ScaleMP Looks to Turn the Tide against Competitor TidalScale with Patent Infringement and Trade Secret Misappropriation Case on Virtualization Technology for Cloud Computing

ScaleMP, an industry leader in virtualization for in-memory high-end computing founded in 2003, recently filed a patent infringement complaint against relative newcomer TidalScale along with a trade secret misappropriation case against TidalScale’s Founder and Chief Technical Officer and its Chief Scientist.  TidalScale, founded in 2013, provides Software-Defined Server solutions that enable organizations to flexibly allocate resources and scale large or shifting workloads across existing commodity servers in the Cloud or on-premise.  ScaleMP alleges that TidalScale’s Software-Defined Server platform, the TidalScale HyperKernel, and the TidalScale Hypervisor technology infringe on three patents that cover software systems that aggregate processors and memory from multiple physical computers, operating separately and independently, into a single virtual machine.  According to ScaleMP, these patented inventions dramatically reduce the cost and complexity of using large computer servers, including those optimized for mission critical and cloud environments.  ScaleMP has also leveled trade secret misappropriation allegations against all the defendants based on interactions that TidalScale’s CTO and Chief Scientist had with ScaleMP while they were both executives at SAP.

In ScaleMP’s complaint, filed in the Northern District of California on August 6, 2018, ScaleMP claims that it developed the first virtualization program in which a single virtual computer aggregates numerous separate and independent computers consisting of processors and memories.  With regard to ScaleMP’s patents, all three patents are related and based on the same patent specification, and claim priority back to 2003.  Interestingly, it appears that the three patents-in-suit comprise the entirety of ScaleMP’s issued patent portfolio.  This case is another example of a cloud computing company putting its entire patent portfolio on the line to ward off competition, similar to Centripetal Networks’ patent fight against Cisco.

With regard to trade secrets, ScaleMP levels paragraphs of factual allegations relating to meetings and communications from 2010 to 2013 that ScaleMP’s CEO had with Dr. Isaac Nassi (TidalScale’s Founder and CTO) and Dr. David Reed (TidalScale’s Chief Scientist) while they were both executives of SAP.  ScaleMP cites to a NDA between ScaleMP and SAP, and multiple instances of meetings, conferences, and other communications involving Drs. Nassi and Reed.  As the basis of its trade secret misappropriation claim, ScaleMP alleges that TidalScale’s accused products (which were not available on the market until 2016) “contain, embody and were developed using ScaleMP’s proprietary and highly sensitive information, documents and other materials relating to its methods of efficiently and effectively implementing the invention….”  ScaleMP’s complaint alleges violations of the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1836, as well as the California Uniform Trade Secrets Act.

It will be very interesting to see how ScaleMP’s trade secret misappropriation claims play out.  ScaleMP has not identified with much specificity precisely what constitutes its trade secrets.  I expect that ScaleMP will face an uphill battle to establish that the recited confidential information in fact constitutes trade secrets.  Additionally, the fact that the alleged misappropriation occurred while Drs. Nassi and Reed were employees of SAP and that the events allegedly occurred in the 2010-13 timeframe will likely complicate the case.  Further, neither Drs. Nassi nor Reed signed the ScaleMP–SAP NDA on behalf of SAP nor were they parties to it in their individual capacities.

TidalScale will almost certainly attack the trade secret claims on these and other grounds.  In fact, TidalScale has already done so in the original case that ScaleMP filed in the U.S. District Court of Delaware on March 26, 2018, against TidalScale, and Drs. Nassi and Reed.  In that case, all three defendants filed a motion to dismiss the trade secret misappropriation claims for failure to state a claim.  The defendants did so on the grounds that the DTSA was not enacted until 2016, yet the alleged acts of misappropriate occurred in 2010-2103, and the DTSA is not retroactive.  Drs. Nassi and Reed also challenged personal jurisdiction and venue over them in the Delaware court. While no reason is given in the court filings, ScaleMP then voluntarily dismissed the Delaware case and soon thereafter filed the current case in California.

While it remains to be seen whether ScaleMP can make its trade secrets misappropriation claims stick, what seems clear is that more companies recognize the need to protect their valuable cloud computing IP via trade secrets as well as patents.  While cloud computing patent infringement trends indicate a rising number of competitor, open source, and cloud customer lawsuits, expect to see more trade secret misappropriation claims in cloud IP lawsuits as well.

By | 2018-08-24T22:27:02+00:00 August 24th, 2018|Competitor Case, Trade Secrets|0 Comments

About the Author:

Bart Eppenauer
Bart Eppenauer rejoined Shook, Hardy & Bacon L.L.P. after serving as Microsoft’s Chief Patent Counsel for more than a decade. His practice at Shook focuses on strategic IP counseling and analysis, pre-litigation and litigation strategy, complex multilateral IP transactions and license agreements, and IP policy advocacy. Bart was counsel of record and co-authored U.S. Supreme Court Amicus Briefs filed on behalf of IPO in WesternGeco v. ION Geophysical (2018), Cuozzo Speed Technologies v. Lee (2016) and Alice Corp. v. CLS Bank (2014). Bart is a frequent author and speaker on a range of IP issues, with particular expertise in patent subject matter eligibility of computer implemented inventions. He has been published and quoted in Inside Counsel, Morning Consult, Law360, Patently-O, IAM, Managing Intellectual Property and IP Watchdog.

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