Free Transcript - District Court of Delaware - Delaware

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IN THE UNITED STATES DISTRICT COURT IN AND FOR THE DISTRICT OF DELAWARE - - -

ACCENTURE GLOBAL SERVICES GmbH, and ACCENTURE LLP, Plaintiffs,

GUIDEWIRE SOFTWARE, INC., Defendant.

: : : : : : : : : :

CIVIL ACTION

NO. 07-826 (SLR)

- - 11 12 13 - - 14 BEFORE: 15 - - 16 APPEARANCES: 17 18 19 20 -and21 22 23 24 25 Valerie J. Gunning Official Court Reporter POTTER, ANDERSON & CORROON BY: RICHARD L. HORWITZ, ESQ. HONORABLE SUE L. ROBINSON, U.S.D.C.J. Wilmington, Delaware Wednesday, April 23, 2008 10:05 o'clock, a.m.

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APPEARANCES (Continued):

MORRISON & FOERSTER LLP BY: JAMES POOLEY, ESQ.

Counsel for Plaintiffs 6 7 8 9 10 11 12 13 14 15 16 17 ALSO PRESENT: 18 19 20 21 - - 22 23 24 25 ACCENTURE BY: WAYNE SOBON, ESQ. - - Counsel for Defendant KEKER & VAN NEST LLP BY: CLEMENT S. ROBERTS, ESQ. (San Francisco, California) -andMORRIS, NICHOLS, ARSHT & TUNNELL BY: JACK B. BLUMENFELD, ESQ.

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P R O C E E D I N G S

(Proceedings commenced in the courtroom, beginning at 10:05 a.m.) THE COURT: Good morning, counsel. Good morning, your Honor. Rich

MR. BLUMENFELD: MR. HORWITZ:

Good morning, your Honor.

Horwitz, from Potter Anderson, for plaintiff, and with me, who is going to be making the argument today, Jim Pooley from Morrison & Foerster. THE COURT: MR. POOLEY: THE COURT: All right. Good morning, your Honor. Good morning.

Mr. Blumenfeld? MR. BLUMENFELD: Good morning, your Honor. Jack

Blumenfeld, for defendant, Guidewire Software, along with Clement Roberts from Keker & Van Nest in San Francisco, and Mr. Roberts will be arguing for Guidewire. THE COURT: All right. Good morning, your Honor. The movant should

MR. ROBERTS: THE COURT:

Let's proceed.

start first, so the first motion. MR. ROBERTS: THE COURT: Good morning, your Honor.

Good morning. Your Honor, from the briefs, there

MR. ROBERTS:

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appear to be essentially three areas of dispute between the plaintiffs and the defendant on this motion. The first area I think is there's a dispute about what the proper pleading standard is under Cromley. I

think there's a dispute about what facts have been actually alleged with respect to the trade secret and intentional interference claims. And there also appears to be

something of a dispute about how preemption should work in this case. So I guess I'd like to start wherever the Court thinks it would be most helpful, or I can sort of -- I have a few things to say about each one of those areas. THE COURT: Well, I have to say that at this

point, I think I understand the pleadings standard, and my understanding is more consistent with defendants's than with plaintiffs', so you can probably skip that and save time to respond and go on to the other two -- to the other two areas that you identified. MR. ROBERTS: Thank you, your Honor.

So the first area we should talk about, then, your Honor, is, it's applying that pleading standard to sort of the trade secret allegation. And I think the cleanest

way to look at the trade secret allegation is to look at the knowledge requirement. way to look at this. I think this is sort of the easiest

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Under 6 Delaware 2001, Section 2, which is the trade secret misappropriation statute, in order to constitute an act of misappropriation, you have to acquire the trade secret and you have to do so either knowing that it's a trade secret, knowing that it was acquired by improper means by the party that gave it to you, or knowing, or should have known, that you shouldn't have it. it's not simply enough to get the information. I mean,

You have to

get the information while knowing that you shouldn't -- that you weren't entitled to the information. And the easiest way I think to decide this motion is to just look at the fact that they have not alleged a single fact going to knowledge. There is not one

allegation anywhere in the complaint that anything that Guidewire might have received from CNA or from elsewhere, it received under circumstances where Guidewire knew or should have known that that information was someone else's trade secrets. Indeed, they don't even identify where Guidewire supposedly got the trade secrets. They sort of dance around

and hint that it might have been CNA, but they don't come out and say it. They have not sued CNA. And what they do

say, and this is in Paragraph 25, they say, on information and belief, Guidewire somehow gained access to Accenture trade secrets in creating its software and secrets,

