodied in them. The claim could proceed only insofar as Snapkeys sought recovery for the value of the tangible physical smartwatches, not for the value of trade secrets or other confidential information contained in them.

Claim Four: Unfair Competition

Snapkeys pursued its California unfair-competition claim under the fraudulent and unfair prongs of the state law, not the unlawful prong. The court granted Google’s motion to dismiss this claim, while granting Snapkeys leave to amend.

As to the fraudulent prong, Snapkeys relied on an alert that appeared when users enabled the Snapkeys keyboard and warned that the keyboard could collect typed text, including passwords and credit-card information. Snapkeys alleged that Google’s default keyboard could collect the same information but did not display a similar alert. The court found that Snapkeys did not explain how the alert itself was misleading or allege that Google had a duty to provide the same alert for its own keyboard.

As to the unfair prong, the court held that Snapkeys did not allege harm to competition. Its allegations focused on harm to Snapkeys rather than on conduct that threatened an antitrust violation, violated antitrust policy, or significantly harmed competition. The court allowed amendment only if Snapkeys could plead facts addressing the defects identified in the order.

Claim Five: Implied Covenant of Good Faith and Fair Dealing

The court granted Google’s motion to dismiss Snapkeys’ claim for breach of the implied covenant of good faith and fair dealing. The court found that the claim was duplicative of the breach-of-contract claim because it relied on the same alleged conduct—inducing disclosure of the prototypes and confidential information through bad faith and fraudulent means—and sought no separate theory of wrongdoing.

The court denied Snapkeys leave to amend this claim, finding amendment futile in light of the existing breach-of-contract claim. The court therefore dismissed this claim with prejudice.

Disposition

The court’s order granted in part and denied in part Google’s motion to dismiss. It denied dismissal of the breach-of-nondisclosure-agreement claim. It denied dismissal of the conversion claim to the extent it was based on the physical prototypes. It granted dismissal of the fraud claim without leave to amend and dismissed that claim with prejudice. It granted dismissal of the unfair-competition claim with leave to amend, and granted dismissal of the implied-covenant claim without leave to amend and dismissed that claim with prejudice.

Snapkeys could file an amended complaint within 30 days to amend the unfair-competition claim and delete the dismissed claims. Any amendment was limited to the defects discussed in the order; Snapkeys could not add new parties or claims or amend other claims without the court’s prior express permission.