1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 IMPLICIT CONVERSIONS, INC., Case No. 24-cv-03744-WHO

8 Plaintiff, ORDER GRANTING IN PART AND 9 v. DENYING IN PART MOTION TO DISMISS 10 JACOB STINE, et al., Re: Dkt. No. 100 Defendants. 11

12 13 Plaintiff Implicit Conversions Inc. (“Implicit”) asserts several claims against defendants 14 Jacob Stine and Juanita Traver Stine (who are married), and a newly added defendant, Project 15 Crayon (which is a business jointly owned by the married couple). Among them are a claim for 16 violation of the California Uniform Trade Secrets Act,

, et seq. (“CUTSA”) 17 (against all defendants), a claim for Tortious Interference with Prospective Economic Advantage 18 (against Stine and Project Crayon), and a claim for violation of California’s unfair competition 19 law, California Business and Professions Code § 17200 (“UCL”) (against only Project Crayon). 20 Stine and Project Crayon have moved to dismiss the tortious interference and UCL claims as 21 preempted by the CUTSA claim. The tortious interference claim is only preempted in part. The 22 UCL claim, as pleaded, is entirely preempted. The motion is GRANTED in part and DENIED in 23 part. Implicit may amend its pleadings consistent with the Order below.1 24 BACKGROUND 25 The factual background of this case is well-trod ground. I incorporate by reference the 26

27 1 After considering the parties’ submissions, I determined that this issue was suitable for resolution 1 more complete background laid out in prior orders. Dkt. No. 55 (Order Granting Motion to 2 Dismiss), Dkt. No. 74 (Order Granting in Part and Denying in Part Motions to Dismiss and 3 Denying Motions to Strike). The crux of Implicit’s allegations are that Stine, with the assistance 4 of his wife, Traver Stine, attacked the couple’s former employer, Implicit, after Stine was released 5 from the company following increasingly erratic behavior. After his termination (which led to his 6 exclusion from Implicit’s accounts), Stine used Traver Stine’s login credentials to access 7 Implicit’s computer systems without authorization and downloaded “vast quantities of Implicit’s 8 trade secrets,” “deleted information from Implicit’s computer system, and tampered with other 9 systems which caused them to go offline.” First Amended Complaint (“FAC”) [Dkt. No. 93] ¶ 30. 10 The FAC asserts some new allegations and adds a new defendant, Project Crayon, which is 11 a company that Stine and Traver Stine apparently founded shortly after their split from Implicit. 12 In the FAC, Implicit adds that Stine’s unauthorized access to Implicit’s computer systems and the 13 actions he took “created a security event which caused Sony Interactive Entertainment (‘SIE’), 14 Implicit’s then-largest customer, to develop concerns about Implicit’s ability to maintain the 15 security of SIE’s proprietary and confidential information.” FAC ¶ 49. Implicit says that this 16 “seriously interfered with Implicit’s commercial relationship with SIE.” Id. Stine and Project 17 Crayon, his “newly-formed company” that provides similar services to Implicit, see FAC ¶ 3, 18 “subsequently solicited SIE by, in part, exploiting SIE’s concerns about Implicit’s computer 19 security caused by Stine’s own unlawful trespass, to persuade SIE to non-renew its contract with 20 Implicit and transfer its business to Project Crayon.” FAC ¶ 51. SIE did not renew its contract 21 with Implicit and instead contracted with Project Crayon for the “same services” it once received 22 from Implicit. Id. ¶¶ 48, 53. Implicit claims that this cost it revenue. Id. ¶ 155. 23 Stine and Project Crayon have moved to dismiss Implicit’s claims for tortious interference 24 with prospective economic advantage and unfair competition in violation of California’s Business 25 and Professions Code § 17200 because they are preempted by Implicit’s CUTSA claim. 26 LEGAL STANDARD 27 Federal Rule of Civil Procedure 12(b)(6) provides that a complaint may be dismissed for 1 complaint lacks either a “cognizable legal theory” or “sufficient facts alleged” under such a 2 theory. Godecke v. Kinetic Concepts, Inc.,

(9th Cir. 2019) (citation omitted). 3 Whether a complaint contains sufficient factual allegations depends on whether it pleads enough 4 facts to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal,

, 678 5 (2009) (quoting Bell Atl. Corp. v. Twombly,

(2007)). A claim is plausible 6 “when the plaintiff pleads factual content that allows the court to draw the reasonable inference 7 that the defendant is liable for the misconduct alleged.”