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somehow. So not only do they not say it, they specifically say that they don't know. They have alleged

it, but they don't have a factual allegation about where we got it from. And the point of that is simply this, your Honor. If they have not even identified where we got it

from, they cannot have identified the facts and circumstances surrounding that alleged acquisition that would give rise to a reasonable inference that Guidewire knew that what it was getting was their trade secrets. And this is an analysis analogous a little bit to your Honor's decision in the Smiley case. That case was

a defamation action and the Court kicked it out under Twombly, saying that you have not alleged that the person who received or heard these alleged defamatory statements understood those statements to be defamatory. Again, your Honor was concerned with the notion of the knowledge of the person who heard the statements and that knowledge requirement is relevant here. Guidewire

either knew or should have known that the information it received was a trade secret. alleged and just not there. THE COURT: Now, I believe, or there's an That's what they have to have

inference anyway in the papers that the plaintiff contends

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that somehow trade secret misappropriation is a different animal and, therefore, the facts alleged can be ultimate facts, not evidentiary facts, because a plaintiff doesn't necessarily have the information. The information, in other

words, is all in the defendant's realm, not theirs. Therefore, it's appropriate to plead ultimate facts and not evidentiary facts. And my question to you is: Assuming for the

moment that there is some element of fairness here in an application of common sense, are you saying that all plaintiff would have to do in reaching this balance is to say, we gave the information to CNA. CNA must have given it

to Guidewire, because that's a reasonable inference. MR. ROBERTS: No, your Honor.

So, first, that might, under that line of reasoning, even if you were to accept it, that might satisfy the acquisition obligation. There's one of the elements for

pleading a case of trade secret misappropriation, is the acquisition of the trade secret. So even if your Honor was to say, well, look, in fairness, that you work for CNA, they work for CNA, they gave trade secrets to CNA, and so you can make the leap, even though they haven't alleged you got them from CNA, even though they have alleged it, you can sort of infer that you must have gotten them it CNA?

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Even if you do that, there's a separate requirement that you knew or should have known that the information was a trade secret. Even if the Court were to

come in here saying, let's assume that you got it from CNA, you still would have to allege some facts so that, you know, for example, it would be perfectly plausible under that hypothesis that CNA said, hey, here's what we want you to bid. That's not trade secret misappropriation. If you

don't know that that information is Accenture's, if you don't know that it was acquired in breach of a duty of confidence, and that's what I mean by the knowledge requirement. The statute specifically requires that you

know or should have known that the information you received was a trade secret. THE COURT: So, again, all of this information

is out of reasonable reach of the plaintiff. Are you saying that, in essence, the only way a plaintiff can bring this kind of case is if they stumble upon, basically, without benefit of discovery in a litigation, if they stumble upon information like you said? MR. ROBERTS: No, your Honor. There are lots

of facts one might suppose they could have or could plead if they had them that would raise an inference of knowledge.

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So, for example, you know, you could -- many of the cases, all of the cases, in fact, that they cite are direct misappropriation claims, where one person was working for person A, was working for person B, and left to go work for person C. So you know, if you are in the back room of the Diet Coke factory and you're working on the formula and then you leave and you go somewhere else, you know, you can raise an inference that the person knew about that the formula was your trade secret. Right?

There are facts such as working relationships. There are facts such as, you know, circumstances surrounding these things that could conceivably give rise to an inference of knowledge. Absolutely. You can come up with

all sorts of hypothetical scenarios that where they could allege that we had knowledge. THE COURT: So the fact that this is an indirect

case of alleged misappropriation shouldn't be the defendant's burden. It's the plaintiffs' burden to come

forward with sufficient facts to allow this claim to go forward into the next stage? MR. ROBERTS: That's exactly right.

What the Court said in Phillips was, after Twombly, it is no longer sufficient to allege mere elements of a cause of action. Instead, a complaint must allege

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facts suggestive of the prescribed conduct. And it's clear from Phillips and from Twombly and from the Court's decision in Smiley that that has to be done on an element-by-element bases. Twombly says a complaint must contain either direct or inferential obligations respecting all the material elements necessary to retain a recovery. 127, at Supreme Court at 1969. Phillips says a claim requires a complaint with enough factual matter taken as true to suggest the required element. This Court's decision in Smiley. The claim fails That That is

to allege an essential element of a defamation claim. is an understanding of the defamatory nature of the communication by the third party to whom it was communicated. They have to do it for each element and

knowledge is an element. Now, I don't actually think, your Honor, that they can do it even on the acquisition, right, because in order to allege, it would be one thing if they had came out and alleged that we had acquired the trade secret from CNA. That would be a conclusory allegation, but it would actually be an allegation that we got it from CNA. would have an allegation. conclusory allegation. In that case, you

Be a conclusion, it would be a

It wouldn't be evidentiary fact. They

But they could come out and say, you got it from CNA.

