Elite Semiconductor, Inc. v. Anchor Semiconductor, Inc.

Background

Elite Semiconductor, Inc. described itself as a Taiwan-based software company that developed semiconductor-manufacturing verification tools. It alleged that Chin-Hsen Lin, who had served as its chief technology officer and later as a senior consultant, had access to its source code, patent-invention disclosures, product plans, and other confidential information. Elite alleged that Lin gave information to Anchor Semiconductor, Inc., and that Anchor and Chenmin Hu used it to develop competing products.

Elite brought five claims: misappropriation under California’s Uniform Trade Secrets Act (CUTSA), misappropriation under the federal Defense of Trade Secrets Act, breach of contract against Lin, tortious interference with contract against Anchor and Hu, and conversion against all defendants. Anchor and Hu moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not plausibly state a claim for relief. They challenged only the fourth and fifth claims.

Court’s Analysis

The court explained that CUTSA supersedes, or displaces, common-law claims based on the same core facts as trade-secret misappropriation. It does not displace contractual remedies or claims based on misconduct independent of misappropriation.

For the tortious-interference claim, Elite alleged that Anchor and Hu encouraged Lin to breach his confidentiality agreement by disclosing or using Elite’s confidential information and trade secrets. The court held that the alleged wrongdoing was the acquisition and use of trade secrets and confidential information, which fell within CUTSA’s definition of misappropriation. The court rejected Elite’s arguments that the claim was different because it involved information that might not qualify as a trade secret and because it referred to Lin’s confidentiality agreement. The court concluded that the claim alleged no independent injury once the trade-secret allegations were removed.

For the conversion claim, Elite alleged that defendants took patent-invention disclosure documents and included their contents in Anchor’s patent application and later in an Anchor product. The court held that Elite had not alleged that the documents had value apart from the confidential information they contained. Because the conversion claim was based on the same alleged conduct as the trade-secret claims, the court held that CUTSA superseded it as currently pleaded.

Disposition

The court granted the motion to dismiss. Elite’s fourth claim, for tortious interference with contract, was dismissed without leave to amend because amendment would be futile. Elite’s fifth claim, for conversion, was dismissed with leave to amend; the court declined to dismiss that claim with prejudice and gave Elite 30 days to amend it. The amended complaint had to include a redlined version as an attachment.