IP Law Daily, TRADE SECRETS—N.D. Cal.: Misappropriation claims over optical data-storage products not time-barred at pleading stage, (Jan 21, 2025)

By Kevin M. Finson

The plaintiff plausibly alleged it conducted a reasonable investigation at or shortly after the time of the misappropriation and was unable to uncover sufficient evidence at that time.

A manufacturer of computer storage drives was not entitled to dismissal of trade secrets claims on statute of limitations grounds, the U.S. District Court in San Jose has held. The plaintiff plausibly alleged that it conducted a reasonable investigation but did not find enough evidence at that time to go forward. The court applied the discovery rule in allowing the case to proceed, but indicated that the time-limitations issue could be revisited later. The court also determined that the plaintiff adequately pleaded that it had met the terms of a nondisclosure agreement by marking relevant documents as confidential (Access Optical Networks, Inc. v. Seagate Technology LLC, No. 5:24-cv-03745-EKL (N.D. Cal. Jan. 17, 2025)).

Access Optical Networks, Inc. (AON) was a developer of optical data storage products and network access equipment. AON entered into an agreement to explore a potential partnership with Seagate Technology, LLC, a manufacturer of computer storage drives. As part of that agreement, the parties entered into nondisclosure agreements that restricted their use of disclosed information solely to the evaluation of a business relationship. No business relationship was eventually developed. OAN became suspicious that Seagate had commercialized information disclosed by it in 2018 with certain drives using Heat-Assisted Magnetic Recording (HAMR) technology, but these drives were only used only in a pilot program for existing customers of Seagate and AON was never able to obtain one. Seagate’s patent applications in 2021 also raised suspicions, and finally, in 2024, a Seagate press release confirmed to AON that Seagate was using AON’s confidential information. AON brought suit for misappropriation of trade secrets under both federal and state statutes, and also included claims for breach of contract. Seagate moved to dismiss.

Statute of limitations. Seagate argued that the claims were time-barred because they accrued in 2018 when AON first became concerned about the HAMR drive pilot program. AON, however, argued that they accrued in 2021 when Seagate filed patent applications using allegedly confidential information. The court found that AON had plausibly alleged it conducted a reasonable investigation in 2018 and was unable to obtain a sample drive to examine, or other information to confirm its suspicions, so the claim did not accrue at that time. The court denied the motion to dismiss on this ground but noted that it could be revisited at the summary judgment or trial stages on a more complete record.

Breach of contract. The court found that the pleading for breach of contract was impermissibly vague as it did not set out whether the subject matter of the disclosed information was Energy Assisted Magnetic Recording or Holographic Recording, setting out the allegation as “and/or.” Since only one of these claims would be actionable under the applicable non-disclosure agreement it was not clear that an actual breach had been pleaded. AON asked for leave to amend to clarify its pleading, which was granted.

Trade secrets. Seagate argued that AON had failed to allege misappropriation because AON had not marked the information in question as “CONFIDENTIAL,” as required for the non-disclosure agreement to apply. The court reviewed the complaint and pointed out that AON had plausibly alleged that at least one document was so marked, and held that the question of which specific disclosures were marked and which were not could be explored in discovery.

The court denied the motion to dismiss on each issue except for the breach of contract claim, which it dismissed with leave to amend.

The case is No. 5:24-cv-03745-EKL.

Judge: Lee, E.

Attorneys: Ranjini Acharya (Pillsbury Winthrop Shaw Pittman LLP) for Access Optical Networks, Inc. Lauren Linderman (Faegre Drinker Biddle & Reath LLP) for Seagate Technology LLC.

Companies: Access Optical Networks, Inc.; Seagate Technology LLC

Cases: TradeSecrets CaliforniaNews