. 8 When evaluating a motion to dismiss, the court “accept[s] factual allegations in the 9 complaint as true and construe[s] the pleadings in the light most favorable to the nonmoving 10 party.” Manzarek v. St. Paul Fire & Marine Ins. Co.,

(9th Cir. 2008). 11 However, “allegations in a complaint ... may not simply recite the elements of a cause of action 12 [and] must contain sufficient allegations of underlying facts to give fair notice and to enable the 13 opposing party to defend itself effectively.” Levitt v. Yelp! Inc.,

(9th Cir. 14 2014) (citations omitted). The Court may dismiss a claim “where there is either a lack of a 15 cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal claim.” 16 Hinds Invs., L.P. v. Angioli,

, 850 (9th Cir. 2011). 17 DISCUSSION 18 Defendants argue that Implicit’s tortious interference and UCL claims are preempted by 19 CUTSA because they are predicated on the same core factual allegations underlying Implicit’s 20 CUTSA claim. As pleaded, the tortious interference claim is partly preempted, and the UCL claim 21 is entirely preempted. 22 A. CUTSA 23 The California Uniform Trade Secrets Act (“CUTSA”) was intended “to occupy the field 24 of trade secret liability to the exclusion of other civil remedies.” Five Star Gourmet Foods, Inc. v. 25 Fresh Express, Inc., No. 19-CV-05611-PJH,

, at *14 (N.D. Cal. Jan. 31, 2020) 26 (citing Silvaco Data Sys. v. Intel Corp.,

(2010)). It “preempts common 27 law claims that are ‘based on the same nucleus of facts as the misappropriation of trade secrets 1 4th 939, 958 (2009) (citation omitted). 2 CUTSA supersedes other claims even when they seek “something more” or “require[] 3 proof of additional elements not necessary to a trade-secret misappropriation claim.” EchoSpan, 4 Inc. v. Medallia, Inc., No. 22-CV-1732-NC,

, at *2 (N.D. Cal. July 19, 2022) 5 (citing K.C. Multimedia, Inc., 171 Cal. App. 4th at 958). “If there is no material distinction 6 between the wrongdoing alleged in a [C]UTSA claim and that alleged in a different claim, the 7 [C]UTSA claim preempts the other claim.” Arthur J., 498 F.Supp.3d at 1174 (citation omitted). 8 The “determination of whether a claim is based on trade secret misappropriation is largely 9 factual.” K.C. Multimedia, 171 Cal. App. 4th at 954.2 10 Courts in this District have repeatedly found that they may decide the issue of supersession 11 at the pleading stage. See EchoSpan,

, at *2; Acorn Bay v. CamelBack 12 Products, LLC, No. 20-cv-05214-WHA,

, at *2 (N.D. Cal., Dec. 24, 2020); 13 Five Star Gourmet Foods,

, at *14. “At the pleadings stage, the supersession 14 analysis asks whether, stripped of facts supporting trade secret misappropriation, the remaining 15 factual allegations can be reassembled to independently support other causes of action.” Waymo 16 LLC v. Uber Techs., Inc.,

(N.D. Cal. 2017). In other words, “[t]o 17 survive preemption, [a plaintiff’s] claims must ‘allege wrongdoing that is materially distinct from 18 the wrongdoing alleged in a CUTSA claim.’” Prostar Wireless Grp., LLC v. Domino’s Pizza, Inc., 19

(N.D. Cal. 2018) (citation omitted). 20 B. Implicit’s claims 21 1. CUTSA claim (against all defendants) 22 In the CUTSA charge, Implicit claims that after Stine was terminated, with Traver Stine’s 23 help he accessed, used, and disclosed its trade secrets, that Project Crayon misappropriated the 24 same trade secrets by acquiring and using them, and that Stine took advantage of that 25 misappropriation to “induce SIE to non-renew its contract with Implicit and enter into a new 26

27 2 In K.C. Multimedia, Inc., the California Court of Appeal held that unfair competition law and 1 contract with Project Crayon.” FAC ¶ 103. Implicit contends that this inducement came about 2 because Stine’s misappropriation of Implicit’s Trade Secrets “created a security event that 3 seriously interfered with Implicit’s relationship with SIE by creating concerns for SIE about 4 Implicit’s ability to maintain the security of SIE’s proprietary and confidential information.”

