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HOTSAMBA, INC. v. CATERPILLAR INC.

March 24, 2004.

HOTSAMBA, INC., Plaintiff
v.
CATERPILLAR INC., Defendant



The opinion of the court was delivered by: JOAN GOTTSCHALL, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff HotSamba, Inc. ("HotSamba") has filed a three-count lawsuit against Defendant Caterpillar, Inc. ("Caterpillar") arising from Caterpillar's use of HotSamba's alleged proprietary inventory management software. The Complaint alleges that Caterpillar infringed on HotSamba's copyright for the software (Count I), misappropriated HotSamba's trade secrets (Count II), and breached a Licensing Agreement which HotSamba alleges governed Caterpillar's use of the software (Count III), Caterpillar has moved for summary judgment on Counts n and III, arguing that (a) HotSamba's disclosure of the software source code bars its claim for misappropriation of trade secrets,*fn1 and (b) HotSamba's breach of contract claim is preempted under Federal copyright law. For the reasons stated below, Caterpillar's motion for summary judgment on Counts n and III is denied. Page 2

FACTUAL BACKGROUND

  This case arises from a dispute between HotSamba and Caterpillar over ownership and use of inventory management software developed by HotSamba known as "net-Source" and a customized version of this software called Build 46. The parties have had a business relationship since at least 1995 when they entered into a Consultant Agreement by which HotSamba agreed to provide services to design and develop certain software for Caterpillar. The parties agreed that Caterpillar would own the software developed under the Consultant Agreement.

  The primary dispute in this case is over the origin of the net-Source software and the Build 46 customization. HotSamba claims that it independently developed the net-Source software in 1997-98, and that it created a customized version of net-Source called Build 46 that it subsequently delivered to Caterpillar. HotSamba claims that, pursuant to the parties' subsequent Licensing Agreement, Caterpillar agreed to keep the Build 46 software confidential, but that Caterpillar later breached that agreement by selling Build 46 to another software development firm, i2 Technologies, Inc. ("i2"). Caterpillar, on the other hand, contends that HotSamba did not develop net-Source independently, but rather derived it from software that HotSamba developed for Caterpillar under the 1995 Consultant Agreement. Caterpillar argues that, consequently, it owned Build 46 before it ever signed the License Agreement.

  On September 8, 1998, HotSamba delivered the source code for Build 46 to Caterpillar. The delivery of source code included the human understandable computer language version of the software, including programmer notes, and other supporting documentation necessary to use and support the software. HotSamba stated that this delivery was tantamount to a written disclosure to Caterpillar, providing comprehensive information regarding the design, architecture, and functionality of net-Source. This transfer occurred eight months before the Page 3 parties entered into any license agreement. HotSamba alleges that, during those eight months, Caterpillar examined the code and functionality and could thereby determine the code's origins.

  During the period of disclosure before the parties entered into the License Agreement, HotSamba informed Caterpillar that net-Source was HotSamba's proprietary, confidential product. HotSamba made such statements in several pieces of correspondence to Caterpillar detailing the contract negotiations and progress for the net-Source software,*fn2 and Caterpillar did not express any disagreement with treating the net-Source software as confidential.*fn3 HotSamba alleges that it made all of its employees that worked on the net-Source software sign confidentiality agreements. Further, at least some of the software delivered to Caterpillar contained a copyright and confidentiality notice.

  After the disclosure period, on April 30, 1999, HotSamba and Caterpillar entered into the "Software License Agreement," Under the License Agreement, Caterpillar agreed, among other things, to refrain from unauthorized disclosure of confidential information. Further, the agreement allowed Caterpillar to create derivative works of the software and stated that Caterpillar owned these derivative works provided that Caterpillar did not transfer such works to others.

  On or about September 25, 2000, Caterpillar entered into an agreement with i2 called the "Software Purchase and Alliance Agreement." Under this agreement, Caterpillar sold i2 software called "WECAP," which Caterpillar developed from the Build 46 software. HotSamba claims that Caterpillar's transfer of WECAP to i2 infringed on HotSamba's copyright to Build Page 4 46, breached the License Agreement and constituted a misappropriation of Hot Samba's trade secrets.

  Subsequent to Caterpillar's sale of WECAP to i2, HotSamba registered its copyright to Build 46. On February 9, 2001, the U.S. Copyright Office issued a Certificate of Copyright Registration to HotSamba for the net-Source software. However, during the course of this litigation, HotSamba discovered that the code deposited with its registration application did not reflect the code for the Build 46 version of net-Source. HotSamba has twice attempted to remedy the error by submitting a new registration application. On September 15, 2003, HotSamba submitted its third — and most recent — registration application for Build 46. Simultaneously, it requested that the Copyright Office cancel the two prior registrations for Build 46. Because the copyrighted material allegedly contained trade secrets, the deposit only included the first and last ten pages of the Build 46 source code. The Copyright Office issued HotSamba's registration for Build 46 effective September 19, 2003.*fn4 This registration identified Build 46 as an unpublished work.*fn5

  ANALYSIS

  Summary judgment is appropriate if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party has the initial burden of proving that no genuine issue of material fact exists. Matsushita Elec. Indust. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 Page 5 (1986). Once the moving party shows that there is no genuine issue of material fact, the burden shifts to the non-moving party to designate specific facts showing that there is a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). The court must examine the admissible evidence in the light most favorable to the non-moving party and draw all reasonable inferences in favor of that party. Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 255 (1986).

 I. Misappropriation of Trade Secrets.

  Caterpillar claims that the court should grant summary judgment on Count II, arguing that HotSamba's disclosure of Build 46 to Caterpillar prior to execution of the License Agreement vitiated any trade secret protection for that software under Illinois law. However, because there are disputed issues of material fact as to whether HotSamba made sufficient efforts to maintain ...


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