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haven't done that.

What they've said is on information and That is

belief, we think you somehow got it from somewhere. not enough. It's not enough to say, well, gosh.

You know,

we were surprised by how quickly your product developed. Right. That's what they say. And you had contacted with

one of the customers that we had contact with and you underbid us. Therefore, we're suing you for trade secret

misappropriation. I mean, you can't go out in the market and say, oh, gosh, you underbid us. of development. We were surprised by your speed

Now we have a cause of action for trade That can't be enough. But those

secret misappropriation.

are the only things that they've alleged here. THE COURT: All right. Okay. Moving on from the trade

MR. ROBERTS:

secret, you have the same problems in terms of the sort of 12(b)(6) motion with the interference claims. Now, we pointed out in our opening brief that it wasn't clear whether they were bringing interference with contractual relations or interference with prospective economic advantage, and they have not clarified that, so I don't know which of those two causes of action they're trying to plead. But in each one, you have to have, again, Knowledge that the defendant knew

a knowledge requirement.

about the contract or knew about the relationship and

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intended to interfere with it, right, because it can't be intentional interference if you don't know about the thing with which you are interfering. And, again, in their opposition, they point to the NDA that they signed with CNA, the thing with which we allegedly interfered. Well, that's a problem, because they

have not alleged that we knew about the NDA and they have not alleged a breach of the NDA. You have to allege both a

breach and you have to allege a breach of contract that we knew about. And Lipton versus Anesthesia Services, 790 A 2d, 1251, also cited in this Court's decision in Smiley, just sets out the requirements for those causes of action, and they both require a contract about which the defendant knew, an intentional act that's a significant factor in causing the breach of such a contract. So if you are going to rely on the NDA, which is the only contract they pointed to, they have to allege that we knew about it and they have not, and they have to allege that it was breached and they have not. And I would -- I would suggest, your Honor, that if the motion to dismiss is granted, they won't come back and say that the NDA was breached, because if they did that, CNA would be in this courtroom and they don't want that.

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The same thing with interference with prospective economic advantage. Again, it's a reasonable They have not Proximate cause

probability of a business opportunity. alleged that. and damages.

Intentional interference.

So they have to allege intentional interference, but there's no allegation that we now about the contract or that we knew about the relationship. And this is actually, I think, very instructive, your Honor, about what they've done, because if you look, for example, at Page 11 of their brief, they say on Page 11, I'm just reading from their brief, but it's clear enough that Guidewire -- sorry. Excuse me. They say, It's clear

enough that Guidewire has interfered with Accenture's relationship with CNA, getting unauthorized access to get information that informed its speedy product development. And they say, Accenture cannot be expected to know and recite the details of Guidewire behavior, which must be developed in discovery. They say, Well, we don't know, we don't know, so we've got to go into discovery and look for it. And this is

the problem with their reliance on Connolly and the fact that Connolly has been overturned, because you no longer get to do that. facts. You no longer get to say, we don't know the

We'll figure them out in discovery, and then once we

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get into discovery, we'll have the facts to sustain the cause of action. complaint. And the only paragraphs that talk about this stuff even potentially are sort of toward the end of the complaint, and there's absolutely nothing in there to suggest that Guidewire knew that Accenture was bidding on CNA. In fact, what the complaint says was they were They You've got actually plead them in the

surprised to find out they that we were in the game.

were surprised by finding out another competitor was in there. That suggests a blind process. It does not suggest

conspiracy or collusion, and they have not pled the facts to make that out. The final thing I'd like to touch on, your Honor, is the preemption issue, and then I will reserve the remainder of my time, whatever there is. So the preemption law in Delaware is quite clear, that where a set of state court claims are based on the same facts that you're relying on to support your trade secret misappropriation claim, the claim is preempted. This is clear in Lucadia. Technologies. In United Technologies, the Court says -- I can give you the exact quote -- the Court says, since no additional facts independent of those alleged in support of It's clear in United

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its trade secret misappropriation claims have been averred to support these claims, UDTC's deceptive trade practice and unjust enrichment claims are therefore dismissed as preemptive. If you have not alleged any additional That's the rule in

facts, you don't get in the door. Delaware.

And it's crystal-clear that there are no additional facts other than the facts that they've alleged for their trade secret claims. There aren't any.

