Iconix, Inc. v. Tokuda
2006 U.S. Dist. LEXIS 73380, 457 F. Supp. 2d 969, 66 Fed. R. Serv. 3d 422 (2006)
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Rule of Law:
An invention assignment agreement is enforceable against employees who develop a product related to their employer's business using company resources and time. Oral statements contradicting the terms of a fully integrated written agreement are inadmissible under the parol evidence rule.
Facts:
- Lance Tokuda and Jia Shen were employees of Iconix, an email identity services company.
- Both Tokuda and Shen signed 'Proprietary Information and Inventions Assignment Agreements,' which required them to assign to Iconix all inventions conceived or developed during their employment that related to Iconix's business.
- In the fall of 2005, Iconix began developing a viral marketing strategy targeting social networking websites like MySpace, which included brainstorming a feature that would rotate through a user's pictures.
- While an officer at Iconix, Tokuda secretly registered the domain name rockmyspace.com in October 2005 for his personal benefit.
- Tokuda and Shen then covertly developed a customizable slideshow feature, formed their own company called Netpickle, and solicited other Iconix personnel to join.
- They used Iconix's computers and worked during company time to develop and launch their competing website.
- Tokuda and Shen launched rockmyspace.com on the night of November 13-14, 2005, while still employed by Iconix.
- After Tokuda resigned in January 2006, Iconix discovered his activities and terminated Shen's employment upon learning of his involvement.
Procedural Posture:
- Iconix, Inc. sent a cease and desist letter to defendants Lance Tokuda, Jia Shen, and netPickle, Inc., which they refused to comply with.
- Iconix sued the defendants in the U.S. District Court for the Northern District of California.
- Iconix then filed a motion for a preliminary injunction to halt the defendants' business operations pending the outcome of the lawsuit.
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Issue:
Is Iconix likely to succeed on the merits of its claims for breach of fiduciary duty, breach of contract, and copyright infringement, thereby warranting a preliminary injunction against its former employees who started a competing business?
Opinions:
Majority - Armstrong, District Judge
Yes, Iconix has shown a probability of success on its claims and is entitled to a preliminary injunction. The court finds that the defendants likely breached their fiduciary duties and contractual obligations by developing a competing product while employed by Iconix. First, the defendants' claims that they were orally assured the assignment agreements were a mere formality are barred by the parol evidence rule, as the agreements were fully integrated and the oral statements directly contradicted the written terms. Second, Tokuda, as a corporate officer, breached his fiduciary duty under the corporate opportunity doctrine by usurping an idea—a viral marketing tool for social networks—that was 'reasonably incident' to Iconix's business and which Iconix had the capacity to pursue. Third, both defendants breached their invention assignment agreements by failing to disclose and assign the rockmyspace invention, as it was developed using company equipment and related directly to Iconix's business, meaning the exception under California Labor Code § 2870 did not apply. Finally, because Iconix owns the copyright to the software via the assignment agreements, the defendants' operation of the website constituted copyright infringement, which creates a presumption of irreparable harm justifying the injunction.
Analysis:
This decision strongly affirms the enforceability of integrated invention assignment agreements, a cornerstone of intellectual property protection in the technology sector. It highlights the power of the parol evidence rule to exclude oral statements that contradict clear written contract terms, providing certainty for employers. The case also provides a modern application of the corporate opportunity doctrine, demonstrating its relevance in fast-paced startup environments where business strategies evolve quickly. The ruling serves as a significant deterrent to employees contemplating 'side projects' that overlap with their employer's business interests, clarifying that use of company resources or developing a related concept contractually binds the resulting invention to the employer.
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