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KEKER, VAN NEST & PETERS LLP
MATTHEW M. WERDEGAR - # 200470
mwerdegar@keker.com
JENNIFER A. HUBER - # 250143
jbuber@keker.com
CODY S. HARRIS - #255302
charris@keker.com
MAILE YEATS-ROWE - # 304242
myeatsrowe@keker.com
RYAN HAYWARD - # 330924
thayward@keker.com
633 Battery Street
San Francisco, CA 94111-1809
Telephone: 415 391 5400
Facsimile: 415 397 7188
Attorneys for Defendant
GLIDE LABS, INC.
San Francisco County Superior Court
FEB 1 0.2021
CLERIY oF THE COURT
4
Y_- Coypuily Clerk
SUPERIOR COURT OF THE STATE OF CALIFORNIA
IN AND FOR THE COUNTY OF SAN FRANCISCO
RE FormsNet LLC, a Delaware limited
liability company,
Plaintiff,
Vv.
GLIDE LABS, INC., a Delaware corporation;
and DOES 1 through 20, inclusive,
Defendants.
Case No. CGC-21-58
ORDER DENYING
APPLICATION FOR PRELIMINARY
INJUNCTION
Date: February 4, 2021
Time: 1:30 p.m.
Dept.: 302
Judge: Hon. Ethan P. Schulman
Date Filed: January 15, 2021
Trial Date: TBD
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INTRODUCTION
Plaintiff RE FormsNet, LLC (“FormsNet”) seeks a preliminary injunction that would
enjoin its competitor, Defendant Glide Labs, Inc. (“Glide”), from allowing new customers to
register for and use Glide’s online software platform for filling out real estate forms, and from
continuing to market, sell, or offer access to the platform. FormsNet contends that Glide
developed its platform with the benefit of trade secret information that Glide allegedly obtained
by breaching a contract between Glide and non-party REBS, LLC, which places certain limits on
Glide’s access to FormsNet’s software. Glide opposes the application, arguing that FormsNet has
failed to articulate or establish any actionable trade secrets, has failed to present evidence of
misappropriation, cannot show a breach of contract, and has failed to present evidence of any
irreparable harm that would result absent an injunction. The application came on for hearing on
February 4, 2021, the Honorable Ethan P. Schulman presiding. For the reasons set forth herein,
the Court DENIES the application for a preliminary injunction.
FACT AND PROCEDURAL BACKGROUND
FormsNet (which does business as “zipLogix”) owns a software product called zipForm
that helps realtors and others involved in real estate transactions fill out real estate forms online.
Jimmy Kelly Decl. { 2. In California, FormsNet does not own the forms themselves; the
California Association of Realtors (“CAR”) does. Supp. Tonkin Decl. { 4; Cheverton Decl. Ex. A
(GFFA) § 1.8. FormsNet has a distribution agreement with CAR through which realtors have
access to zipForm to fill out CAR’s forms. Alberta Decl. { 4; Jimmy Kelly Decl. { 4. Prior to
Glide’s entry in the market, CAR had granted FormsNet an exclusive license for the electronic
preparation of CAR’s forms. Supp. Tonkin Decl. { 4.
Glide is a startup that, like FormsNet, provides web and mobile applications allowing
realtors and others involved in real estate transactions to review and fill out real estate forms.
Supp. Tonkin Decl. { 2. Glide was founded in July of 2017. Jd. 3. Soon thereafter, in August
2017, Glide began negotiating with CAR’s subsidiary, REBS, Inc., to obtain a license to a subset
of CAR forms related to property disclosures. Id. {| 5. In September 2017, Glide launched a pilot
form-filling software product in San Francisco, California. Id. { 6.
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Although Glide had developed technology that allowed it to complete all the steps
necessary to publish completed PDFs of property disclosure forms, CAR informed Glide that it
would be required to use the zipLogix web service Application Programming Interface (“API”) to
generate final completed PDFs of CAR Forms. Supp. Tonkin Decl. 6. To that end, on February
22, 2018, Glide and CAR, through CAR’s subsidiary REBS, Inc., executed an agreement called
the Guided Forms Functionality Agreement (“GFFA.”). Jd.; Cheverton Decl., Ex. A (GFFA).
Among other things, the GFFA granted Glide access to a zipForm Quality Assurance (“QA”)
account for use in testing the integration of Glide’s software with zipForm. GFFA § 2.6; Supp.
Tonkin Decl. { 6. FormsNet is not a party to the GFFA. See GFFA at Preamble. Glide has only
paid fees pursuant to the GFFA to REBS, Inc., and later, after the contract was assigned to CAR’s
subsidiary REBS, LLC in April 2019, to REBS, LLC. See Supp. Tonkin Decl. 4 6, 8; Compl. {
12. REBS, LLC, in turn, pays FormsNet pursuant to a separate agreement between those entities.
Jimmy Kelly Decl. §§ 4-5.
Beginning in the summer of 2019, Glide and CAR began discussing the possibility of
Glide expanding its product offering beyond property disclosure forms. Supp. Tonkin Decl. {ff 8—
10. In December 2019, CAR licensed its entire forms library to Glide. Id. J] 10-11. Glide
immediately began working on expanding its form-filling technology to support the additional
CAR forms to which Glide now held a license. Id. { 11. According to Glide’s CEO Sebastian
Tonkin, its CTO Henry Liu, and its expert, Dr. Sam Malek, Glide had substantially completed
development of its expanded software offering by July 2020. Jd. {f 12-13; Liu Decl. 5; Malek
Decl. | 40-41. Several real estate brokerages acting as “beta users” began using the software that
same month. Supp. Tonkin Decl. {{] 12-13. Glide has submitted evidence showing that its July
2020 beta product was substantially identical to the product that Glide ultimately launched in
January 2021. Id. { 13, Ex. A; Malek Decl. {{ 40-41.
FormsNet alleges that the GFFA granted Glide a license only to use the zipForm software
and QA account to access certain property-disclosure-related CAR forms listed in Exhibit C to
the agreement. According to FormsNet, however, Glide personnel accessed forms in the QA
account other than those listed on Exhibit C. The QA account replicates what an end user of the
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zipForm software will experience when interacting with the software. Jordan Rae Kelly Decl. 4 5;
Malek Decl. { 34. Although FormsNet has not provided logs showing Glide’s access to the QA
account, FormsNet has submitted a declaration stating that the logs show that Glide personnel
accessed the QA account over a thousand times throughout 2020, mostly in connection with “out-
of-scope” forms, with the activity peaking in September 2020. Alberta Decl. {¥ 13-18. FormsNet
apparently discovered Glide’s QA account activity in or around November 2020, after Glide
contacted FormsNet seeking assistance with technical issues that Glide was encountering with
accessing forms in the QA account. Jd. {{[ 1, 9-10. According to Glide, in the fall of 2020, as a
final quality-assurance process, Glide personnel used the QA account to manually compare CAR
forms available through zipForm with CAR forms available through Glide. Supp. Tonkin Decl. {
14. Glide’s CEO explained that the process involved manually filling in CAR forms via zipForm
to ensure that the end-user experience of filling out a CAR form on Glide would be consistent
with what CAR members had come to expect from their past experiences with zipForm. Id.
On November 18, 2020, FormsNet sent Glide a letter asserting that Glide’s QA account
activity constituted a breach of the GFFA. Jimmy Kelly Decl. Ex B. The letter stated that “[iJn
order to avoid any possible litigation,” FormsNet wished to discuss “an appropriate royalty.”
Jd. Upon receiving that letter, Glide hired new contractors who had not accessed FormsNet’s QA
account to re-annotate all of its CAR real estate forms through a “clean room” team. See Gilman
Decl. {{[ 2-6; Newman Decl. {| 2-10. According to Glide, none of the contractors involved in the
clean room effort had any knowledge of or interaction with the zipForm software. Gilman Decl. {
3; Newman Decl. ff 2, 4. Following the clean room effort, Glide worked with real estate industry
experts and CAR personnel to test Glide’s forms and provide feedback. Newman Decl. {{[ 5-8.
Glide publicly launched its expanded software platform on January 19, 2021, making it
available to all CAR members across the state of California. Supp. Tonkin Decl. J 21. Shortly
thereafter, CAR began promoting the Glide platform as a “member benefit” to its more than
180,000 members. Jd. 21, Ex. C. Glide has submitted declarations stating that its platform
released as of January 19 contains no CAR forms that are based on, or derived from, access to
any disputed or out-of-scope forms in the QA account. Newman Decl.{ 10; Gilman Decl. 6.
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FormsNet sued Glide in Los Angeles Superior Court on January 5, 2021 for trade secret
misappropriation and breach of contract. After Glide filed a motion to transfer venue to San
Francisco, FormsNet re-filed its complaint in this Court on January 15, 2021, and voluntarily
dismissed its complaint in Los Angeles. Patchen Decl. {]] 6, 12. On January 19, 2021, FormsNet
asked the Court to issue a temporary restraining order (“TRO”) preventing Glide from launching
its expanded software offering. FormsNet argued that Glide’s software misappropriated its trade
secrets, which it described as the “underlying algorithms, design, and processes for the Software,”
as set forth in screenshots of HTML and JavaScript code. See Pl.’s TRO App. at 17~18; Alberta
Decl. Exs. A~D. Glide opposed FormsNet’s TRO application. The parties then stipulated, and this
Court ordered, that a preliminary injunction hearing would be held on February 4, 2021, and that
no TRO would issue in the meantime.
FormsNet filed a Supplemental Memorandum in support of a preliminary injunction on
January 28, 2021. It renewed its argument that Glide had breached the GFFA by accessing “out-
of-scope” forms in the QA account. And it again alleged that Glide had misappropriated its trade
secrets, although it recharacterized what those trade secrets are. As explained in more detail
below, FormsNet now alleges that its trade secrets are its “forms engine.” Pl.’s Supp. Br. at 5.
According to Glide’s CEO, more than 13,000 CAR members have already used Glide’s
new platform, accounting for more than 16,000 residential real estate transactions already in
progress. Supp. Tonkin Decl. 4 23.
LEGAL STANDARD!
FormsNet seeks preliminary injunctive relief, which is an “extraordinary remedy.” Coll.
Hosp., Inc. v. Super. Ct., 8 Cal. 4th 704, 715 (1994). “The purpose of a preliminary injunction is
to preserve the status quo pending a determination on the merits of the claim.” Dodge, Warren &
Peters Ins. Servs., Inc. v. Riley, 105 Cal. App. 4th 1414, 1418 (2003). “Injunctions in the area of
trade secrets are governed by the principles applicable to injunctions in general.” Whyte v.
Schlage Lock Co., 101 Cal. App. 4th 1443, 1449 (2002).
* All quotations and internal citations have been removed and emphases added unless otherwise
noted.
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The question whether a preliminary injunction should be granted involves two interrelated
factors: (1) the likelihood that plaintiff will prevail on the merits, and (2) the relative balance of
harms that is likely to result from the granting or denial of interim injunctive relief. White v.
