A federal appeals court has held a forum selection clause in a non-disclosure agreement does not cover trade secret misappropriation and related claims that are not based on the agreement. In re Orange, S.A. v. United States District Court, 2016 U.S. Ap. LEXIS 648 (9th Cir. 2016). Telesocial is a San Francisco start-up, formed in 2008, to solve a unique telecommunications problem: how to enable telephone calls between users of social media without the need for telephone numbers. To remedy the problem, Telesocial created a custom software application (app) named “Call Friends,” which allows users of social networks (such as Facebook) to place carrier-based phone calls directly to other users. Orange, a French telecommunications provider, approached Telesocial about a possible agreement to acquire the app. Orange and Telesocial executed a non-disclosure agreement (“NDA”) to facilitate the discussions, during which Telesocial allowed Orange personnel to download and use the demonstration app. The NDA included a forum selection clause, which stated, “[a]ny and all dispute, controversy, claim or question arising out of or relating to the Agreement including the validity, binding effect, interpretation, performance or non performance thereof shall first be submitted to the respective authorized management of the Parties for discussion in good faith and amicable resolution. In the event the Parties cannot resolve such dispute on an amicable basis within (30) thirty days after the beginning of such discussion and after making their best efforts to do so, then the Parties hereto irrevocably consent that the matter shall be submitted to the Court of Paris (France).”

Orange abruptly terminated negotiations, electing instead to create the technology itself. Telesocial subsequently filed an action in the Northern District of California, alleging violations of the Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030, California state law claims for breach of contract for violating Telesocial’s “Terms of Use” regarding the demonstration app, breach of the covenant of good faith and fair dealing, theft of trade secrets, and unfair competition. The district court denied Orange’s motion to dismiss under the terms of the forum selection clause, holding the claims were outside the clause’s scope. Orange petitioned the Ninth Circuit for a writ of mandamus. The Ninth Circuit denied the petition, agreeing that the claims were outside the clause’s scope.

The Ninth Circuit reasoned that Telesocial’s CFAA, theft of trade secrets, and unfair competition claims were predicated on Orange’s using fictitious names to use Telesocial’s app and hacking into Telesocial’s servers after Orange ceased the discussions at the center of the NDA. Telesocial’s contract claims, moreover, stemmed from a breach of Telesocial’s “Terms of Use” agreement. Nothing in the claims required the district court to interpret, let alone reference, the NDA to issue a ruling on Telesocial’s claims. The Ninth Circuit distinguished precedent affording a broader interpretation to combination arbitration/forum selection clause, in part on ground that arbitration agreements, unlike forum selection clauses, are to be given broad interpretations where possible.

The takeaway: although forum selection clauses are often an important tool in structuring business relationships to minimize disruptive litigation, they have limits which parties need to consider.