Are trade secret busts real or a myth?
When you release electronic software, you often worry about copyright infringement. What if your game uses sounds, graphics, text, or code from another game? If a competitor thinks your game violates copyrights, they can file a lawsuit that will get your game removed from online and real-world storefronts. But what about trade secret offense? Recent litigation highlights a successful takedown that relied on both allegations of “misappropriation of trade secrets and copyright infringement.” Parties on both sides of the takedown have filed mirror image claims that should help determine whether the trade secret takedowns will affect the online software market in the future.
Creation of Snail Games USA Inc. and Wildcard Properties LLC (collectively, “Snail”) ARK: Survival Evolved, a successful game. Snail alleged that one or more former employees of its parent company gained access to ARKand used a copy of this code to create the game myth of empires in Suzhou Angela Online (“Angela”). Snail claimed to have identified “large-scale similarities” between the games, including gameplay mechanics and features, as well as identical pieces of code, including non-working code.
Myth was distributed on Valve Corporation’s digital gaming platform, Steam. On December 1, 2021, Snail sent a Digital Millennium Copyright Act (DMCA) takedown notice to Valve, claiming that “Valve’s distribution of the Myth of Empires video game…facilitates trade secret misappropriation and copyright infringement. author “.
Following the allegations, Valve withdrew myth of empires from Steam.
On December 9, 2021, the plaintiffs filed an action in the United States District Court for the Central District of California seeking an injunction requiring the withdrawal of any takedown notices issued by Snail and a declaratory judgment that myth of empires does not embody any trade secret or infringe any copyrights held by Snail. On December 12, 2021, the defendants filed counterclaims, alleging, among other things, copyright infringement and misappropriation of trade secrets under both 18 USC §1836 and California Civil Code § 3426.
More notable than the litigation, however, was the takedown notice itself. Generally, under Section 230 of the Communications Decency Act of 1996, companies that host online storefronts are immune from lawsuits regarding the content of software sold there. To see Parker v Paypal, Inc., no. 16-cv-04786, 2017 US Dist. LEXIS 130800 (ED Pa. Aug. 16, 2017); Coffee v. Google, LLC, no. 20-cv-03901-BLF, 2021 US Dist. LEXIS 26750 (ND Cal. Feb. 10, 2021). However, Section 230 does not prohibit lawsuits based on “Intellectual Property Law”. 47 USC § 230(e)(2). Thus, Internet Service Providers are still subject to copyright claims, such as those under the DMCA.
But what about trade secret claims? Federal trade secret claims are filed under the Defense of Trade Secrets Act (DTSA). Section 2(g) of the DTSA explains that the DTSA “shall not be construed as intellectual property law for purposes of any other act of Congress.” As a result, the only court that considered this wording held that the DTSA claims were not an exception to immunity under Section 230. See Craft Beer Stellar, LLC vs. Glassdoor, Inc., no. 18-10510-MSDS, 2018 US Dist. LEXIS 178960, p. *7–8 (D. Mass. 17 Oct. 2018). craft beerThe decision to rely on the express wording of the statute will likely be followed by the courts when it comes to federal trade secrets.
However, it’s unclear whether numerous state trade secret laws would also be preempted. For example, craft beer declined to comment on whether Section 230 immunity would prevent Massachusetts’ misappropriation of trade secrets, saying the plaintiffs could not assert a claim. In contrast, prior to the enactment of the DTSA, a federal court in Nevada held that a plaintiff’s cause of action for misappropriation of trade secrets under Florida state law was barred by Section 230 .1 In this case, the plaintiff claimed that a sports betting message board appropriated the plaintiff’s trade secrets when it allegedly tricked users into reposting the plaintiff’s crippling analysis.
Litigation thus far has focused on the validity of defendants’ copyright claims because plaintiffs filed a temporary restraining order (which was dismissed) and a motion for a preliminary injunction, asking the court to order the defendants to rescind their DMCA takedown notice. . On January 31, 2022, the court denied the plaintiffs’ request for a preliminary injunction. Among other things, plaintiffs have failed to demonstrate a likelihood of merit over success in light of defendants’ substantial copying evidence or that plaintiffs suffered irreparable harm, that is, harm that could not not be compensated by damages. The plaintiffs’ appeal against this decision was registered on February 4, 2022.
Federal trade secret claims are likely preempted by Section 230. Currently, no one knows whether Internet service providers can be held liable for state trade secret causes of action when they post third-party content. Additionally, while defendants may succeed in their trade secret claims, other parties may include trade secret claims in their takedown letters to third-party storefronts. We will continue to monitor this area closely.
Wilson Sonsini has represented clients in several copyright cases involving the DMCA. For more information, please contact a member of Wilson Sonsini’s trademark and copyright litigation practice. Wilson Sonsini Goodrich & Rosati actively monitors developments nationwide with respect to trade secret litigation and advice. For more information, please contact one of the firm’s trade secret litigation practice members. For more information about gaming companies in general, please contact an attorney at the firm Electronic game practice.
Christophe Paniewski, Brian Levy and Laura McJilton contributed to the preparation of this Wilson Sonsini Alert.
 See Stevo Design, Inc. v. SBR Mktg., 919 F. Supp. 2d 1112 (D. Nev. 2013).