Davis, 30 Cal. 4th 528, 554 (2003). Both factors must be satisfied. See Cohen v. Bd. of
Supervisors, 40 Cal. 3d 277, 289 (1985) (“Even if the trial court had found for appellants on the
‘likelihood of success on the merits’ factor, it nevertheless could have refused to issue a
preliminary injunction if it found that the interim harm to appellants did not outweigh the interim
harm to respondents.”); Leach v. City of San Marcos, 213 Cal. App. 3d 648, 651, 657-63 (1989)
(same). Accordingly, “the court may deny a preliminary injunction either (1) on its finding
irreparable injury will not result to the party seeking the injunction, or (2) that the party has failed
to demonstrate a reasonable probability of success on the merits.” Jessen v. Keystone Sav. & Loan
Ass'n, 142 Cal. App. 3d 454, 459 (1983). “The burden is on the party seeking the preliminary
injunction to show all of the elements necessary to support [its] issuance ....” Saltonstall v. City
of Sacramento, 231 Cal. App. 4th 837, 856 (2014). Moreover, a preliminary injunction must be
supported by admissible evidence. Finnie v. Town of Tiburon, 199 Cal. App. 3d 1, 15 (1988).
DISCUSSION
L FORMSNET IS UNLIKELY TO PREVAIL ON ITS TRADE SECRETS CLAIM.
To prevail on its claim of trade secret misappropriation, FormsNet must show a likelihood
of success in proving (1) that it owned a trade secret, (2) that Glide acquired, disclosed, or used
FormsNet’s trade secret through improper means, and (3) that Glide’s actions have damaged
FormsNet, See CytoDyn of N.M,, Inc. v. Amerimmune Pharm., Inc., 160 Cal. App. 4th 288, 297
(2008). A “trade secret” is defined in the California Uniform Trade Secrets Act (“CUTSA”) as
“information .. . that . . . [dJerives independent economic value . . . from not being generally
known to the public or to other persons who can obtain economic value from its disclosure or use;
and . . . [i]s the subject of efforts that are reasonable under the circumstances to maintain its
secrecy.” Id. at 296 (quoting Cal. Civ. Code § 3426.1, subds.(d)(1) & (2)). “‘Improper means’
includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain
secrecy, or espionage through electronic or other means,” but “[rJeverse engineering or
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independent derivation alone shall not be considered improper means.” Sargent Fletcher, Inc. v.
Able Corp., 110 Cal. App. 4th 1658, 1666 (2003) (quoting Cal. Civ. Code § 3426.1, subd. (a)).
FormsNet has failed to establish that it is likely to succeed on the merits of its trade secrets
claim. Specifically, for the reasons explained below, FormsNet has failed to identify its purported
trade secrets with particularity, and the information that it has identified does not qualify as a
trade secret. FormsNet has also failed to adduce any non-speculative evidence of
misappropriation.
A. FormsNet has failed to identify trade secrets with particularity.
“Tt is critical to any CUTSA cause of action—and any defense—that the information
claimed to have been misappropriated be clearly identified.” Silvaco Data Sys. v. Intel Corp., 184
Cal. App. 4th 210, 221 (2010), disapproved on other grounds by Kwikset Corp. v. Super. Ct., 51
Cal. 4th 310 (2011). “At th{e preliminary injunction] stage, a party seeking to protect trade secrets
must describe the subject matter of the trade secret with sufficient particularity to separate it from
matters of general knowledge in the trade or of special knowledge of those persons who are
skilled in the trade,” allowing the defendant to ascertain the trade secret’s boundaries. Whyte, 101
Cal. App. 4th atl453; see also Lamont v. Krane, 2019 WL 2010705, at *2 (N.D. Cal. May 7,
2019) (“[T]o obtain a preliminary injunction, a plaintiff must first identify its alleged trade secrets
with ‘reasonable particularity.””).°
A plaintiff may not use “vague hand waving,” Silvaco, 184 Cal. App. 4th at 221, or “broad
‘catch-all’ language” to identify its trade secrets, Perlan Therapeutics, Inc. v. Super. Ct., 178 Cal.
App. 4th 1333, 1350 (2009). Ifa plaintiff “does not know what its own trade secrets are, it has no
basis for suggesting defendants misappropriated them.” Perlan, 178 Cal. App. 4th at 1350; see
also Swarmify, 2018 WL 1142204, at *3 (“[A]ttempts to set up its purported trade secrets as
elusive moving targets do not bode well for the merits of” a plaintiff’s claims.). In particular, “[a]
? FormsNet contends, incorrectly, that it need not identify a trade secret at the preliminary
injunction stage. FormsNet relies on dicta from a non-precedential Ninth Circuit opinion, Meggit
San Juan Capistrano, Inc. v. Yongzhong, 575 F. App’x 801 (9th Cir. 2014). There, the plaintiff
had particularly identified its trade secrets, and the defendant had waived the argument. Jd. at 803.
Federal district courts have either ignored Meggit or rejected its dicta. See, e.g., Swarmify, Inc. v.
Cloudflare, Inc., 2018 WL 1142204, at *3 (N.D. Cal. Mar. 2, 2018); Action Learning Sys., v.
Crowe, 2014 WL 12564011, at *4 (C.D. Cal. Aug. 11, 2014)
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description of the category, or even of the subcategories of information within a category, does
not comply with the requirement to identify the actual matter that is claimed to be a trade secret.”
Soc. Apps, LLC v. Zynga, Inc., 2012 WL 2203063, at *4 (N.D. Cal. June 14, 2012); see also Loop
AI Labs Inc. v. Gatti, 195 F. Supp. 3d 1107, 1114 (N.D. Cal. 2016) (rejecting as insufficient
identification of “categories of alleged trade secrets in broad terms”).
Here, FormsNet’s identification of its trade secrets has shifted substantially between the
two briefs it filed in support of this application, and both its theories are overly broad and
opaque. FormsNet first asserted that its trade secrets were the “underlying algorithms, design, and
processes for the Software,” as set forth in screenshots of HTML and JavaScript code. See TRO
App. at 17-18; Alberta Decl. Exs. A-D. In its supplemental brief, by contrast, FormsNet claims
that its trade secrets “include the forms engine underlying the zipForm® Software,” and “all of
the technical processes underlying the interactive Software and Web Services.” Pl.’s Supp. Br. at
7 (emphasis in original). At the hearing, FormsNet’s articulation of its trade secret remained
elusive. FormsNet’s counsel characterized the trade secret at issue as “the forms engine, which is
the thing that is in the background of the Software and the Web Services, and allows the Software
and Web Services and the — what they call the transaction management system to be interactive
and work with one another.” Hr’g Tr. at 11:27-12:3.
Plaintiffs various vague, categorical, catch-all descriptions of its trade secrets are
insufficient. See Silvaco, 184 Cal. App. 4th at 221 (2010); Perlan, 178 Cal. App. 4th at 1350.
Social Apps, LLC v. Zynga is instructive. In that case, the plaintiff described its alleged trade
secret as:
Revision 21 of the myFarm game including server architecture,
client architecture, database architecture, statistic recording and
reporting, processes for adding and updating content, processes for
expanding server capacity, functionality and organization of the
source code, programming languages used to create the game,
proprietary and open source software used to create the game.
2012 WL 2203063, at *3. The court found this description to be “little more than an elaborate
categorization scheme for a variety of related concepts” and “no substitute for specifically
identifying and describing the actual architecture that SocialApps claims was stolen.” Id. at *4.
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Exactly the same may be said of FormsNet’s trade secret description—it is merely a description
of categories of allegedly secret information, and it fails to identify with any particularity the
actual matter that FormsNet claims to be its trade secret.
B. FormsNet has failed to show that the “forms engine” is an actionable trade
secret.
Even if the Court were to conclude that FormsNet had described its “forms engine” with
the requisite degree of particularity, it would still fail to qualify as a trade secret under California
law. In Silvaco, the Court of Appeal held that “features, functions, and characteristics of the
design and operation” of software “are not secret, but are evident to anyone running the []
program.” 184 Cal. App. 4th at 221-22. Put another way, “[p]lans, flows, inputs, outputs, rules of
operation, priorities of operation, and the like are not trade secrets” because “they are manifest in
the way a program works.” Agency Solutions.Com, LLC v. TriZetto Grp., Inc., 819 F. Supp. 2d
1001, 1017 (E.D. Cal. Sept. 13, 2011).
Those holdings foreclose FormsNet’s attempt to argue that its “forms engine” constitutes
a trade secret on the record before the Court. Glide’s expert, Dr. Malek, explained in unrebutted
testimony that FormsNet’s software (like most web applications) has a “front-end,” with code and
an interface that is visible to any user, and a “back-end,” which is not visible to end users and is
governed by the source code that enables the software to function. Malek Decl. f] 12-13. Dr.
Malek explains that, based on FormsNet’s allegations and evidence, Glide did not and could not
have accessed FormsNet’s back-end code. Jd. {| 31-34. FormsNet’s counsel conceded at the
hearing that Glide did not access FormsNet’s back-end source code, and confirmed that FormsNet
is not arguing that Glide “misappropriated or copied or altered the source code itself or the
algorithms” underlying the zipForm software. Hr’g Tr. at 13:22-23; 13:26-28.
That leaves FormsNet to show that it has a trade secret in what can be learned from
interacting with zipForm’s front-end. It is undisputed that the information and functionality Glide
could access in the QA account was the same information available to any zipForm user. See
Malek Decl. {ff 23, 26, 33-34; Liu Decl. | 5; Andrews Decl. 3; Zerroug Decl. 4] 5, 16; Rae
Kelly Decl. 5. Thus, the “forms engine” is merely the functionality any zipForm user
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experiences by entering data and seeing it appear in multiple forms. Malek Decl. {| 30-32; Supp.
Cheverton Decl. { 3. FormsNet contends that populating forms and observing how the product
works (as any user could) might allow Glide to learn about the “interrelationships of the
functionality of the Software” or “how user interactions affect the user interface.” Zerroug Decl.
{| 16-17. But even if that were supported by evidence, these are features, functions, and
characteristics that are evident in the way zipForm works. See Silvaco, 184 Cal. App. 4th at 221—
22; Agency Solutions.Com, LLC, 819 F. Supp. 2d at 1017. When asked how, in light of this,
FormsNet has a trade secret, FormsNet’s counsel responded: “It is a trade secret because it meets
the definition of a trade secret.” Hr’g Tr. at 15:28-16:1. The Court disagrees. FormsNet is
impermissibly seeking to claim a trade secret in the “[p]lans, flows, inputs, outputs, rules of
operation, priorities of operation” of its software which are evident to observant users of the
software. Agency Solutions.Com, 819 F. Supp. 2d at 1017; see Silvaco, 184 Cal. App. 4th at 221—
22. Such information does not meet the definition of a trade secret under CUTSA.
Seeking to argue that its software’s underlying design may qualify as a trade secret, even
though discernible to end users, FormsNet relies on Altavion, Inc. v. Konica Minolta Sys. Lab.,
Inc., 226 Cal. App. 4th 26 (2014), But Altavion is readily distinguishable. In Altavion, the
evidence showed that the plaintiff had disclosed its software design concept solely to a potential
business partner, before it was publicly released, pursuant to a non-disclosure agreement, only to
see the potential partner later patent that technology for itself. Jd. at 34, 61. Here, in contrast, the
software features and functionality that FormsNet is claiming as its trade secret have long been
available to hundreds of thousands of real estate agents. See Malek Decl. ff 23, 26, 30-34; Liu
Decl. {[ 5; Andrews Decl. { 3; Zerroug Decl. {{ 5, 16; Rae Kelly Decl. 5; Supp. Cheverton Decl.
