The U.S. District Court for the Central District of California held that reverse engineering software in violation of a form end-user license agreement, without more, did not rise to the level of trade secret misappropriation. Aqua Connect, Inc. v. Code Rebel, LLC et al., Case No. CV 11-5764-RSWL (C.D. Cal., Feb. 13, 2012) (Lew, J.).

Aqua Connect sued Code Rebel for misappropriating its trade secrets, alleging that Code Rebel downloaded a trial version of the plaintiff’s server software, reverse engineered the software in violation of the End User License Agreement (EULA) and used that information to produce and distribute a competing software product. Code Rebel moved to dismiss for failure to state a cause of action.

The district court granted the defendant’s motion to dismiss. Under California law, a claim for misappropriation of trade secrets must include proof that the defendant “acquired, disclosed, or used the plaintiff’s trade secret through improper means.” “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.” Notably, reverse engineering or independent derivation of a trade secret, without more, is not considered to be improper means. Citing the California Supreme Court decision DVD Copy Control Ass’n Inc. v. Bunner, the Court held that reverse engineering is not elevated into “improper means” by virtue of it breaching a form EULA. Moreover, the court noted that Code Rebel fairly and honestly acquired the software from which the alleged trade secret information was derived.

The court also rejected the plaintiff’s alternative theory that the EULA created a duty to maintain the secrecy of the software, which Code Rebel breached by reverse engineering the software. The court found that the plaintiff’s argument lacked merit because in California, the duty to maintain secrecy arises in the context of a fiduciary relationship or an employment agreement covering trade secrets – not in the context of a form license agreement.