If you look at the structure of those claims, the intentional interference, the unfair, they say, oh, we re-incorporate everything we've alleged thus far, and it constitutes unfair competition or, and it constitutes intentional interference. And, in fact, in their opposition on Page 10, they expressly say that Accenture pleads a common set of facts on which it relies for each of its claims. line 2. That's at

And then they go on and say, that's an important Are there any facts in addition to those

question.

necessary to prove its trade secrets case that Accenture relies on to assert its other claims? Guidewire presumes

the answer to the question no, but the correct answer is yes. Well, then, my response, your Honor, is: are they and where are they in the complaint? What

What are

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those additional facts, because they're not in the complaint. And you can't, again, under Twombly, it's You can't simply say anymore, well,

dismissal of Connolly.

they'll show up in discovery or, well, you know, we'll be able to find them out later. No.

In response to this, they're going to point to the Court's decision in Ethypharm and Ethypharm is an interesting case. decision. The first is that it wasn't a 12(b)(6)

It was, in fact, a petition on summary judgment,

because the Court found that the parties had referred to matters outside the pleading. And so it's very interesting

to say, I think it's probably right to say, on a summary judgment motion, which the Court did, hey, look, there aren't enough facts here to see what the basis for this is, I'm going to let discovery keep going. And, second, Ethypharm farm was decided before Twombly came out and made clear that on a 12(b)(6) motion, you are limited to the facts that are actually in the pleading. On the flip side, Ethypharm recognized explicitly that the rule in Delaware was, again, that if it rests on a common set of facts, then it gets kicked out. And specifically, the Court said, because all claims stemming from the same acts as the alleged misappropriation are intended to be displaced, a claim can

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be displaced even if the information at issue is not a trade secret. Thus, the determination of whether the information

at issue constitutes a trade secret under the DUTSA need not be addressed prior to making a determination of displacement. The Court will recognize that was the principle, but because it was a summary judgment motion and not a 12(b)(6) motion, that didn't necessarily control. And I will at this point, if the Court has any questions, be happy to answer them. reserve the remainder of my time. THE COURT: I will save my questions until I Otherwise, I will

hear from plaintiffs' counsel. MR. ROBERTS: MR. POOLEY: THE COURT: MR. POOLEY: Thank you. Good morning, your Honor. Good morning. And I would like to point out that

with me in the courtroom today is Wayne Sobon, who is Associate Counsel at Accenture and Director of Intellectual Property. Well, I need to start out with an apology both to the Court and to counsel, who is correct, of course, in his representation of what the standard is. But there's no I have been

dispute, actually, about what the standard is.

so used to citing the quote from Connolly and in motions to

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dismiss that it was reflexive, but it wasn't relied on by us. That's not the standard we argued. The standard we

argued is the same standard that counsel has argued and so there really is no dispute here. It is Rule 8.

But the case to focus on, to help us decide what really should be the lens through which we see the allegations here, is Phillips. Phillips is the Third

Circuit case that interprets the -- what it properly called the very vague and confusing language from Twombly, which, after all, it's an antitrust case. And Phillips said several very, very important things that mattered quite a bit here. The first thing that Phillips said is that Twombly represented no change to the Rule 8 standard. short plain statement is still the standard. Perhaps more importantly what Phillips said is that Twombly emphasizes that context matters, and so that when you're making a judgment about whether the facts that are pled are enough to support the inference that's required to establish the claim, you need to consider what kind of claim you're talking about. And that's really critical The

here because, as we argued, and I don't think -- we didn't see anything in the reply about it, trade secret cases are not unique, but they're special in the sense that none of the bad behavior ever takes place in broad daylight, and the

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plaintiff, the trade secret plaintiff, is always, always in a position only to infer from information that indicates that there has been a misappropriation or a loss, improper access, from those facts. And to present those facts, you never, never -and I've been doing this for a long, long time now -- only when you have the camera that catches somebody as they're leaving the building at night do you have that exceptional kind of case. Every other trade secret case is absolutely

like this one, where you have someone who has been trusted with the information, who has a -- some kind of relationship with the defendant, and from that, you see an outcome, which in this case was an extraordinarily quick development. And

so you know there's access, at least potentially, because they were there, and they couldn't have done what they did without your information, then you're able to come to court and ask for relief because of the nature of the claim. Otherwise, trade secret plaintiffs can't ever come to court, because you won't be able to allege the kind of detail that counsel has asked us to do, because it's beyond the knowledge of the plaintiff before discovery. Another very important thing that Phillips told us, and it's critical when we're a assessing the reply filed here, is that there is no plausibility requirement at the pleading stage, and that's very important, because

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throughout the reply, Guidewire assumes that there is. talk about it. You've got to establish plausibility,