43. And contrary to FormsNet’s argument, Altavion in no way “narrowed” Silvaco’s holding that
user-facing software design cannot qualify as a trade secret. Indeed, the A/tavion court expressly
affirmed Silvaco, explaining that that case “held that the design of a software program is not a
trade secret to the extent the design elements are disclosed and evident to the end user.” Altavion,
226 Cal. App. 4th at 59 (emphasis in original). That is precisely the case here.
Lastly, FormsNet has failed to present evidence showing that it took reasonable steps to
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protect its alleged trade secrets. See Civ. Code § 3426.1(d); Whyte, 101 Cal. App. 4th at 1454
(stating that a trade secret must be unknown to the public and the owner must have taken
reasonable steps to protect it). In Whyte, “because a secrecy agreement [wa]s not in the record,”
the Court of Appeal held that any disclosed information “c[ould not] be considered trade secret”
on the record before it. 101 Cal. App. 4th at 1454-55. Here, FormsNet has argued that its end user
license agreement, which governs hundreds of thousands of zipForm users, contains “strict
confidentiality clauses.” Pl.’s Supp. Br. at 5. But FormsNet never identifies any specific
provision, much less one that binds its users to secrecy, because, in fact, the user agreement
contains no such clause. Supp. Cheverton, Ex. B. This precludes trade secret protection. See
Whyte, 101 Cal. App. 4th at 1454-55.
FormsNet’s failure to maintain the information’s secrecy distinguishes this case from.
those it cites. In AirWatch LLC v. Mobile Iron, Inc., 2013 WL 4757491, at *4 (N.D. Ga. Sept. 4,
2013), the court declined to dismiss a trade secret claim where software users were allegedly
subject to license agreements “containing confidentiality provisions.” Also, unlike here, the
nature of the software in AirWatch was “not such that a typical user . . . would be exposed to the
software’s capabilities by using the program.” Jd. And in Burroughs Payment Systems, Inc. v.
Symco Grp., 2012 WL 1670163 (N.D. Cal. May 14, 2012), the alleged trade secrets—non-public
diagnostic software embedded in plaintiff's machines—was available only to a select subset of
users with a password. Jd. at *15. For these reasons, FormsNet has failed to identify actionable
trade secrets.
Cc. FormsNet has failed to show misappropriation of its alleged trade secrets.
FormsNet also has not shown a likelihood that Glide misappropriated its trade secrets. It
accuses Glide of “reverse engineering” its “forms engine” by watching how forms were populated
in the QA account. PIl.’s Supp. Br. at 1, 8. But under California law, “reverse engineering” does
not constitute trade secret misappropriation. See Civ. Code § 3426.1(a); Sargent Fletcher, Inc.,
> The Eleventh Circuit has cast doubt on Airwatch’s reasoning, distinguishing it in a case akin to
this one. See Warehouse Solutions, Inc. v. Integrated Logistics, LLC, 610 F. App’x 881, 885
(11th Cir. 2015) (holding that “limiting access to authorized users” with “encryption and
password protection” failed to make “the functionality of the program itself” into a trade secret,
since how the software “looked and worked was readily apparent to authorized users”).
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110 Cal. App. 4th at 1666. This remains true even if a defendant breaches a contract that prohibits
reverse engineering. See Aqua Connect, Inc. v. Code Rebel, LLC, 2012 WL 469737, at *2 (C.D.
Cal. Feb. 13, 2012) (contractual reverse-engineering prohibition “does not convert reverse
engineering into an ‘improper means’ within the definition of California trade secret law”).
Even if reverse engineering of the sort alleged by FormsNet could theoretically qualify as
trade secret misappropriation, FormsNet has presented no evidence that any such reverse
engineering actually occurred. FormsNet’s declarations state only that Glide “could” have learned
about the software’s functionality, and “could” have accelerated the development of its own
software as a result. Zerroug Decl. { 16; Supp. Cheverton Decl. J 18. Such speculation cannot
support an injunction, especially in light of the evidence in the record showing that Glide’s
software was substantially completed and in use by beta customers in July 2020—months before
the time period that FormsNet contended the reverse engineering occurred, Malek Decl. 40-41;
Supp. Tonkin Decl. {] 6, 12, 13; Liu Decl. { 5; and that Glide engaged in a “clean room” process,
hiring a new team that never had access to a zipForm QA account to recreate digitized versions of
CAR forms. Newman Decl. ff] 2-10; Gilman Decl. {{ 2-6.
Although FormsNet urges the Court to consider circumstantial evidence of
misappropriation, such evidence, too, is absent here. The Restatement (Third) of Unfair
Competition provides that “proof of the defendant’s knowledge of the trade secret together with
substantial similarities between the parties’ products or processes may justify an inference of use
by the defendant.” § 40 cmt. c (1995); see Spear Mktg., Inc. v. BancorpSouth Bank, 791 F.3d 586,
601-02 (Sth Cir. 2015) (citing Restatement and concluding that lack of substantial similarities
between parties’ products defeated trade secret claim); Contour Design, Inc. v. Chance Mold
Steel Co., 693 F.3d 102, 109-110 (1st Cir. 2012) (same).* “[T]he mere fact that [the parties’]
products occupy the same commercial niche” is not enough. Spear Mitg., 791 F.3d at 602.
As explained above, FormsNet has not identified any actionable trade secret, much less
Glide’s knowledge of (or even access to) such a trade secret. In addition, FormsNet nowhere
4 “The Restatement [of Unfair Competition] and its commentary are relevant authority in
applying the [California] UTSA.” Altavion, 226 Cal. App. 4th at 62.
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alleges, much less establishes, that the Glide software platform and zipForm’s technology are at
all similar. And the evidentiary record before the Court establishes exactly the opposite. Glide has
adduced unrebutted expert opinions and fact testimony showing that Glide’s software bears no
technical resemblance to zipForm, see Malek Decl. {{ 35-39; Liu Decl. {{ 2-12. FormsNet relies
on BladeRoom Grp. Ltd. v. Emerson Elec. Co., 331 F. Supp. 3d 977 (N.D. Cal. 2018), but in that
case, unlike here, the plaintiff adduced substantial evidence that the defendant had not only
accessed the protected information, but also used and disclosed it. Id. at 984-85.
In sum, FormsNet has not establish a likelihood of success on its claim for
misappropriation of trade secrets.
Il. |FORMSNET HAS NOT ESTABLISHED A LIKELIHOOD OF SUCCESS ON ITS
BREACH OF CONTRACT CLAIM.
A party bringing a breach of contract claim must establish that it has standing to sue on
the contract. Levy v. Only Cremations for Pets, Inc., 57 Cal. App. 5th 203, 256-57 (2020).
Because FormsNet is not a party to the GFFA, it must establish that it has standing as a third
party beneficiary. See id. FormsNet must show, “unmistakabl[y],” that the contract’s promisor*
(CAR) understood that the promisee (Glide) intended to contract for FormsNet’s benefit. Jd. at
257-58. “[P]ersons only incidentally or remotely benefited by the contract are not entitled to
enforce it.” Id. at 257. The California Supreme Court has set forth a three-part test for this
inquiry; a plaintiff seeking to establish third-party standing must show all the following: (1) that it
is likely to benefit from the contract, (2) that a “motivating purpose” of the actual contracting
parties—not the third party—was to benefit the third party; and (3) that permitting the third party
to enforce the contract is “consistent with the objectives of the contract and the reasonable
expectations of the contracting parties.” Goonewardene v. ADP, LLC, 6 Cal. 5th 817, 821, 829-—
30 (2019). Courts conducting this inquiry review the “express provisions of the contract,” as well
as “all of the relevant circumstances under which the contract was agreed to.” Id. at 829-31.
5 In the GFFA, CAR is the promisor and Glide is the promisee: CAR promised to provide the
services in the GFFA, in exchange for Glide paying fees to CAR and agreeing to abide by certain
limitations on the services granted. See Walters v. Calderon, 25 Cal. App. 3d 863, 871 (1972)
(promisee provides the consideration for a contract). FormsNet thus must establish that Glide
intended to benefit FormsNet when it contracted with CAR.
13
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The classic example of a third-party beneficiary relationship is when, for example, a
general contractor (promisee) pays a subcontractor (promisor) to perform work for the benefit of
a third-party homeowner. See Levy, 57 Cal. App. 5th at 257. At the time of contracting, the
contractors understand that the purpose of their contract is to perform work for the homeowner,
and the homeowner directly benefits from the contract in the form of services received. See id. By
contrast here, the evidence before the Court shows that Glide entered into the GFFA intending to
benefit itself, for the purpose of building out its software platform. See Goonewardene, 6 Cal. Sth
at 835 (recognizing that defendant’s motivating purpose was to benefit “itself’) (emphasis in
original). Glide has adduced unrebutted evidence—both in the GFFA contract and in
declarations—that it entered into the GFFA to obtain necessary licensing and services for offering
certain CAR forms in its online application. GFFA at Preamble, §§ 1-7; Supp. Tonkin Decl. {J
3—7. There is no countervailing evidence showing that Glide, or CAR for that matter, entered into
the GFFA to benefit FormsNet.
For its part, FormsNet points to provisions in the GFFA that allow FormsNet (concurrent
with CAR) to exercise certain limitations over Glide’s access to web services. See GFFA §§ 2.1,
5.1. But FormsNet fails to demonstrate how these restrictions reflect a “motivating purpose” by
Glide to benefit FormsNet. See Goonewardene, 6 Cal, Sth at 829-31. Nor is there evidence in the
record that FormsNet would benefit more than incidentally from the GFFA; it is undisputed that
Glide pays only CAR under the GFFA and that CAR pays FormsNet under a separate agreement.
Jimmy Kelly Decl. { 5; see Levy, 57 Cal. App. 5th at 257.
There is also insufficient evidence for the Court to conclude that allowing FormsNet to
enforce the GFFA would be consistent with the reasonable expectations of the contracting parties
Glide and CAR. In Goonewardene, the California Supreme Court held that there is no need to
allow a third party to sue for breach of a contract when the contract’s counterparty is “available”
and “fully capable of pursuing a breach of contract action against” the defendant. 6 Cal. 5th at
836. The same is true here. The record reflects that CAR is a sophisticated counterparty that could
itself pursue claims for breach of the GFFA should it so choose. See generally GFFA; Supp.
Tonkin Decl. {] 5-6, 8, 10-11, 15, 21-23. Indeed, CAR retained for itself the unilateral authority
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under the GFFA to decide which forms and products Glide could access through the QA account.
See GFFA §§ 1.8, 2.11, 3.3. Accordingly, Glide argues, CAR, rather than FormsNet, held the
power to expand Glide’s access—or object to it, Glide points out that CAR has not only declined
to sue Glide for its alleged access to “out-of-scope” forms to which CAR granted Glide a license
in December 2019, but that CAR is also currently marketing Glide’s software to its members,
notwithstanding FormsNet’s allegations. Supp. Tonkin. Decl. {ff 11, 15, 21-23. These facts weigh
against FormsNet’s standing to sue under the GFFA. See Goonewardene, 6 Cal. 5th at 836-37.
