Margae, Inc. v. Clear Link Technologies, LLC

Citations: 620 F. Supp. 2d 1284; 2009 U.S. Dist. LEXIS 38810; 2009 WL 1248952Docket: 2:07-cr-00916

Court: District Court, D. Utah; May 5, 2009; Federal District Court

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Clear Link Technologies, LLC has filed a motion for judgment on the pleadings against Margae, Inc.'s claims for conversion, unjust enrichment, and violation of the Utah Unfair Competition Act, which are outlined in the sixth, seventh, and eighth claims of the First Amended Complaint. The court, led by Judge Clark Waddoups, reviews the motion under the standards applicable to a Rule 12(b)(6) motion to dismiss, presuming the truth of well-pleaded facts while disregarding conclusory allegations lacking factual support.

Clear Link argues that Margae's claims are preempted by the Utah Trade Secrets Act (UTSA). Margae acknowledges that if its claims pertain to trade secret information, they could be preempted. However, Margae asserts that it has preserved its claims by previously dismissing a trade secret misappropriation claim. The court finds this assertion incorrect, noting that Margae's allegations clearly indicate that the claims relate to trade secret information, as evidenced by Margae's definition of "Margae's work" as a collection of confidential and proprietary materials that it considers trade secrets. The claims of unfair competition, conversion, and unjust enrichment directly reference "Margae's work," confirming that the subjects of these claims are indeed trade secrets.

Margae's allegations regarding its work as trade secrets have been deemed preempted by the Utah Uniform Trade Secrets Act (UTSA), leading to the dismissal of Margae's sixth, seventh, and eighth claims. However, the court permits Margae to amend its complaint following the withdrawal of its trade secret claim. In discussing the merits of Margae's remaining claims, Clear Link raises alternative arguments for dismissing Margae's unfair competition and conversion claims, although these arguments are rendered moot by the allowance for amendment.

For the unfair competition claim, Margae alleges "cyber terrorism" under the Utah Unfair Competition Act (UUCA), defined as unauthorized communication that diminishes the value of intellectual property. Margae contends that Clear Link's unauthorized use of its web pages harmed their value. The court agrees with Clear Link that Margae's allegations do not meet the UUCA's requirement that the "program, code, or command" must differ from the targeted intellectual property. The court emphasizes that the statute is clear and unambiguous, rejecting Margae's broader interpretation linking Clear Link's actions to "cyber terrorism" without explicit allegations in the complaint. Margae is allowed to amend the complaint to clarify these points.

Regarding the conversion claim, Clear Link asserts that Margae's work constitutes intangible property, which cannot be converted under Utah law. Margae argues that Utah law recognizes conversion of intangible property and characterizes web pages as tangible property. Both parties lack direct Utah authority on this issue, leaving the resolution to the interpretation of how the Utah Supreme Court would rule on this matter.

Utah law does not recognize conversion claims for intangible intellectual property, adhering to the Restatement (Second) of Torts, which limits such claims to intangible property that is customarily merged into a document. Margae's argument, citing Kremen v. Cohen, is unpersuasive as it relies on California law, which is not analogous to Utah's approach. Margae's claims regarding the conversion of intangible techniques and information are thus insufficient under Utah law. While Margae contends that web pages fall under conversion claims, Clear Link argues they are intangible. The court disagrees, asserting that Utah would classify web pages as tangible property based on a precedent where software was deemed tangible for tax purposes. This classification is supported by the nature of web pages, which have a physical presence, produce tangible effects, and can be manipulated and secured. The alleged conversion involves Clear Link restricting Margae's access to these web pages, further reinforcing their status as tangible property.

Utah courts have indicated that conversion law can apply to web pages. The court defined conversion as intentional interference with a chattel, depriving the rightful owner of its use and possession. Clear Link is accused of making it impossible for Margae to access certain web pages, which constitutes deprivation of use and possession. The distinction is made between intangible information and the tangible medium of a web page, which can be converted. Clear Link's alleged control over the web pages suggests they possess characteristics of tangible property, making them subject to conversion claims under Utah law. Consequently, Clear Link's Motion for Judgment on the Pleadings is granted, allowing Margae 10 days to amend its complaint. Additionally, the court notes Clear Link's argument regarding federal copyright preemption and Margae's potential judicial admission about trade secrets but defers judgment on these issues until after Margae files an amended complaint.