¶ 5 104. 6 2. Tortious Interference (against Stine and Project Crayon) 7 In the Tortious Interference with Prospective Economic Advantage charge, Implicit claims 8 that Implicit and SIE were in an economic relationship through which Implicit provided services 9 to SIE for retro videogame emulators. Id. ¶ 135. It alleges that “Stine’s unauthorized and unlawful 10 access to Implicit’s protected computer systems and misappropriation of Trade Secrets created a 11 security event that seriously interfered with Implicit’s relationship with SIE by creating concerns 12 for SIE about Implicit’s ability to maintain the security of SIE’s proprietary and confidential 13 information.” Id. ¶ 142. Further, Implicit claims that “Stine exploited SIE’s concerns over 14 Implicit’s computer security in order to further degrade the relationship between Implicit and SIE 15 resulting in SIE’s decision to not renew its contract with Implicit and to instead, through Stine’s 16 solicitation, contract with Project Crayon,” and that “Stine and Project Crayon also intentionally 17 and wrongfully interfered with Implicit’s prospective economic advantage from its commercial 18 relationship with SIE by using the Trade Secrets in the bidding process to obtain the contract with 19 SIE.” Id. ¶¶ 143-144. 20 To the extent that Implicit alleges that “Stine’s unauthorized and unlawful access to 21 Implicit’s protected computer system” “created a security event that seriously interfered with 22 Implicit’s relationship with SIE,” and that Stine then “exploited SIE’s concerns” over that security 23 breach to “degrade” the relationship between SIE and his former employer, and poach that 24 business for his new company, Project Crayon, the tortious interference claim is not preempted. 25 This asserts wrongdoing separate from Implicit’s CUTSA claim. 26 CUTSA preempts common law claims that “are based on the same nucleus of facts as the 27 misappropriation of trade secrets claim.” Digital Envoy, 370 F. Supp. 2d at 1035; see also Chang 1 implicitly preempts alternative civil remedies based on trade secret misappropriation.”). Thus, the 2 “supersession analysis asks whether, stripped of facts supporting trade secret misappropriation, the 3 remaining factual allegations can be reassembled to independently support other causes of action.” 4 Waymo,

. A cause of action for intentional interference with prospective 5 economic advantage requires: (1) an economic relationship between the plaintiff and some third party, with the 6 probability of future economic benefit to the plaintiff; (2) the defendants knowledge of the 7 relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the 8 plaintiff proximately caused by the acts of the defendant. 9 First Advantage Background Services Corp. v. Private Eyes, Inc.,

(N.D.

). 11 In Aavid Thermalloy LLC v. Cooler Master Co., Ltd., the court held that CUTSA did not 12 preempt a common law claim for tortious interference because counter-plaintiff Cooler Master 13 alleged wrongful acts both that amounted to misappropriation of trade secrets information, but 14 also that were distinct from such misappropriation. No. 17-CV-05363-JSW,

, 15 at *3 (N.D. Cal. June 15, 2018). That case is instructive. 16 There, Cooler Master asserted counterclaims under the CUTSA, the UCL, and for tortious 17 interference. Cooler Master alleged that its competitor, Aavid, provides “thermal management 18 solutions and independent testing services” to determine whether products comply with certain 19 industry standards to third party customers. In 2016, a third-party customer of Cooler Master 20 hired Aavid to conduct performance testing of “vapor chamber” product samples, including 21 prototypes that Cooler Master had made. While conducting the testing, Aavid “performed 22 unauthorized X-Ray imaging of the product samples, which allowed Aavid to obtain pictures of 23 the samples’ internal designs and architecture”; this was a problem because the product samples 24 contained trade-secret information. Aavid, at *1. Later, Aavid acquired and recorded patents at 25 issue in the case with the U.S. Patent and Trademark Office, and sent Cooler Master a warning 26 letter. It then “informed Third-Party Customer, other customers, and potential customers of 27 Cooler Master that its products infringed on Aavid’s newly acquired patents.”

Cooler Master 1 Cooler Master’s products and to interfere with Cooler Master’s commercial relationships with 2 Third-Party Customer and other customers in the market.”

3 Aavid moved to dismiss Cooler Master’s tortious interference and UCL claims as 4 preempted by its CUTSA claim, arguing that all three claims arose out of the same nucleus of fact. 5 The Hon. Jeffrey S. White held that the counter-plaintiff’s CUTSA claim did not preempt their 6 tortious interference claim because “Cooler Master alleges wrongful acts, including unauthorized 7 X-Ray imaging, that amount to misappropriation of trade secret information, but also alleges 8 wrongful acts distinct from such misappropriation.”

. Judge White explained that “once 9 the Court removes the factual allegations showing that Aavid conducted unauthorized X-ray 10 imaging thereby misappropriating confidential information, the Court must ascertain whether the 11 remaining factual allegations can support other causes of action.”

(citing Waymo,

3d at 1062). In Aavid, in addition to alleging that Aavid misappropriated its trade secret 13 information, Cooler Master also alleged that Aavid “made ‘allegations to the Third-Party 14 Customer and to other customers and potential customers of Cooler Master that its products 15 infringed Aavid’s newly-acquired patents-in-suit ... although untrue ... which has caused 16 substantial economic harm to Cooler Master[.]’”