FormsNet asserts that it is entitled to third-party beneficiary status as the “owner” of
certain web services that CAR distributed to Glide. Pl.’s Supp. Br. at 9. That proposition lacks
legal support and would allow “owners” to inject themselves into innumerable distribution
contracts to which they are not parties. FormsNet relies on Alling v. Universal Mfg. Corp., 5 Cal.
App. 4th 1412, 1440 (1992). But in Alling, the defendant had contracted directly with the plaintiff
to license the third party’s patents and technology, commercialize them, and return a royalty to
the plaintiff. Jd. at 1440-41. In tandem, and in express reliance on the first contract, the defendant
established a second contract, with a different party, for the purpose of “greatly expand[ing]” the
plaintiffs technology’s “commercial potential” and “quicken[ing] the pace of its market
development.” Jd. Under these specific circumstances, the court concluded that the defendant
intended to benefit the plaintiff when it entered into the second contract. Jd. Here, there is no
evidence suggesting that Glide contracted with CAR for the purpose of improving FormsNet’s
commercial prospects. To the contrary, Glide and FormsNet are competitors.
The parties also dispute whether FormsNet is likely to prevail on its claim that Glide
breached the GFFA. FormsNet contends that Glide’s purported breach was clear cut. Glide,
unsurprisingly, denies that allegation. Because the Court concludes that FormsNet is unlikely to
prevail on its argument that it is an intended third-party beneficiary under the GFFA—and
because the Court further concludes that even if Glide breached the agreement, there is no
showing of irreparable harm flowing from any such breach—the Court needs not and does not
reach that question for purposes of deciding this application.
For these reasons, FormsNet has failed to establish a likelihood of success on its claim for
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breach of contract.
I. FORMSNET HAS NOT ESTABLISHED IT WOULD SUFFER IRREPARABLE
HARM IN THE ABSENCE OF A PRELIMINARY INJUNCTION.
To establish irreparable harm, a plaintiff must show that the defendant’s alleged
“wrongful acts threaten to cause irreparable injuries,” which “cannot be adequately compensated
in damages.” Intel Corp. v. Hamidi, 30 Cal. 4th 1342, 1352 (2003). The plaintiff must present
evidence of irreparable harm. “[C]onclusory averments . . . are insufficient to support issuance of
an injunction.” Finnie, 199 Cal. App. 3d at 15; see also Volpicelli v. Jared Sydney Torrance
Mem'l Hosp., 109 Cal. App. 3d 242, 267 (1980) (“A mere allegation that such injury will result is
not sufficient.”).
FormsNet has failed to present evidence of irreparable injury sufficient to justify
injunctive relief. As for its contract claim, FormsNet’s complaint seeks only monetary damages,
Compl. {| 50-54, and the GFFA contemplates only damages in the form of licensing fees but not
injunctive relief. GFFA § 8. Thus, even if FormsNet had shown a likelihood of success on its
contract claim, a preliminary injunction would be inappropriate for this claim alone. Pac.
Decision Scis. Corp. v. Super. Ct., 121 Cal. App. 4th 1100, 1110 (2004) (vacating preliminary
injunction on contract claim where plaintiff failed to show that “monetary relief would not afford
adequate relief or that it would be extremely difficult to ascertain the amount of damages”).
More broadly, with respect to both its contract and trade secrets claims, FormsNet’s only
evidence of injury consists of two conclusory sentences repeated verbatim across its witnesses’
declarations, asserting that Glide will “steal” FormsNet’s customers. See Alberta Decl. { 28;
Jimmy Kelly Decl. § 11; Cheverton Decl. { 13. A far more fulsome showing is required to
support injunctive relief. Finnie, 199 Cal. App. 3d at 15.
Moreover, even if FormsNet had provided some non-conclusory evidence that it would
lose customers and sales to Glide absent a preliminary injunction, “lost profits due to lost sales”
are generally “fully compensable through money damages and therefore do[] not support
injunctive relief.” Amylin Pharm., Inc. v. Eli Lilly & Co., 456 F. App’x 676, 678 (9th Cir. 2011).
FormsNet has not shown why this general rule does not apply here. For example, FormsNet has
16
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not attempted to demonstrate that it would be difficult to calculate lost sales, customers, and
goodwill, such that adequate damages could be awarded if FormsNet prevails at trial. In contrast,
Glide has presented uncontroverted evidence showing that it can track all transactions made with
its software, making it possible to calculate damages if needed. See Supp. Tonkin Decl. | 24.
FormsNet argues that damages will prove inadequate, relying on Netlist Inc. v. Diablo
Tech. Inc., 2015 WL 153724 (N.D. Cal. Jan. 12, 2015. But Netlist merely highlights the lack of
evidence in the current record. In Neilist, the plaintiff presented expert testimony that the
defendant’s alleged misconduct had obtained a 13-month “head start” in developing its competing
product. Jd. at *7. Based on this and other evidence, the court found it was “clear from the record”
that the defendant had in fact used improperly obtained information “to speed the development
and testing of” its competing product, justifying a finding of irreparable harm. Jd. at *6. Here, as
discussed, FormsNet has only speculated that Glide “could” have used information gleaned from
the QA account to aid its product’s development. Zerroug Decl. 16; Supp. Cheverton Decl. {
18.° FormsNet also relies on distinguishable trademark-infringement cases, in which the threat of
ongoing customer confusion is readily apparent. Pl.’s Supp. Br. at 3. In sum, FormsNet has failed
to demonstrate why the usual presumption that monetary damages are adequate to compensate for
lost sales should not apply here.
For these reasons, FormsNet fails to establish irreparable harm. That alone justifies denial
of FormsNet’s application for a preliminary injunction. See Jessen, 142 Cal. App. 3d at 459.
IV. THE BALANCE OF THE EQUITIES FAVORS GLIDE.
Finally, the balance of the equities weighs against granting a preliminary injunction.
FormsNet seeks a mandatory injunction, which is subject to a heightened degree of judicial
scrutiny and “is rarely granted.” Shoemaker v. Cnty. of Los Angeles 37 Cal. App. 4th 618, 625
(1995). The proposed injunction would require Glide to turn off its product for new customers
§ Netlist is also distinguishable because the parties there had executed a contract providing for
mandatory injunctive relief “in addition to all legal remedies.” 2015 WL 153724 at *8. Here, the
GFFA provides only for monetary damages. GFFA § 8; see also DVD Copy Control Assn. v.
Kaleidescape, Inc. 176 Cal. App. 4th 697, 726 & n.6 (2009) (holding that a court must “reject a
stipulation contemplating an equitable remedy” when the plaintiff “actually has an adequate
remedy at law”)
17
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and remove critical networking features available to existing customers. See URS Corp. v.
Atkinson/Walsh Joint Venture, 15 Cal. App. 5th 872, 884 (2017) (injunction “is mandatory in
effect if its enforcement would be to change the position of the parties and compel them to act in
accordance with the judgment rendered”); Garcia v. Google, Inc., 786 F.3d 733, 740 (9th Cir.
2015) (requiring defendant to take down information from a website is a mandatory injunction).
Unrebutted evidence shows that Glide is a small start-up and that a preliminary injunction
could effectively put the company out of business before this matter reaches trial. Supp. Tonkin
Decl. 4] 25-26. The injunction FormsNet seeks would require Glide to block new users from
using its software platform. Glide has submitted evidence showing that this would cause Glide to
breach its contract with CAR and other entities, destroy its credibility with partners and
customers, and severely threaten its ability to obtain the venture capital it may require to continue
operating. Jd. { 26. It is also unrebutted that such an injunction would make Glide’s software
platform substantially unusable for existing users. Id. { 25 (explaining that Glide’s social network
model depends on agents inviting clients and others with whom they collaborate to use the
software platform). A bar on “new” registrations would thus interfere with in-process transactions
and effectively remove Glide from the marketplace. Jd. 4 25-27. Such harms justify denying
injunctive relief. NYKO Techs. Inc v. Energizer Holdings Inc., 2012 WL 12882885, at *8 (C.D.
Cal. June 1, 2012) (denying preliminary injunction that would “immediately disrupt [defendant’s]
business”); N. Cty. Comme’ns Corp. v. Sprint Commc’ns Co., L.P., 2012 WL 12882889, at *6
(S.D. Cal. Sept. 27, 2012) (same).
For its part, FormsNet has provided no evidence suggesting that it would face comparable
harm in the absence of an injunction. In fact, in seeking to enjoin only “new” users of Glide’s
platform, FormsNet has conceded that allowing Glide’s platform to remain available to existing
users in no way threatens to disclose any of its trade secrets. FormsNet argues only that any harm
Glide will suffer from an injunction is a problem of its own making. Hr’g Tr. at 50:18-51:9. But
that merely begs the question of Glide’s culpability, and could be said of any defendant facing a
request for an injunction. The balancing of the equities therefore favors Glide.
18
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For the foregoing reasons, the Court DENIES FormsNet’s application for a preliminary
injunction.’
IT IS SO ORDERED.
DATED: feb. Lb. 2021 HON. ETHAN P! SCHULMAN
JUDGE OF THE SUPERIOR COURT
? The parties have also filed evidentiary objections to various fact and expert declarations
submitted in connection with FormsNet’s application. The Court has reviewed the declarations
for purposes of deciding this motion, and has considered the objections insofar as they affect the
weight of the proffered evidence. But because the Court’s ruling does not turn on any particular
fact or opinion objected to, the Court declines to rule on the parties’ voluminous evidentiary
objections at this time and instead considers them preserved.
19
_JPROPOSED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION
Case No. CGC-21-588988
1645571CGC-21-588988 RE FORMSNET LLC, A DELAWARE LIMITED LIABILIY
/
VS. GLIDE LABS, INC.M A DELAWARE CORPORATION ET AL
I, the undersigned, certify that I am an employee of the Superior Court of California, County Of
San Francisco and not a party to the above-entitled cause and that on February 10, 2021 I served
the foregoing order denying application for preliminary injunction on each counsel of record
or party appearing in propria persona by causing a copy thereof to be served electronically by
email sent to the email addresses indicated below.