They

whatever that means, and there may be a lot of dispute about that. But the point that Phillips made is whatever -whatever Twombly meant about plausibility, that does not apply at the pleading stage. So what we have is the rule, as Phillips has stated it, that this Court relied on and quoted in Smiley. And as Phillips said, the Supreme Court's Twombly formulation of the pleadings standard can be summed up thus: Stating a claim requires a complaint with enough

factual matter taken as true to suggest the required element. This does not impose a probability requirement at

the pleading stage, but, instead, simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary element. So that is the standard, and I don't think we have a disagreement here. As I say, I was embarrassed

about, you know, quoting from Connolly, but we did not rely on it. So as I indicated, when we get to the trade secret issue, Guidewire doesn't really address the fundamental point that a trade secret case can only be based, at least initially, on circumstantial evidence,

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because that's the way -- that's the way the behavior happens, as we cited the Greenberg case. And this dovetails

very, very neatly with what Phillips tells us about the necessity to look to context and the kind of case it should have for an indication about how much you really need to get through the door of the courtroom. I heard Guidewire claim that the element of knowledge was not pled. Well, I mean, Paragraph 33, we say,

quote, "On information and belief, Guidewire has acted with knowledge that the information it used was Accenture's trade secrets." Now, they complain that that is on information and belief, but how, at the beginning of a case, can one talk about the state of mind of the actor, their knowledge, without doing it on information and belief? We can't know.

We can only conclude from the facts, the other facts, that that is the likely outcome. In any event, it is pled. Guidewire makes a -- an argument, which it repeated here, that virtually all of the cases, not virtually, every single case that Accenture has cited is what it calls a, quote, "direct access case." It And that's in the nature of it.

lists them all in a single footnote, Footnote 5, as a distinction. And this is a straw man argument because,

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certainly, all trade secret cases are direct access cases, including this one. Trade secret misappropriation doesn't It happens

happen through some Vulcan mind transfer.

because the defendant did get access to the information. This is a direct access case. The conclusion

about direct access is something that is inferred from the facts that we know, which is that we trusted our customer with this information, then Guidewire started working with them, and, lo and behold, very, very quickly, they were able to come up with something that took us ten years to develop. That notion of direct access is absolutely part of the reasonable inference that comes from those facts. false dispute. So as I get to the end of the trade secret issue, I mean, what's so kind of frustrating about this is that, from a plaintiff's perspective, trade secret plaintiff, you are bound to allege what you know. allege what you don't know. You can't So it's a

You can allege what you think

happened on information and belief as long as it's a reasonable inference from what you do know. But if you have

been shut out, as Accenture was shut out, from the dealings between CNA and Guidewire, you can't know anything more than what we have said. But what we have said presents a very, an extremely suspicious situation, and the cases and trade

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secret law are legion, that that is what a plaintiff properly is required to have before it comes into court, because it can't know the secret misappropriation that occurred. All it can know is the outside evidence that

will allow it to get to court so it can then engage in discovery and get the direct evidence of the misappropriation. Unless the Court has any questions, I want to move on to the interference issue, interference and preemption. Here, until we -- until we heard from counsel today, Guidewire did not address in its reply the Ethypharm cite that we provided, and what this Court decided this Ethypharm, which basically answers the question. not -- we did not allege a fraud claim. claim of conversion. unjust enrichment. We're

We did not allege a

We did not allege a separate claim of

Those kinds of things that typically, at

the beginning of a case, are tossed out when you have -when it represents simply another way to ask for relief based on a trade secret misappropriation. Interference, because of its very nature, is a different beast and can exist based on some facts that are common to a trade secret misappropriation, but others that may not be. And so in Ethypharm, this Court said words that

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completely applied here.

While plaintiffs have not yet

fully developed the claim at this early stage of the proceeding, and, again, counsel is right, it's a summary judgment, but, you know, I think, in a sense, that proves too much, because if this principle applies in summary judgment, surely, it applies at the pleading stage. It is too early to dismiss the claim as preemptive. Plaintiffs assert in the complaint that they

worked to cultivate relationships with companies to sell Omeprazole and entered into economic relationships with customers who wished to purchase the drug. Plaintiffs assert that defendant knew of these relationships. Plaintiffs also assert that defendant

interfered in these relationships by stealing and using certain information and this caused plaintiffs' injury. Even if the theft of the information does not rise to the level of misappropriation of trade secrets, the acts may still satisfy the elements in an intentional interference claim. Thus, Count 4 is not dismissed.