(quoting Counter-Claim). Judge White also 17 found that those independent allegations regarding Aavid’s false statements to third parties about 18 patent infringement were “distinct from the allegations that Aavid misappropriated trade secret 19 information,”

meaning that Cooler Master’s claim for violation of CUTSA did not preempt its 20 tortious interference claim. 21 Here, as in Aavid, Implicit alleges wrongful acts that amount to misappropriation of trade 22 secret information, which would be preempted, and also alleges wrongful acts independent from 23 that misappropriation, which are not. It alleges that “Stine’s unauthorized and unlawful access to 24 Implicit’s protected computer systems and misappropriation of trade Secrets created a security 25 event that seriously interfered with Implicit’s relationship with SIE.” FAC ¶ 142. It goes on to 26 allege that “Stine exploited SIE’s concerns over Implicit’s computer security in order to further 27 degrade the relationship between Implicit and SIE, resulting in SIE’s decision to not renew its 1 Id. ¶ 143. 2 Stine’s unauthorized and purportedly unlawful access of Implicit’s computer systems after 3 his termination serves as the independent ground for Implicit’s tortious interference claim that 4 allows it to survive CUTSA preemption. As discussed in prior orders, Implicit is also bringing a 5 claim for violation of the Computer Fraud and Abuse Act (“CFAA”),

, et seq. 6 FAC ¶¶ 55-62. Acts of trespass that violate the CFAA are independent from trade secrets claims. 7 See U.S. v. Nosal,

(9th Cir. 2012) (explaining that the CFAA prohibits unlawful 8 “access” to computer information, it does not prohibit misuse or misappropriation). To the extent 9 that Implicit’s tortious interference claim asserts that Stine’s unlawful access to its computer 10 systems and subsequent actions through Project Crayon to take business away from Implicit by 11 drumming up security concerns arising from that unlawful access, that is an independent wrongful 12 act separate from the defendants’ alleged trade secrets misappropriation. It is not preempted by 13 CUTSA. 14 3. UCL claim (against Project Crayon) 15 In the unfair competition charge, brought solely against Project Crayon, Implicit claims 16 that Project Crayon “intentionally and wrongfully interfered with Implicit’s prospective economic 17 advantage from its commercial relationship with SIE by using the Trade Secrets in the bidding 18 process to obtain the contract with SIE.” FAC ¶ 153. 19 As discussed, “CUTSA provides the exclusive civil remedy for conduct falling within its 20 terms and supersedes other civil remedies based upon misappropriation of a trade secret.” Waymo 21 LLC v. Uber Technologies, Inc.,

(N.D. Cal. 2017); see also Chang v. 22 Biosuccess Biotech Co., Ltd.,

(C.D. Cal. 2014) (“[Section] 3426.7 23 implicitly preempts alternative civil remedies based on trade secret misappropriation.”). And 24 CUTSA preempts common-law claims that “are based on the same nucleus of facts as the 25 misappropriation of trade secrets claim.” Digital Envoy, Inc. v. Google, Inc.,

(N.D. Cal. 2005); see also K.C. Multimedia Inc. v. Bank of America Tech. & 27 Operations, Inc.,

(2009) (“[C]ommon law or even statutory unfair 1 Here, Implicit’s UCL claim relies on the same facts as its CUTSA claim and is thus 2 || preempted. Implicit insists that it alleges an independent basis for liability even after trade secret 3 || misappropriation allegations are stripped away, but I am not persuaded. As of now, Implicit’s 4 |} UCL claim is limited to asserting that “Project Crayon intentionally and wrongfully interfered 5 || with Implicit’s prospective economic advantage from its commercial relationship with SIE by 6 || using the Trade Secrets in the bidding process to obtain the contract with SIE.” FAC § 153. This 7 overlaps almost exactly with its CUTSA claim. 8 Implicit may be able to amend this claim to focus on Project Crayon’s allegedly wrongful 9 actions that are separate from its alleged trade secret misappropriation. For now, CUTSA 10 || supersedes any UCL remedy sought under this theory of liability because Implicit’s UCL claim, as 11 pleaded, arises entirely out of the same facts that undergird its CUTSA claim. See Waymo, LLC, 12 || 250 F. Supp. 3d at 1041. The motion is GRANTED, with leave to amend. 13 CONCLUSION 14 For the foregoing reasons, the motion is GRANTED in part and DENIED in part. Any 3 15 amended complaint shall be filed within 20 days of the date of this Order. a 16 IT IS SO ORDERED. 3 17 Dated: August 11, 2025 18 . \f 19 ® liam H. Orrick 20 United States District Judge 21 22 23 24 25 26 27 28