Date: February 10, 2021
For Plaintiff
ANNE R. BEEHLER
BRYAN CAVE LEIGHTON PAISNER LLP
anneredcross.beehler@bclplaw.com
For Defendant
CODY S. HARRIS
KEKER, VAN NEST & PETERS LLP
charris@keker.com
JENNIFER A. HUBER
KEKER, VAN NEST & PETERS LLP
jhuber@keker.com
MATTHEW WERDEGAR
KEKER, VAN NEST & PETERS, LLP
mwerdegar@keker.com
Certificate of Service —
By;
EY LE
Form C00005010
Preview
Co em YN DH FF Ww NY ee BRRRREBBRBSSGSFEWIRABDEBERKS KEKER, VAN NEST & PETERS LLP MATTHEW M. WERDEGAR - # 200470 mwerdegar@keker.com JENNIFER A. HUBER - # 250143 jbuber@keker.com CODY S. HARRIS - #255302 charris@keker.com MAILE YEATS-ROWE - # 304242 myeatsrowe@keker.com RYAN HAYWARD - # 330924 thayward@keker.com 633 Battery Street San Francisco, CA 94111-1809 Telephone: 415 391 5400 Facsimile: 415 397 7188 Attorneys for Defendant GLIDE LABS, INC. San Francisco County Superior Court FEB 1 0.2021 CLERIY oF THE COURT 4 Y_- Coypuily Clerk SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SAN FRANCISCO RE FormsNet LLC, a Delaware limited liability company, Plaintiff, Vv. GLIDE LABS, INC., a Delaware corporation; and DOES 1 through 20, inclusive, Defendants. Case No. CGC-21-58 ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Date: February 4, 2021 Time: 1:30 p.m. Dept.: 302 Judge: Hon. Ethan P. Schulman Date Filed: January 15, 2021 Trial Date: TBD [PROPOSED] ORDER DENYING APPLICATION FOR PRELIMINARY INUNCTION Case No. CGC-21-588988 1645571Co ON DH F WYN eee ee oe BNRRRRBBRRES Sek AWARDEES ERES INTRODUCTION Plaintiff RE FormsNet, LLC (“FormsNet”) seeks a preliminary injunction that would enjoin its competitor, Defendant Glide Labs, Inc. (“Glide”), from allowing new customers to register for and use Glide’s online software platform for filling out real estate forms, and from continuing to market, sell, or offer access to the platform. FormsNet contends that Glide developed its platform with the benefit of trade secret information that Glide allegedly obtained by breaching a contract between Glide and non-party REBS, LLC, which places certain limits on Glide’s access to FormsNet’s software. Glide opposes the application, arguing that FormsNet has failed to articulate or establish any actionable trade secrets, has failed to present evidence of misappropriation, cannot show a breach of contract, and has failed to present evidence of any irreparable harm that would result absent an injunction. The application came on for hearing on February 4, 2021, the Honorable Ethan P. Schulman presiding. For the reasons set forth herein, the Court DENIES the application for a preliminary injunction. FACT AND PROCEDURAL BACKGROUND FormsNet (which does business as “zipLogix”) owns a software product called zipForm that helps realtors and others involved in real estate transactions fill out real estate forms online. Jimmy Kelly Decl. { 2. In California, FormsNet does not own the forms themselves; the California Association of Realtors (“CAR”) does. Supp. Tonkin Decl. { 4; Cheverton Decl. Ex. A (GFFA) § 1.8. FormsNet has a distribution agreement with CAR through which realtors have access to zipForm to fill out CAR’s forms. Alberta Decl. { 4; Jimmy Kelly Decl. { 4. Prior to Glide’s entry in the market, CAR had granted FormsNet an exclusive license for the electronic preparation of CAR’s forms. Supp. Tonkin Decl. { 4. Glide is a startup that, like FormsNet, provides web and mobile applications allowing realtors and others involved in real estate transactions to review and fill out real estate forms. Supp. Tonkin Decl. { 2. Glide was founded in July of 2017. Jd. 3. Soon thereafter, in August 2017, Glide began negotiating with CAR’s subsidiary, REBS, Inc., to obtain a license to a subset of CAR forms related to property disclosures. Id. {| 5. In September 2017, Glide launched a pilot form-filling software product in San Francisco, California. Id. { 6. A. 2 [PR SED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571oOo em nN DH F&F BW YN Boe ew ee ee BRRRFREBRHRBSPFESEWTRBEREBERETS LL —/ Although Glide had developed technology that allowed it to complete all the steps necessary to publish completed PDFs of property disclosure forms, CAR informed Glide that it would be required to use the zipLogix web service Application Programming Interface (“API”) to generate final completed PDFs of CAR Forms. Supp. Tonkin Decl. 6. To that end, on February 22, 2018, Glide and CAR, through CAR’s subsidiary REBS, Inc., executed an agreement called the Guided Forms Functionality Agreement (“GFFA.”). Jd.; Cheverton Decl., Ex. A (GFFA). Among other things, the GFFA granted Glide access to a zipForm Quality Assurance (“QA”) account for use in testing the integration of Glide’s software with zipForm. GFFA § 2.6; Supp. Tonkin Decl. { 6. FormsNet is not a party to the GFFA. See GFFA at Preamble. Glide has only paid fees pursuant to the GFFA to REBS, Inc., and later, after the contract was assigned to CAR’s subsidiary REBS, LLC in April 2019, to REBS, LLC. See Supp. Tonkin Decl. 4 6, 8; Compl. { 12. REBS, LLC, in turn, pays FormsNet pursuant to a separate agreement between those entities. Jimmy Kelly Decl. §§ 4-5. Beginning in the summer of 2019, Glide and CAR began discussing the possibility of Glide expanding its product offering beyond property disclosure forms. Supp. Tonkin Decl. {ff 8— 10. In December 2019, CAR licensed its entire forms library to Glide. Id. J] 10-11. Glide immediately began working on expanding its form-filling technology to support the additional CAR forms to which Glide now held a license. Id. { 11. According to Glide’s CEO Sebastian Tonkin, its CTO Henry Liu, and its expert, Dr. Sam Malek, Glide had substantially completed development of its expanded software offering by July 2020. Jd. {f 12-13; Liu Decl. 5; Malek Decl. | 40-41. Several real estate brokerages acting as “beta users” began using the software that same month. Supp. Tonkin Decl. {{] 12-13. Glide has submitted evidence showing that its July 2020 beta product was substantially identical to the product that Glide ultimately launched in January 2021. Id. { 13, Ex. A; Malek Decl. {{ 40-41. FormsNet alleges that the GFFA granted Glide a license only to use the zipForm software and QA account to access certain property-disclosure-related CAR forms listed in Exhibit C to the agreement. According to FormsNet, however, Glide personnel accessed forms in the QA account other than those listed on Exhibit C. The QA account replicates what an end user of the 3 [PROPOSED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571Co em ND NH FF BW YN v a BX8RFREBBRS SS TABDEBERES \ zipForm software will experience when interacting with the software. Jordan Rae Kelly Decl. 4 5; Malek Decl. { 34. Although FormsNet has not provided logs showing Glide’s access to the QA account, FormsNet has submitted a declaration stating that the logs show that Glide personnel accessed the QA account over a thousand times throughout 2020, mostly in connection with “out- of-scope” forms, with the activity peaking in September 2020. Alberta Decl. {¥ 13-18. FormsNet apparently discovered Glide’s QA account activity in or around November 2020, after Glide contacted FormsNet seeking assistance with technical issues that Glide was encountering with accessing forms in the QA account. Jd. {{[ 1, 9-10. According to Glide, in the fall of 2020, as a final quality-assurance process, Glide personnel used the QA account to manually compare CAR forms available through zipForm with CAR forms available through Glide. Supp. Tonkin Decl. { 14. Glide’s CEO explained that the process involved manually filling in CAR forms via zipForm to ensure that the end-user experience of filling out a CAR form on Glide would be consistent with what CAR members had come to expect from their past experiences with zipForm. Id. On November 18, 2020, FormsNet sent Glide a letter asserting that Glide’s QA account activity constituted a breach of the GFFA. Jimmy Kelly Decl. Ex B. The letter stated that “[iJn order to avoid any possible litigation,” FormsNet wished to discuss “an appropriate royalty.” Jd. Upon receiving that letter, Glide hired new contractors who had not accessed FormsNet’s QA account to re-annotate all of its CAR real estate forms through a “clean room” team. See Gilman Decl. {{[ 2-6; Newman Decl. {| 2-10. According to Glide, none of the contractors involved in the clean room effort had any knowledge of or interaction with the zipForm software. Gilman Decl. { 3; Newman Decl. ff 2, 4. Following the clean room effort, Glide worked with real estate industry experts and CAR personnel to test Glide’s forms and provide feedback. Newman Decl. {{[ 5-8. Glide publicly launched its expanded software platform on January 19, 2021, making it available to all CAR members across the state of California. Supp. Tonkin Decl. J 21. Shortly thereafter, CAR began promoting the Glide platform as a “member benefit” to its more than 180,000 members. Jd. 21, Ex. C. Glide has submitted declarations stating that its platform released as of January 19 contains no CAR forms that are based on, or derived from, access to any disputed or out-of-scope forms in the QA account. Newman Decl.{ 10; Gilman Decl. 6. 4 [PB@POSED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571oO em YN DH FF YW YY ie} N Boe ee ie ee BRRREBBRBRBSSPESEWTATEBERKS VU VY FormsNet sued Glide in Los Angeles Superior Court on January 5, 2021 for trade secret misappropriation and breach of contract. After Glide filed a motion to transfer venue to San Francisco, FormsNet re-filed its complaint in this Court on January 15, 2021, and voluntarily dismissed its complaint in Los Angeles. Patchen Decl. {]] 6, 12. On January 19, 2021, FormsNet asked the Court to issue a temporary restraining order (“TRO”) preventing Glide from launching its expanded software offering. FormsNet argued that Glide’s software misappropriated its trade secrets, which it described as the “underlying algorithms, design, and processes for the Software,” as set forth in screenshots of HTML and JavaScript code. See Pl.’s TRO App. at 17~18; Alberta Decl. Exs. A~D. Glide opposed FormsNet’s TRO application. The parties then stipulated, and this Court ordered, that a preliminary injunction hearing would be held on February 4, 2021, and that no TRO would issue in the meantime. FormsNet filed a Supplemental Memorandum in support of a preliminary injunction on January 28, 2021. It renewed its argument that Glide had breached the GFFA by accessing “out- of-scope” forms in the QA account. And it again alleged that Glide had misappropriated its trade secrets, although it recharacterized what those trade secrets are. As explained in more detail below, FormsNet now alleges that its trade secrets are its “forms engine.” Pl.’s Supp. Br. at 5. According to Glide’s CEO, more than 13,000 CAR members have already used Glide’s new platform, accounting for more than 16,000 residential real estate transactions already in progress. Supp. Tonkin Decl. 4 23. LEGAL STANDARD! FormsNet seeks preliminary injunctive relief, which is an “extraordinary remedy.” Coll. Hosp., Inc. v. Super. Ct., 8 Cal. 4th 704, 715 (1994). “The purpose of a preliminary injunction is to preserve the status quo pending a determination on the merits of the claim.” Dodge, Warren & Peters Ins. Servs., Inc. v. Riley, 105 Cal. App. 4th 1414, 1418 (2003). “Injunctions in the area of trade secrets are governed by the principles applicable to injunctions in general.” Whyte v. Schlage Lock Co., 101 Cal. App. 4th 1443, 1449 (2002). * All quotations and internal citations have been removed and emphases added unless otherwise noted. 