However, if the claim, once developed, is grounded on the same facts as the misappropriation claim, it will be dismissed by the DUTSA. And, your Honor, all we're asking for here is the same opportunity, and we acknowledge that if it turns out that the facts relating to interference are 100-percent

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congruent with the facts on the trade secret claim, it should be dismissed. But we don't know enough about it yet

to make that determination as to whether or not the preemption section of the statute should or should not apply. Now, counsel said there was no allegation in the complaint that -- he said no allegation that we knew about the relationship. Well, in fact, at Paragraph 40, it

appears, and, again, on information and belief, because it's a knowledge issue, state of mind, quote, "On information and belief, Guidewire has knowledge of Accenture's customer and" -- I'm sorry -- "Accenture's customer and prospective customer relationships." And that includes the CNA relationship, that confidential relationship that is, again, a relationship that was reflected in a nondisclosure agreement. So we have alleged that Guidewire knew about this on information and belief because all their dealings with CNA, as far as we were concerned, happened behind closed doors. that. Guidewire also, in its reply, did not address the IDX Systems case, in which that Court said, addressing specifically preemption, that interference by inducing breach of a nondisclosure agreement is not, quote, based So we can't allege more directly than

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upon misappropriation, but trade secret, for purposes of the preemption section of the Uniform Trade Secrets Act. So this is -- this is reflected and based on the language of the Uniform Act, the preemption language, that says, yes, we're trying to get rid of all of those torts that people used to string along with trade secret claims, like unjust enrichment and a breach of fiduciary obligations, fraud, that sort of thing. apply to contract claims. And so by extension, as the IDX Systems case said, misappropriation -- I'm sorry -- breach of a nondisclosure agreement and the kind of interference that induces that is -- is not preempted. Finally, on this issue, that is the issue of preemption, the interference claim, Guidewire relies on Twombly and it simply doesn't make sense because Twombly has said nothing about interference, doesn't address preemption at all. The issue on interference and preemption is exactly the issue that was presented in Ethypharm and the outcome in Ethypharm and the analysis in Ethypharm provides the answer for the issue here. There is an adequate pleading. There's But it does not

certainly enough for Guidewire to understand the basics of what we're after. And we can't intelligently come to a

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conclusion about whether the facts on interference are 100-percent the same as the trade secret facts until we've had discovery to find out. And so while in the end Guidewire may be right, we need to have the discovery in order to assess that fact. That's all I have, your Honor, unless you have any questions. THE COURT: I do not at this point. I will wait

to see defendant's reply and then I will ask whatever questions I might have. MR. POOLEY: THE COURT: Thank you very much. Thank you. Thank you, your Honor.

MR. ROBERTS:

Let me sort of take his points in order. His first was he said that they didn't rely on Connolly. They cited it. It was just an error, but they They cite S.L.

didn't rely on it.

I profoundly disagree.

Montevedes, which relies on it.

They cite Rockefeller.

They argue on Page 5 of their brief that conclusory allegations are sufficient. They just stood up and argued We

that we can get into discovery and see what's there. don't have to plead it on the pleading. Connolly said. That's what

Connolly said you can't dismiss on the

12(b)(6) because if they might be able to get facts in

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discovery that allow you to sustain the cause of action. That was the whole point of the negative gloss that Connolly had and the whole point of Twombly overturning it was, no, you've got to make a showing based on what's in your complaint. You don't get the benefit of facts that you have You don't get the benefit of those. That was

not alleged.

the whole point of the Court overturning Connolly. The next thing he said was Phillips interpreted Twombly as representing no change in the law. Well, it's

certainly true the Court in Twombly and in Phillips took great pains to say Rule 8 is Rule 8 and it still is governing law. But Phillips did say there were two new One of them is this

ideas in the Twombly decision.

notion of making a showing for each element and the other is that you don't get the benefit of unpled facts. Those

are both new ideas and Phillips specifically labeled them as new. I took the most, I thought, the most interesting thing opposing counsel said which was reflective of your Court's concern was, well, gosh, how do you prove this? Can't you just allege the circumstantial requirements? happens in the dark? And what he said there was, he said they've got three facts. That they shared information with CNA. And then an implausibly quick That It

we worked with CNA.

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development.

That development is not pled that way.

The

way it's pled is it said, it seemed a surprisingly quick development. of fact. Now, I've had trade secret cases, your Honor, where I've relied on speedy development. It was a case in It's a statement of opinion, not a statement

California involving a company called Sputter Films, where our chief engineer left and six months later had a prototype that could produce a sputtered film with an accuracy that was equal to or greater than art that it took us 35 years to develop and that no one else in the industry could come close to. Sure, you can do it, but see how long it took us to develop this thing. They can't just say, oh, it was a Accenture's surprise had

surprisingly quick development. nothing to do with it. THE COURT: years not two years. talking about. about that. MR. ROBERTS:

Well, they did say it took them ten

I'm not sure what product we're

But I recall there being some information

They have information about how There's nothing about how

long it took them to develop. long it took us to develop.

There's no allegation in there,

for example, that we didn't have a product before we approached CNA. There's no allegation that, oh,

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Guidewire -- CNA was Guidewire's first client. timeline. two years.

