## Facts

- JustMed, Inc., an Oregon startup developing a digital audio larynx, relied on proprietary “JusTalk” software source code for its core product.
- Michael Byce, an engineer, invested in JustMed, received company stock, joined its board, and later assumed primary responsibility for software development after an earlier developer left.
- The parties had no written employment agreement; Byce worked remotely from Idaho using his own computers, and compensation largely took the form of stock rather than traditional payroll practices.
- The source code was maintained within the company, and code headers reflected a JustMed copyright notice (before any registration).
- After disputes over equity and control, Byce changed copyright notices in the code to his name, deleted company copies from JustMed’s systems, and retained the most current version until litigation began and a temporary restraining order issued.

## Issues

1. Whether federal jurisdiction existed because resolving the dispute required applying the Copyright Act’s work-for-hire doctrine.
2. Whether Byce created the JusTalk source code as an employee (work made for hire) or as an independent contractor under common-law agency principles.
3. Whether Byce misappropriated trade secrets under the Idaho Trade Secrets Act and what remedies were permissible.

## Decision

- The court held federal jurisdiction was proper because ownership turned on a substantial question of federal copyright law (work made for hire).
- The court affirmed that Byce was an employee for Copyright Act purposes when he wrote the code; the source code was a work made for hire owned by JustMed.
- The court agreed that the source code qualified as a trade secret and that Byce’s conduct constituted misappropriation.
- The court affirmed in part, reversed in part, and remanded to adjust the trade-secret remedies, concluding the record did not support the full scope of relief awarded.

## Legal Principles

- A state-law dispute can “arise under” federal law when the right to relief necessarily depends on resolving a substantial question of federal law, including copyright ownership under the work-for-hire provisions.
- Employee status for work-for-hire purposes is determined under the multi-factor common-law agency test, considering the totality of circumstances and treating no single factor as dispositive.
- Informal startup practices (lack of payroll withholding, benefits, or paperwork) do not preclude employee status where the developer’s work is integral to the business and subject to company-level control.
- Software source code may qualify as a trade secret when it is not publicly disclosed, derives economic value from secrecy, and is subject to reasonable secrecy measures.
- Trade-secret remedies must be supported by the evidentiary record and appropriately tailored; overbroad relief warrants reversal and remand.

## Conclusion

The Ninth Circuit concluded that determining ownership of the JusTalk source code required applying federal work-for-hire law, affirmed that the developer was an employee and the company owned the copyright, and upheld trade-secret misappropriation while narrowing the trade-secret remedies on remand.


JustMed, Inc. v. Byce, 600 F.3d 1118 (9th Cir. 2010)