5 [RROPOSED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571oO OY DH FF BW YH & Bee em BRR HRBBRRESSCeFEARDESERAS wy, VS The question whether a preliminary injunction should be granted involves two interrelated factors: (1) the likelihood that plaintiff will prevail on the merits, and (2) the relative balance of harms that is likely to result from the granting or denial of interim injunctive relief. White v. Davis, 30 Cal. 4th 528, 554 (2003). Both factors must be satisfied. See Cohen v. Bd. of Supervisors, 40 Cal. 3d 277, 289 (1985) (“Even if the trial court had found for appellants on the ‘likelihood of success on the merits’ factor, it nevertheless could have refused to issue a preliminary injunction if it found that the interim harm to appellants did not outweigh the interim harm to respondents.”); Leach v. City of San Marcos, 213 Cal. App. 3d 648, 651, 657-63 (1989) (same). Accordingly, “the court may deny a preliminary injunction either (1) on its finding irreparable injury will not result to the party seeking the injunction, or (2) that the party has failed to demonstrate a reasonable probability of success on the merits.” Jessen v. Keystone Sav. & Loan Ass'n, 142 Cal. App. 3d 454, 459 (1983). “The burden is on the party seeking the preliminary injunction to show all of the elements necessary to support [its] issuance ....” Saltonstall v. City of Sacramento, 231 Cal. App. 4th 837, 856 (2014). Moreover, a preliminary injunction must be supported by admissible evidence. Finnie v. Town of Tiburon, 199 Cal. App. 3d 1, 15 (1988). DISCUSSION L FORMSNET IS UNLIKELY TO PREVAIL ON ITS TRADE SECRETS CLAIM. To prevail on its claim of trade secret misappropriation, FormsNet must show a likelihood of success in proving (1) that it owned a trade secret, (2) that Glide acquired, disclosed, or used FormsNet’s trade secret through improper means, and (3) that Glide’s actions have damaged FormsNet, See CytoDyn of N.M,, Inc. v. Amerimmune Pharm., Inc., 160 Cal. App. 4th 288, 297 (2008). A “trade secret” is defined in the California Uniform Trade Secrets Act (“CUTSA”) as “information .. . that . . . [dJerives independent economic value . . . from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and . . . [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Id. at 296 (quoting Cal. Civ. Code § 3426.1, subds.(d)(1) & (2)). “‘Improper means’ includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means,” but “[rJeverse engineering or 6 [PROPOSED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571Co em QI DH HW FF WN ptt BXFRREBKRSSREDTABDREERES independent derivation alone shall not be considered improper means.” Sargent Fletcher, Inc. v. Able Corp., 110 Cal. App. 4th 1658, 1666 (2003) (quoting Cal. Civ. Code § 3426.1, subd. (a)). FormsNet has failed to establish that it is likely to succeed on the merits of its trade secrets claim. Specifically, for the reasons explained below, FormsNet has failed to identify its purported trade secrets with particularity, and the information that it has identified does not qualify as a trade secret. FormsNet has also failed to adduce any non-speculative evidence of misappropriation. A. FormsNet has failed to identify trade secrets with particularity. “Tt is critical to any CUTSA cause of action—and any defense—that the information claimed to have been misappropriated be clearly identified.” Silvaco Data Sys. v. Intel Corp., 184 Cal. App. 4th 210, 221 (2010), disapproved on other grounds by Kwikset Corp. v. Super. Ct., 51 Cal. 4th 310 (2011). “At th{e preliminary injunction] stage, a party seeking to protect trade secrets must describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons who are skilled in the trade,” allowing the defendant to ascertain the trade secret’s boundaries. Whyte, 101 Cal. App. 4th atl453; see also Lamont v. Krane, 2019 WL 2010705, at *2 (N.D. Cal. May 7, 2019) (“[T]o obtain a preliminary injunction, a plaintiff must first identify its alleged trade secrets with ‘reasonable particularity.””).° A plaintiff may not use “vague hand waving,” Silvaco, 184 Cal. App. 4th at 221, or “broad ‘catch-all’ language” to identify its trade secrets, Perlan Therapeutics, Inc. v. Super. Ct., 178 Cal. App. 4th 1333, 1350 (2009). Ifa plaintiff “does not know what its own trade secrets are, it has no basis for suggesting defendants misappropriated them.” Perlan, 178 Cal. App. 4th at 1350; see also Swarmify, 2018 WL 1142204, at *3 (“[A]ttempts to set up its purported trade secrets as elusive moving targets do not bode well for the merits of” a plaintiff’s claims.). In particular, “[a] ? FormsNet contends, incorrectly, that it need not identify a trade secret at the preliminary injunction stage. FormsNet relies on dicta from a non-precedential Ninth Circuit opinion, Meggit San Juan Capistrano, Inc. v. Yongzhong, 575 F. App’x 801 (9th Cir. 2014). There, the plaintiff had particularly identified its trade secrets, and the defendant had waived the argument. Jd. at 803. Federal district courts have either ignored Meggit or rejected its dicta. See, e.g., Swarmify, Inc. v. Cloudflare, Inc., 2018 WL 1142204, at *3 (N.D. Cal. Mar. 2, 2018); Action Learning Sys., v. Crowe, 2014 WL 12564011, at *4 (C.D. Cal. Aug. 11, 2014) 7 [PR 'D] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571Oo me DI DH FF BW NH Hoe ee ee BRxRRPEBBRRE SEWED ESRES ~ oN wo Ly description of the category, or even of the subcategories of information within a category, does not comply with the requirement to identify the actual matter that is claimed to be a trade secret.” Soc. Apps, LLC v. Zynga, Inc., 2012 WL 2203063, at *4 (N.D. Cal. June 14, 2012); see also Loop AI Labs Inc. v. Gatti, 195 F. Supp. 3d 1107, 1114 (N.D. Cal. 2016) (rejecting as insufficient identification of “categories of alleged trade secrets in broad terms”). Here, FormsNet’s identification of its trade secrets has shifted substantially between the two briefs it filed in support of this application, and both its theories are overly broad and opaque. FormsNet first asserted that its trade secrets were the “underlying algorithms, design, and processes for the Software,” as set forth in screenshots of HTML and JavaScript code. See TRO App. at 17-18; Alberta Decl. Exs. A-D. In its supplemental brief, by contrast, FormsNet claims that its trade secrets “include the forms engine underlying the zipForm® Software,” and “all of the technical processes underlying the interactive Software and Web Services.” Pl.’s Supp. Br. at 7 (emphasis in original). At the hearing, FormsNet’s articulation of its trade secret remained elusive. FormsNet’s counsel characterized the trade secret at issue as “the forms engine, which is the thing that is in the background of the Software and the Web Services, and allows the Software and Web Services and the — what they call the transaction management system to be interactive and work with one another.” Hr’g Tr. at 11:27-12:3. Plaintiffs various vague, categorical, catch-all descriptions of its trade secrets are insufficient. See Silvaco, 184 Cal. App. 4th at 221 (2010); Perlan, 178 Cal. App. 4th at 1350. Social Apps, LLC v. Zynga is instructive. In that case, the plaintiff described its alleged trade secret as: Revision 21 of the myFarm game including server architecture, client architecture, database architecture, statistic recording and reporting, processes for adding and updating content, processes for expanding server capacity, functionality and organization of the source code, programming languages used to create the game, proprietary and open source software used to create the game. 2012 WL 2203063, at *3. The court found this description to be “little more than an elaborate categorization scheme for a variety of related concepts” and “no substitute for specifically identifying and describing the actual architecture that SocialApps claims was stolen.” Id. at *4. 8 [PROPOSED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571Oo OY DH FF Ww YN RDN NN NY Be wee Be we we Be eB eB eR LY . en Exactly the same may be said of FormsNet’s trade secret description—it is merely a description of categories of allegedly secret information, and it fails to identify with any particularity the actual matter that FormsNet claims to be its trade secret. B. FormsNet has failed to show that the “forms engine” is an actionable trade secret. Even if the Court were to conclude that FormsNet had described its “forms engine” with the requisite degree of particularity, it would still fail to qualify as a trade secret under California law. In Silvaco, the Court of Appeal held that “features, functions, and characteristics of the design and operation” of software “are not secret, but are evident to anyone running the [] program.” 184 Cal. App. 4th at 221-22. Put another way, “[p]lans, flows, inputs, outputs, rules of operation, priorities of operation, and the like are not trade secrets” because “they are manifest in the way a program works.” Agency Solutions.Com, LLC v. TriZetto Grp., Inc., 819 F. Supp. 2d 1001, 1017 (E.D. Cal. Sept. 13, 2011). Those holdings foreclose FormsNet’s attempt to argue that its “forms engine” constitutes a trade secret on the record before the Court. Glide’s expert, Dr. Malek, explained in unrebutted testimony that FormsNet’s software (like most web applications) has a “front-end,” with code and an interface that is visible to any user, and a “back-end,” which is not visible to end users and is governed by the source code that enables the software to function. Malek Decl. f] 12-13. Dr. Malek explains that, based on FormsNet’s allegations and evidence, Glide did not and could not have accessed FormsNet’s back-end code. Jd. {| 31-34. FormsNet’s counsel conceded at the hearing that Glide did not access FormsNet’s back-end source code, and confirmed that FormsNet is not arguing that Glide “misappropriated or copied or altered the source code itself or the algorithms” underlying the zipForm software. Hr’g Tr. at 13:22-23; 13:26-28. That leaves FormsNet to show that it has a trade secret in what can be learned from interacting with zipForm’s front-end. It is undisputed that the information and functionality Glide could access in the QA account was the same information available to any zipForm user. See Malek Decl. {ff 23, 26, 33-34; Liu Decl. | 5; Andrews Decl. 3; Zerroug Decl. 4] 5, 16; Rae Kelly Decl. 5. Thus, the “forms engine” is merely the functionality any zipForm user 9 [PROPOSED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571oO YD DH WH FF WYN RN NR NY NY Be Be Be Be Be we ewe eB eB BRRREBBRSFSVESEWTARDAEBHRE SE - Ww wo experiences by entering data and seeing it appear in multiple forms. Malek Decl. {| 30-32; Supp. Cheverton Decl. { 3. FormsNet contends that populating forms and observing how the product works (as any user could) might allow Glide to learn about the “interrelationships of the functionality of the Software” or “how user interactions affect the user interface.” Zerroug Decl. {| 16-17. But even if that were supported by evidence, these are features, functions, and characteristics that are evident in the way zipForm works. See Silvaco, 184 Cal. App. 4th at 221— 22; Agency Solutions.Com, LLC, 819 F. Supp. 2d at 1017. When asked how, in light of this, FormsNet has a trade secret, FormsNet’s counsel responded: “It is a trade secret because it meets the definition of a trade secret.” Hr’g Tr. at 15:28-16:1. The Court disagrees. FormsNet is impermissibly seeking to claim a trade secret in the “[p]lans, flows, inputs, outputs, rules of operation, priorities of operation” of its software which are evident to observant users of the software. Agency Solutions.Com, 819 F. Supp. 2d at 1017; see Silvaco, 184 Cal. App. 4th at 221— 22. Such information does not meet the definition of a trade secret under CUTSA. Seeking to argue that its software’s underlying design may qualify as a trade secret, even though discernible to end users, FormsNet relies on Altavion, Inc. v. Konica Minolta Sys. Lab., Inc., 226 Cal. App. 4th 26 (2014), But Altavion is readily distinguishable. In Altavion, the evidence showed that the plaintiff had disclosed its software design concept solely to a potential business partner, before it was publicly released, pursuant to a non-disclosure agreement, only to see the potential partner later patent that technology for itself. Jd. at 34, 61. Here, in contrast, the software features and functionality that FormsNet is claiming