There's no

Guidewire developed it in six months or a year or Completely silent. The only thing they say is that -- here, we can

read it directly from the complaint. They say in Paragraph 24, Accenture continued to enjoy considerable success in the market, but as time passed, Guidewire emerged more and more frequently as a challenger to Accenture and Guidewire seemed to have a surprisingly quick development trajectory, particularly in light of its small size and relatively light experience in the insurance market. Now, I'm not saying you could never plead a set of speedy development facts that wouldn't give rise to a reasonable inference that something fishy was going on. that sentence, which is the only sentence they've got, doesn't cut it. It just says, seems to have a surprising -There's nothing there. There But

it's completely chimerical. are no facts there.

It's a pure statement of opinion.

I mean, if we had a product before we approached CNA, right, when did Guidewire begin to develop its product? How fast is fast, really? Mr. Pooley stood up and said, they couldn't have done it that fast without our trade secrets. Where is that? Where is that in the complaint?

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There's nothing whatsoever about implausibility or it was too fast to be possible. I mean, as lots of cases have

pointed out, there are lots of drivers that can develop -that can affect speed of development. lots of things. In fact, for our company, for Guidewire, we hired a team of software engineers who were very experienced, who came from a company where they were building a work flow management system for e-mail and we hired those guys. They put in a clean room and they built a Right? There are

new work flow management system. Sure. THE COURT: Well, I guess the point is, Does

though -- well, the question I have is as follows:

the plaintiffs' obligation to provide the kind of fact that you believe is required dependent on the kind of information that is in the public, and, therefore, subject to review under your Rule 11 obligations to investigate before you file a complaint? If that kind of information is not part of the public domain, should I be concerned about that? MR. ROBERTS: And I think your Honor does I do understand that.

rightly have some concern about that.

You have to look at what the context is, I don't disagree with that. But it also does not change the minimum

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requirements to come into court, and those minimum requirements under Phillips are that you have to plead facts, and the facts you have to plead give rise to a reasonable inference. There's no pass to say, I want to go

on a fishing expedition because it happened in secret and I don't know. You don't get to do that. You've got to plead

facts that give rise to a reasonable inference. Now, if they can come back and plead facts from the public domain and from what they've investigated, look at Guidewire's development history, put together a timeline, make some sort of allegation that it wasn't possible without access to information, maybe they can get there. But they have not done it yet, number one. And, number two, even if the Court were to conclude, well, gosh, it's suspicious for them to have developed it this quickly, and we don't know what this quickly is because they have not said, but even if you do that, there's no inference from there that we ended up with their trade secrets, number one, or, number two, that any information we ended up with, we knew was their trade secret. Now, they say, oh, we have alleged it. alleged in Paragraph 34, whatever. We've

If you look at those

paragraphs, all they're doing is they're marching through the elements of a cause of action and repeating them on

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information and belief. And Phillips explicitly says that you cannot do that. After Twombly, it is no longer sufficient to Instead, a

allege mere elements of a cause of action.

complaint must allege facts suggestive of the prescribed conduct. You can't simply march through, repeat the elements, and on information and belief and say, therefore, we've alleged it and it happened in secret, so we get into discovery. That's the teaching of Phillips. That's no

longer sufficient to do it. THE COURT: And tell me something. In terms of

practicalities, as I recall, they have alleged that they have reviewed whatever public information there is about your product in order to assert patent infringement. I take it that that is the sort of information that they would -- that you say they would need to include in their claim of trade secret misappropriation, that they've reviewed whatever public information there is about your product and that it includes some of their trade secret information. you -MR. ROBERTS: Sure. I don't think they are I mean, is that the kind of information

required to do that, but I they that that certainly -it would help. The bottom line is, they have to allege

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facts that give rise to an inference that we got their trade secrets and we knew -- we knew we were getting them. We got them, we knew what they were. ways they can do that. Right. And there's lots of

They can go out and can allege similarities between our products and trade secrets. Haven't done that.

They can go out and allege that a customer has told us that we were talking about how we had the Accenture system or something. They have not done that. They could go out and

they could allege that CNA gave us the trade secrets and we knew we were getting them from CNA because CNA was very open with everybody about the fact that it was building Accenture's system and had just gotten it on the cheap. I mean, I'm not trying to preclude them or to funnel them into one particular way of doing it. But the

bottom line is that what Phillips says is, you have to plead facts that give rise to a reasonable inference that we got the trade secrets and that we knew that we were getting the trade secrets. They have to do that. How can

Now, again, they say, well, knowledge.

we talk about knowledge, state of mind, at the start of a case. Right? We've alleged that they knew and that's all

we can do. Well, you can. And, again, I would say Now, we cited Savoir,

the case in point here is Savoir.

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and in Savoir, which -- the first one was kicked out. was dismissed under Twombly.

