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Openwave Messaging, Inc. v. Open-Xchange, Inc.

United States District Court, N.D. California

May 4, 2018

OPEN-XCHANGE, INC., Defendant.



         This lawsuit arises from the now dissolved business relationship between plaintiff Openwave Messaging, Inc. (“Openwave”) and defendant Open-Xchange, Inc. (“OX”). Openwave asserts a myriad of claims against OX for conduct related to OX's successful acquisitions of former Openwave employees and former Openwave clients, and OX has filed a counterclaim. This Order concerns OX's motion for summary judgment on Openwave's claims for misappropriation of trade secrets under federal and California law in their entirety and on Openwave's breach of the implied covenant of good faith and fair dealing claim and its common law unfair competition claim to the extent these claims are based on an act of misappropriation of trade secret. Because Openwave has neither proffered any material evidence showing disputed facts nor established that it is entitled to further discovery, I GRANT OX's motion for summary judgment.



         To understand the background of this case, both substantive and procedural, I start with the somewhat complicated corporate structure of the Open-Xchange companies. OX, a Delaware corporation, was the original Open-Xchange entity, founded in January 2005 to attract U.S. venture capital. Decl. of Monika Schroeder ISO OX's Response to Interim Order Regarding Rule 56(d) (“Schroeder Decl. III”) ¶ 5 (Dkt. No. 151-1). Eight months later, GmbH was founded as a subsidiary of OX in Germany. Id. European investors were more interested in the business than U.S. investors, so OX AG was formed in Germany in 2008 and became the parent company. Id. There are a variety other OX-related companies in different countries around the world, including Open-Xchange S.r.l., which operates in Italy. See Id. ¶ 3. OX has no employees outside the United States. See Decl. of Monika Schroeder ISO OX's Mot. to Dismiss or Stay Duplicative Trade Secret Claims (“Schroeder Decl. II”) ¶ 2 (Dkt. No. 90); see also Decl. of Monika Schroeder ISO Mot. to Dismiss (“Schroeder Decl. I”) ¶¶ 2, 5 (Dkt. 18-2) (explaining that Open-Xchange, Inc. has no employees outside the United States).

         The general background allegations of the parties are discussed in my Orders concerning the parties' motions to dismiss. (Dkt. Nos. 28, 56). Relevant to this Order, Openwave, a Delaware corporation with its principal place of business in San Mateo, California, accuses OX of “target[ing] and hir[ing] numerous people from Openwave's Italy operations” to staff its Italy operations that have opened up in the exact same city.” Second Amended Complaint (“SAC”) ¶¶ 13, 99, 126-129 (Dkt. No. 42). Openwave believes that in the process of hiring former Openwave employees, OX received Openwave's trade secrets in an improper manner and subsequently used them to the detriment of Openwave. Id. ¶¶ 1-3. Among OX's defenses to Openwave's claims is that it is the American subsidiary of OX AG and is a different legal entity than OX AG, OX GmbH (a German subsidiary of OX AG), and OX S.r.l., the Italian subsidiary that apparently hired the former Openwave employees.

         The trade secrets at the core of this case, customer and technological information, are also at issue an Italian proceeding brought in Turin, Italy by Openwave Messaging S.p.A against Open-Xchange, S.r.l and 4 former Openwave Messaging S.p.A employees. See Schroeder Decl. II ¶ 3. Following a forensic investigation, Openwave Messaging S.p.A moved for injunctive relief as well as seizure of the purportedly misappropriated information. See Schroeder Decl. II, Ex. B ¶¶ 1-2, 60-61. In its motion, Openwave Messaging S.p.A accused Open-Xchange, S.r.l of soliciting its employees and subsequently using improperly attained trade secrets and confidential information from those employees.

         On December 19, 2016, the Turin court granted Openwave's request for an injunction but denied its seizure request. See Schroeder Decl. II, Exh. D at 3. The Turin court found that, based on the results of the forensic investigation, two former Openwave employees likely had maintained information from Openwave following their employment. Id. at 9-10. Open-Xchange S.r.l. subsequently appealed the order. Id. at 3-4. On February 3, 2017, the Turin court issued an opinion upholding the December 19 Order granting injunctive relief. See Id. ¶ 6, Ex. D.


         The resolution of this motion has been tortured. On June 30, 2017, OX filed a motion to dismiss or stay Openwave's misappropriation and unfair competition claims because Openwave opened litigation in Italy over the exact same claims against a different entity and has failed to identify its asserted trade secrets adequately. Openwave's response barely addressed the merits, but asserted that OX had liability through an alter ego or agency theory for the acts allegedly done by S.r.l.[1] OX denied that any discovery violation had occurred and properly pointed out that Openwave's substantive response to the motion was weak at best.

         At a hearing on the motion on August 23, 2017, I converted the motion to dismiss to a motion for summary judgment, asked for more briefing and evidence, and indicated that Openwave could respond with a Rule 56(d) motion if it lacked evidence to oppose on the merits because of improper conduct by OX. I also denied Openwave's broad discovery request, filed after the close of discovery, because of its delay in seeking discovery regarding the separate legal entities controlled by OX's parent company and OX's showing that it had produced all of the documents either within its control or jointly controlled with some other OX entity.

         Briefing on the motions for summary judgment mimicked the briefing on the motion to dismiss. Openwave identified scant evidence to support misappropriation of any trade secret, and failed to identify its trade secrets. Instead, its lead argument was that it lacked sufficient discovery under Rule 56(d). At the hearing, I indicated that I would grant OX's motion on the merits unless Openwave's 56(d) motion had merit. I noted that Openwave's argument was undercut by its delay in seeking the discovery it now claimed was vital. But, to satisfy the question of whether OX sold its wholly owned subsidiary to its parent for the purpose of hiding incriminating documents from Openwave, I ordered OX to produce documents regarding the transfers about which Openwave had raised suspicions and gave each party the opportunity to file briefs of five pages or less explaining the meaning of that evidence. Those documents were filed on November 7 and 17, respectively.



         Summary judgment on a claim or defense is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). In order to prevail, a party moving for summary judgment must show the absence of a genuine issue of material fact with respect to an essential element of the non-moving party's claim, or to a defense on which the non-moving party will bear the burden of persuasion at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has made this showing, the burden then shifts to the party opposing summary judgment to identify “specific facts showing there is a genuine issue for trial.” Id. The party opposing summary judgment must then present affirmative evidence from which a jury could return a verdict in that party's favor. Anderson v. Liberty Lobby, 477 U.S. 242, 257 (1986).

         On summary judgment, the Court draws all reasonable factual inferences in favor of the non-movant. Id. at 255. In deciding a motion for summary judgment, “[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge.” Id. However, conclusory and speculative testimony does not raise genuine issues of fact and is ...

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