as its trade secret have long been available to hundreds of thousands of real estate agents. See Malek Decl. ff 23, 26, 30-34; Liu Decl. {[ 5; Andrews Decl. { 3; Zerroug Decl. {{ 5, 16; Rae Kelly Decl. 5; Supp. Cheverton Decl. 43. And contrary to FormsNet’s argument, Altavion in no way “narrowed” Silvaco’s holding that user-facing software design cannot qualify as a trade secret. Indeed, the A/tavion court expressly affirmed Silvaco, explaining that that case “held that the design of a software program is not a trade secret to the extent the design elements are disclosed and evident to the end user.” Altavion, 226 Cal. App. 4th at 59 (emphasis in original). That is precisely the case here. Lastly, FormsNet has failed to present evidence showing that it took reasonable steps to 10 [PROPQSED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571oOo ND NH BF BW YP y aa a a a i a BNR RERBBEBESSERVRBEBSHRES VS NL protect its alleged trade secrets. See Civ. Code § 3426.1(d); Whyte, 101 Cal. App. 4th at 1454 (stating that a trade secret must be unknown to the public and the owner must have taken reasonable steps to protect it). In Whyte, “because a secrecy agreement [wa]s not in the record,” the Court of Appeal held that any disclosed information “c[ould not] be considered trade secret” on the record before it. 101 Cal. App. 4th at 1454-55. Here, FormsNet has argued that its end user license agreement, which governs hundreds of thousands of zipForm users, contains “strict confidentiality clauses.” Pl.’s Supp. Br. at 5. But FormsNet never identifies any specific provision, much less one that binds its users to secrecy, because, in fact, the user agreement contains no such clause. Supp. Cheverton, Ex. B. This precludes trade secret protection. See Whyte, 101 Cal. App. 4th at 1454-55. FormsNet’s failure to maintain the information’s secrecy distinguishes this case from. those it cites. In AirWatch LLC v. Mobile Iron, Inc., 2013 WL 4757491, at *4 (N.D. Ga. Sept. 4, 2013), the court declined to dismiss a trade secret claim where software users were allegedly subject to license agreements “containing confidentiality provisions.” Also, unlike here, the nature of the software in AirWatch was “not such that a typical user . . . would be exposed to the software’s capabilities by using the program.” Jd. And in Burroughs Payment Systems, Inc. v. Symco Grp., 2012 WL 1670163 (N.D. Cal. May 14, 2012), the alleged trade secrets—non-public diagnostic software embedded in plaintiff's machines—was available only to a select subset of users with a password. Jd. at *15. For these reasons, FormsNet has failed to identify actionable trade secrets. Cc. FormsNet has failed to show misappropriation of its alleged trade secrets. FormsNet also has not shown a likelihood that Glide misappropriated its trade secrets. It accuses Glide of “reverse engineering” its “forms engine” by watching how forms were populated in the QA account. PIl.’s Supp. Br. at 1, 8. But under California law, “reverse engineering” does not constitute trade secret misappropriation. See Civ. Code § 3426.1(a); Sargent Fletcher, Inc., > The Eleventh Circuit has cast doubt on Airwatch’s reasoning, distinguishing it in a case akin to this one. See Warehouse Solutions, Inc. v. Integrated Logistics, LLC, 610 F. App’x 881, 885 (11th Cir. 2015) (holding that “limiting access to authorized users” with “encryption and password protection” failed to make “the functionality of the program itself” into a trade secret, since how the software “looked and worked was readily apparent to authorized users”). 11 [PRO] }] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571oe IN DH F WY rea \ 4 \ 110 Cal. App. 4th at 1666. This remains true even if a defendant breaches a contract that prohibits reverse engineering. See Aqua Connect, Inc. v. Code Rebel, LLC, 2012 WL 469737, at *2 (C.D. Cal. Feb. 13, 2012) (contractual reverse-engineering prohibition “does not convert reverse engineering into an ‘improper means’ within the definition of California trade secret law”). Even if reverse engineering of the sort alleged by FormsNet could theoretically qualify as trade secret misappropriation, FormsNet has presented no evidence that any such reverse engineering actually occurred. FormsNet’s declarations state only that Glide “could” have learned about the software’s functionality, and “could” have accelerated the development of its own software as a result. Zerroug Decl. { 16; Supp. Cheverton Decl. J 18. Such speculation cannot support an injunction, especially in light of the evidence in the record showing that Glide’s software was substantially completed and in use by beta customers in July 2020—months before the time period that FormsNet contended the reverse engineering occurred, Malek Decl. 40-41; Supp. Tonkin Decl. {] 6, 12, 13; Liu Decl. { 5; and that Glide engaged in a “clean room” process, hiring a new team that never had access to a zipForm QA account to recreate digitized versions of CAR forms. Newman Decl. ff] 2-10; Gilman Decl. {{ 2-6. Although FormsNet urges the Court to consider circumstantial evidence of misappropriation, such evidence, too, is absent here. The Restatement (Third) of Unfair Competition provides that “proof of the defendant’s knowledge of the trade secret together with substantial similarities between the parties’ products or processes may justify an inference of use by the defendant.” § 40 cmt. c (1995); see Spear Mktg., Inc. v. BancorpSouth Bank, 791 F.3d 586, 601-02 (Sth Cir. 2015) (citing Restatement and concluding that lack of substantial similarities between parties’ products defeated trade secret claim); Contour Design, Inc. v. Chance Mold Steel Co., 693 F.3d 102, 109-110 (1st Cir. 2012) (same).* “[T]he mere fact that [the parties’] products occupy the same commercial niche” is not enough. Spear Mitg., 791 F.3d at 602. As explained above, FormsNet has not identified any actionable trade secret, much less Glide’s knowledge of (or even access to) such a trade secret. In addition, FormsNet nowhere 4 “The Restatement [of Unfair Competition] and its commentary are relevant authority in applying the [California] UTSA.” Altavion, 226 Cal. App. 4th at 62. 12 [PROPOSED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571oem YN DH FF BW VY No oN WN ee BRRRREBSRREBSEBRWIAKRESHRTS LY alleges, much less establishes, that the Glide software platform and zipForm’s technology are at all similar. And the evidentiary record before the Court establishes exactly the opposite. Glide has adduced unrebutted expert opinions and fact testimony showing that Glide’s software bears no technical resemblance to zipForm, see Malek Decl. {{ 35-39; Liu Decl. {{ 2-12. FormsNet relies on BladeRoom Grp. Ltd. v. Emerson Elec. Co., 331 F. Supp. 3d 977 (N.D. Cal. 2018), but in that case, unlike here, the plaintiff adduced substantial evidence that the defendant had not only accessed the protected information, but also used and disclosed it. Id. at 984-85. In sum, FormsNet has not establish a likelihood of success on its claim for misappropriation of trade secrets. Il. |FORMSNET HAS NOT ESTABLISHED A LIKELIHOOD OF SUCCESS ON ITS BREACH OF CONTRACT CLAIM. A party bringing a breach of contract claim must establish that it has standing to sue on the contract. Levy v. Only Cremations for Pets, Inc., 57 Cal. App. 5th 203, 256-57 (2020). Because FormsNet is not a party to the GFFA, it must establish that it has standing as a third party beneficiary. See id. FormsNet must show, “unmistakabl[y],” that the contract’s promisor* (CAR) understood that the promisee (Glide) intended to contract for FormsNet’s benefit. Jd. at 257-58. “[P]ersons only incidentally or remotely benefited by the contract are not entitled to enforce it.” Id. at 257. The California Supreme Court has set forth a three-part test for this inquiry; a plaintiff seeking to establish third-party standing must show all the following: (1) that it is likely to benefit from the contract, (2) that a “motivating purpose” of the actual contracting parties—not the third party—was to benefit the third party; and (3) that permitting the third party to enforce the contract is “consistent with the objectives of the contract and the reasonable expectations of the contracting parties.” Goonewardene v. ADP, LLC, 6 Cal. 5th 817, 821, 829-— 30 (2019). Courts conducting this inquiry review the “express provisions of the contract,” as well as “all of the relevant circumstances under which the contract was agreed to.” Id. at 829-31. 5 In the GFFA, CAR is the promisor and Glide is the promisee: CAR promised to provide the services in the GFFA, in exchange for Glide paying fees to CAR and agreeing to abide by certain limitations on the services granted. See Walters v. Calderon, 25 Cal. App. 3d 863, 871 (1972) (promisee provides the consideration for a contract). FormsNet thus must establish that Glide intended to benefit FormsNet when it contracted with CAR. 13 — [PROPOSED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571oem YN DH WwW F&F Bw NY N Re Be Be we ee Be eB Be BRRRERBBRRBS PSF WTR DTEBRES The classic example of a third-party beneficiary relationship is when, for example, a general contractor (promisee) pays a subcontractor (promisor) to perform work for the benefit of a third-party homeowner. See Levy, 57 Cal. App. 5th at 257. At the time of contracting, the contractors understand that the purpose of their contract is to perform work for the homeowner, and the homeowner directly benefits from the contract in the form of services received. See id. By contrast here, the evidence before the Court shows that Glide entered into the GFFA intending to benefit itself, for the purpose of building out its software platform. See Goonewardene, 6 Cal. Sth at 835 (recognizing that defendant’s motivating purpose was to benefit “itself’) (emphasis in original). Glide has adduced unrebutted evidence—both in the GFFA contract and in declarations—that it entered into the GFFA to obtain necessary licensing and services for offering certain CAR forms in its online application. GFFA at Preamble, §§ 1-7; Supp. Tonkin Decl. {J 3—7. There is no countervailing evidence showing that Glide, or CAR for that matter, entered into the GFFA to benefit FormsNet. For its part, FormsNet points to provisions in the GFFA that allow FormsNet (concurrent with CAR) to exercise certain limitations over Glide’s access to web services. See GFFA §§ 2.1, 5.1. But FormsNet fails to demonstrate how these restrictions reflect a “motivating purpose” by Glide to benefit FormsNet. See Goonewardene, 6 Cal, Sth at 829-31. Nor is there evidence in the record that FormsNet would benefit more than incidentally from the GFFA; it is undisputed that Glide pays only CAR under the GFFA and that CAR pays FormsNet under a separate agreement. Jimmy Kelly Decl. { 5; see Levy, 57 Cal. App. 5th at 257. There is also insufficient evidence for the Court to conclude that allowing FormsNet to enforce the GFFA would be consistent with the reasonable expectations of the contracting parties Glide and CAR. In Goonewardene, the California Supreme Court held that there is no need to allow a third party to sue for breach of a contract when the contract’s counterparty is “available” and “fully capable of pursuing a breach of contract action against” the defendant. 