It

And the Court dismissed it

under Twombly in part based on the failure to plead knowledge. The second Amended Complaint fails to plead facts sufficient to satisfy the third element of its claim for misappropriation of trade secrets. Namely, that Savoir

communicated its trade secrets, person to an express or implied understanding that the secrecy of the matter would be respected. It is alleged only on information and belief

FNR corporate defendants knew or had reason to know that the information received concerning the Savoir program was a trade secret acquired under a duty of confidence. And this is in Savoir, which is 2001, Delaware Superior Lexis 170, and I'm reading from Star 12. So they did exactly what they said here, alleged knowledge and information and belief. wasn't sufficient. What's something, in Savoir they went back, amended, and they added additional facts. And when the The Court said that

Court dismissed it a second time, it was overturned on appeal. And in appeal, the reason the Court overturned it was it talked about what they had added to the complaint in order to allege knowledge. They were no longer simply

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doing it on information and belief. appeal, which is 812(a) 2d, A 94.

And this is from the

The Court said, The complaint added allegations that Savoir presented its program to FNR only after Claude agreed that he would respect the confidentiality of the information he was given. So they added a specific allegation that the person to whom they disclosed the information agreed he would keep it confidential. under a duty of confidence. Finally, the complaint attempted to support its claim that FNR disclosed its trade secrets you promised by alleging that they worked to get -- worked with Claude at FNR in the college investing business line. THE COURT: I truly think this is not good to be He knew that it was being given

using our time for you to read from -MR. ROBERTS: THE COURT: I'm sorry, your Honor.

All right. All I was trying to say is, in

MR. ROBERTS:

the appeal you were saying, well, what kind of facts could they plead? The appeal talks about the kind of facts that The first time they did The second

you can plead to show knowledge.

it on information and belief, not sufficient. time, they pled facts. sufficient.

The appeal found that that was

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The only other thing that I think I could respond to since I've given you my argument on Ethypharm already is his mention of IDX, which, as he says, IDX says inducing breach of an NDA is not preempted. it. Plead that they breached the NDA. Fine. Plead

Plead we knew about

the NDA.

Say that CNA breached its NDA with Accenture. They have not pled that breach. If they want

that claim, that claim I agreed would not be preempted, but they have to plead it. They can't say, oh, well, we don't

know, we might be able to discover that they breached the NDA and because we might be able to get there in discovery, therefore, we get past the 12(b)(6) motion. That's not how 12(b)(6) works. 12(b)(6) entirely circular. THE COURT: All right. Thank you. It would make

Mr. Pooley, I will give you just a minute, and then obviously movant will have the last word, but if you want to respond. MR. POOLEY: I don't think there's anything I

need to respond to, your Honor. Thank you very much. THE COURT: All right. Now, as I understand it, We are so confused. I am

I hope I have not messed this up.

so confused about reference to our Magistrate Judge and not. I hope these motions have not been referred to her. I think

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the case was at some point, and then it -MR. POOLEY: Honor. THE COURT: All right. All right. Is there It was, and then came back, your

another motion pending here? MR. POOLEY: Yes, your Honor. There's a

motion that we filed, a motion to dismiss, and -- on the counterclaim, on some of the counterclaims. That briefing

is not done yet and it won't be done until next week with the reply. THE COURT: this done. All right. Well, I will try to get

I may or may not try to have all of these

motions resolved, because what I'd like to do today, at the very least, is set a date for a scheduling conference. MR. POOLEY: THE COURT: Great. And that will motivate me to

get these motions done and also get the case moving forward. I would think June would probably be in the realm of possibility of my being able to get something out on these motions. MR. POOLEY: THE COURT: calendars. MR. POOLEY: Great. Yes, I do, your Honor. Shall we set a date now? I would like to, if you all have

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(Pause.) MR. POOLEY: THE COURT: And -I'm looking at June 11th at 4:30. I

happen to have a 4:30 slot available. MR. ROBERTS: THE COURT: That's fine.

This would be a telephone

conference, not an in-person conference. MR. POOLEY: Oh, okay. 4:30? That works fine,

I could be here in person, your Honor, because

I will be in D.C. that morning. THE COURT: All right. Well, I don't generally

require folks to show up for scheduling conferences. MR. POOLEY: THE COURT: All right. I will require the plaintiff to

organize the telephone conference. MR. POOLEY: THE COURT: We will do that, your Honor. All right. Are you all available?

MR. ROBERTS:

Yes, your Honor. That's fine. Counsel, thank you very

MR. BLUMENFELD: THE COURT:

All right.

much for your help in these matters, and I will try to get them resolved so we can move forward. Thank you. (Counsel responds, "Thank you, your Honor.") (Court recessed at 11:00 a.m.)