6 Cal. 5th at 836. The same is true here. The record reflects that CAR is a sophisticated counterparty that could itself pursue claims for breach of the GFFA should it so choose. See generally GFFA; Supp. Tonkin Decl. {] 5-6, 8, 10-11, 15, 21-23. Indeed, CAR retained for itself the unilateral authority 14 [PRO] 1D] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571oO Om YN DW FF WN ees BNXRRREBSEKRRES SeReWIREDESERES LO —, under the GFFA to decide which forms and products Glide could access through the QA account. See GFFA §§ 1.8, 2.11, 3.3. Accordingly, Glide argues, CAR, rather than FormsNet, held the power to expand Glide’s access—or object to it, Glide points out that CAR has not only declined to sue Glide for its alleged access to “out-of-scope” forms to which CAR granted Glide a license in December 2019, but that CAR is also currently marketing Glide’s software to its members, notwithstanding FormsNet’s allegations. Supp. Tonkin. Decl. {ff 11, 15, 21-23. These facts weigh against FormsNet’s standing to sue under the GFFA. See Goonewardene, 6 Cal. 5th at 836-37. FormsNet asserts that it is entitled to third-party beneficiary status as the “owner” of certain web services that CAR distributed to Glide. Pl.’s Supp. Br. at 9. That proposition lacks legal support and would allow “owners” to inject themselves into innumerable distribution contracts to which they are not parties. FormsNet relies on Alling v. Universal Mfg. Corp., 5 Cal. App. 4th 1412, 1440 (1992). But in Alling, the defendant had contracted directly with the plaintiff to license the third party’s patents and technology, commercialize them, and return a royalty to the plaintiff. Jd. at 1440-41. In tandem, and in express reliance on the first contract, the defendant established a second contract, with a different party, for the purpose of “greatly expand[ing]” the plaintiffs technology’s “commercial potential” and “quicken[ing] the pace of its market development.” Jd. Under these specific circumstances, the court concluded that the defendant intended to benefit the plaintiff when it entered into the second contract. Jd. Here, there is no evidence suggesting that Glide contracted with CAR for the purpose of improving FormsNet’s commercial prospects. To the contrary, Glide and FormsNet are competitors. The parties also dispute whether FormsNet is likely to prevail on its claim that Glide breached the GFFA. FormsNet contends that Glide’s purported breach was clear cut. Glide, unsurprisingly, denies that allegation. Because the Court concludes that FormsNet is unlikely to prevail on its argument that it is an intended third-party beneficiary under the GFFA—and because the Court further concludes that even if Glide breached the agreement, there is no showing of irreparable harm flowing from any such breach—the Court needs not and does not reach that question for purposes of deciding this application. For these reasons, FormsNet has failed to establish a likelihood of success on its claim for 15 (PROPESED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571oOo YD KH BF WN Nv vy Boe Be Be eB Be ee BNRRRRBRRPEBRBVE REWARD ESERSS KT NS breach of contract. I. FORMSNET HAS NOT ESTABLISHED IT WOULD SUFFER IRREPARABLE HARM IN THE ABSENCE OF A PRELIMINARY INJUNCTION. To establish irreparable harm, a plaintiff must show that the defendant’s alleged “wrongful acts threaten to cause irreparable injuries,” which “cannot be adequately compensated in damages.” Intel Corp. v. Hamidi, 30 Cal. 4th 1342, 1352 (2003). The plaintiff must present evidence of irreparable harm. “[C]onclusory averments . . . are insufficient to support issuance of an injunction.” Finnie, 199 Cal. App. 3d at 15; see also Volpicelli v. Jared Sydney Torrance Mem'l Hosp., 109 Cal. App. 3d 242, 267 (1980) (“A mere allegation that such injury will result is not sufficient.”). FormsNet has failed to present evidence of irreparable injury sufficient to justify injunctive relief. As for its contract claim, FormsNet’s complaint seeks only monetary damages, Compl. {| 50-54, and the GFFA contemplates only damages in the form of licensing fees but not injunctive relief. GFFA § 8. Thus, even if FormsNet had shown a likelihood of success on its contract claim, a preliminary injunction would be inappropriate for this claim alone. Pac. Decision Scis. Corp. v. Super. Ct., 121 Cal. App. 4th 1100, 1110 (2004) (vacating preliminary injunction on contract claim where plaintiff failed to show that “monetary relief would not afford adequate relief or that it would be extremely difficult to ascertain the amount of damages”). More broadly, with respect to both its contract and trade secrets claims, FormsNet’s only evidence of injury consists of two conclusory sentences repeated verbatim across its witnesses’ declarations, asserting that Glide will “steal” FormsNet’s customers. See Alberta Decl. { 28; Jimmy Kelly Decl. § 11; Cheverton Decl. { 13. A far more fulsome showing is required to support injunctive relief. Finnie, 199 Cal. App. 3d at 15. Moreover, even if FormsNet had provided some non-conclusory evidence that it would lose customers and sales to Glide absent a preliminary injunction, “lost profits due to lost sales” are generally “fully compensable through money damages and therefore do[] not support injunctive relief.” Amylin Pharm., Inc. v. Eli Lilly & Co., 456 F. App’x 676, 678 (9th Cir. 2011). FormsNet has not shown why this general rule does not apply here. For example, FormsNet has 16 [PROP@SED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571Co mY DH BF WN No NO = eet BRRRERBRRSRECBSDWTARATAESBSH AS NL aed not attempted to demonstrate that it would be difficult to calculate lost sales, customers, and goodwill, such that adequate damages could be awarded if FormsNet prevails at trial. In contrast, Glide has presented uncontroverted evidence showing that it can track all transactions made with its software, making it possible to calculate damages if needed. See Supp. Tonkin Decl. | 24. FormsNet argues that damages will prove inadequate, relying on Netlist Inc. v. Diablo Tech. Inc., 2015 WL 153724 (N.D. Cal. Jan. 12, 2015. But Netlist merely highlights the lack of evidence in the current record. In Neilist, the plaintiff presented expert testimony that the defendant’s alleged misconduct had obtained a 13-month “head start” in developing its competing product. Jd. at *7. Based on this and other evidence, the court found it was “clear from the record” that the defendant had in fact used improperly obtained information “to speed the development and testing of” its competing product, justifying a finding of irreparable harm. Jd. at *6. Here, as discussed, FormsNet has only speculated that Glide “could” have used information gleaned from the QA account to aid its product’s development. Zerroug Decl. 16; Supp. Cheverton Decl. { 18.° FormsNet also relies on distinguishable trademark-infringement cases, in which the threat of ongoing customer confusion is readily apparent. Pl.’s Supp. Br. at 3. In sum, FormsNet has failed to demonstrate why the usual presumption that monetary damages are adequate to compensate for lost sales should not apply here. For these reasons, FormsNet fails to establish irreparable harm. That alone justifies denial of FormsNet’s application for a preliminary injunction. See Jessen, 142 Cal. App. 3d at 459. IV. THE BALANCE OF THE EQUITIES FAVORS GLIDE. Finally, the balance of the equities weighs against granting a preliminary injunction. FormsNet seeks a mandatory injunction, which is subject to a heightened degree of judicial scrutiny and “is rarely granted.” Shoemaker v. Cnty. of Los Angeles 37 Cal. App. 4th 618, 625 (1995). The proposed injunction would require Glide to turn off its product for new customers § Netlist is also distinguishable because the parties there had executed a contract providing for mandatory injunctive relief “in addition to all legal remedies.” 2015 WL 153724 at *8. Here, the GFFA provides only for monetary damages. GFFA § 8; see also DVD Copy Control Assn. v. Kaleidescape, Inc. 176 Cal. App. 4th 697, 726 & n.6 (2009) (holding that a court must “reject a stipulation contemplating an equitable remedy” when the plaintiff “actually has an adequate remedy at law”) 17 [PRQBOSED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571Co em NN DH FF WYN NON a a a ak BRRRREBBRBRBSEeEDTAEBDEBRES and remove critical networking features available to existing customers. See URS Corp. v. Atkinson/Walsh Joint Venture, 15 Cal. App. 5th 872, 884 (2017) (injunction “is mandatory in effect if its enforcement would be to change the position of the parties and compel them to act in accordance with the judgment rendered”); Garcia v. Google, Inc., 786 F.3d 733, 740 (9th Cir. 2015) (requiring defendant to take down information from a website is a mandatory injunction). Unrebutted evidence shows that Glide is a small start-up and that a preliminary injunction could effectively put the company out of business before this matter reaches trial. Supp. Tonkin Decl. 4] 25-26. The injunction FormsNet seeks would require Glide to block new users from using its software platform. Glide has submitted evidence showing that this would cause Glide to breach its contract with CAR and other entities, destroy its credibility with partners and customers, and severely threaten its ability to obtain the venture capital it may require to continue operating. Jd. { 26. It is also unrebutted that such an injunction would make Glide’s software platform substantially unusable for existing users. Id. { 25 (explaining that Glide’s social network model depends on agents inviting clients and others with whom they collaborate to use the software platform). A bar on “new” registrations would thus interfere with in-process transactions and effectively remove Glide from the marketplace. Jd. 4 25-27. Such harms justify denying injunctive relief. NYKO Techs. Inc v. Energizer Holdings Inc., 2012 WL 12882885, at *8 (C.D. Cal. June 1, 2012) (denying preliminary injunction that would “immediately disrupt [defendant’s] business”); N. Cty. Comme’ns Corp. v. Sprint Commc’ns Co., L.P., 2012 WL 12882889, at *6 (S.D. Cal. Sept. 27, 2012) (same). For its part, FormsNet has provided no evidence suggesting that it would face comparable harm in the absence of an injunction. In fact, in seeking to enjoin only “new” users of Glide’s platform, FormsNet has conceded that allowing Glide’s platform to remain available to existing users in no way threatens to disclose any of its trade secrets. FormsNet argues only that any harm Glide will suffer from an injunction is a problem of its own making. Hr’g Tr. at 50:18-51:9. But that merely begs the question of Glide’s culpability, and could be said of any defendant facing a request for an injunction. The balancing of the equities therefore favors Glide. 18 [PROPOSED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571oO mnt nn FF Ww NY RNY Ye Be eB Be eB Be ew Be oe BRRFRERBRRBSeBRVW_RAREBHR SS \ Se For the foregoing reasons, the Court DENIES FormsNet’s application for a preliminary injunction.’ IT IS SO ORDERED. DATED: feb. Lb. 2021 HON. ETHAN P! SCHULMAN JUDGE OF THE SUPERIOR COURT ? The parties have also filed evidentiary objections to various fact and expert declarations submitted in connection with FormsNet’s application. The Court has reviewed the declarations for purposes of deciding this motion, and has considered the objections insofar as they affect the weight of the proffered evidence. But because the Court’s ruling does not turn on any particular fact or opinion objected to, the Court declines to rule on the parties’ voluminous evidentiary objections at this time and instead considers them preserved. 19 _JPROPOSED] ORDER DENYING APPLICATION FOR PRELIMINARY INJUNCTION Case No. CGC-21-588988 1645571CGC-21-588988 RE FORMSNET LLC, A DELAWARE LIMITED LIABILIY / VS. GLIDE LABS, INC.M A DELAWARE CORPORATION ET AL I, the undersigned, certify that I am an employee of the Superior Court of California, County Of San Francisco and not a party to the above-entitled cause and that on February 10, 2021 I served the foregoing order denying application for preliminary injunction on each counsel of record or party appearing in propria persona by causing a copy thereof to be served electronically by email sent to the email addresses indicated below. Date: February 10, 2021 For Plaintiff ANNE R. BEEHLER BRYAN CAVE LEIGHTON PAISNER LLP anneredcross.beehler@bclplaw.com For Defendant CODY S. HARRIS KEKER, VAN NEST & PETERS LLP charris@keker.com JENNIFER A. HUBER KEKER, VAN NEST & PETERS LLP jhuber@keker.com MATTHEW WERDEGAR KEKER, VAN NEST & PETERS, LLP mwerdegar@keker.com Certificate of Service — By; EY LE Form C00005010