1008-00005 · Lumos Analytics Inc · Strategy & Analysis

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT ATTORNEY-CLIENT PRIVILEGED COMMUNICATION

This memorandum has been prepared by attorneys at Calderwood & Harkness LLP in anticipation of litigation and is protected by the attorney-client privilege and the attorney work-product doctrine. This memorandum is intended solely for the use of the addressees. Any disclosure, distribution, or copying of this memorandum or any attachment without the prior written consent of Calderwood & Harkness LLP is strictly prohibited.

CALDERWOOD & HARKNESS LLP

INTERNAL MEMORANDUM

TO: Marcus Delgado, Responsible Partner, intellectual Property Practice Group Catherine Bloom, Billing Partner, intellectual Property Practice Group

FROM: Wendy Schultz, Lead Associate, intellectual Property Practice Group Omar Siddiqui, Working Associate, intellectual Property Practice Group

DATE: January 5, 2023

RE: Case Assessment and Litigation Strategy — Lumos Analytics Inc. v. Rajiv Anand, Serena Mallick, Derek Yun, and NovaSpark Technologies Inc.

MATTER NO.: 1008-00005

CLIENT: Lumos Analytics Inc.

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I. EXECUTIVE SUMMARY

Calderwood & Harkness LLP was retained on December 15, 2022 by Lumos Analytics Inc. ("Lumos" or "Lumos AI"), a Delaware-incorporated, California-headquartered software-as-a-service ("SaaS") company specializing in artificial-intelligence-driven financial analytics, through its General Counsel, Thomas Brightwell. This memorandum provides a comprehensive case assessment and recommended litigation strategy in connection with the misappropriation of Lumos's most valuable proprietary technology and trade secrets by three former senior engineers and the competing startup they subsequently founded.

On December 12, 2022, Lumos's internal IT security team identified anomalous data-exfiltration activity that had occurred during the final weeks of employment of three former senior engineers: Rajiv Anand (former Principal Engineer — ML Infrastructure), Serena Mallick (former Senior Software Engineer — Data Pipelines), and Derek Yun (former ML Engineer II). Each of these individuals had occupied positions of significant trust and had access to Lumos's most sensitive and commercially valuable proprietary technologies, codebases, training datasets, and strategic product roadmaps. The forensic evidence indicates that each defendant systematically copied substantial volumes of proprietary materials to personal accounts and devices shortly before departing the company.

All three individual defendants departed Lumos in rapid succession between September 30 and October 21, 2022. Within days of their respective departures, each joined or co-founded NovaSpark Technologies Inc. ("NovaSpark"), a competing startup that was incorporated in Delaware by Rajiv Anand on October 3, 2022 — just three days after his resignation from Lumos — and is now headquartered at 88 Bluxome Street, Floor 4, San Francisco, California 94107. NovaSpark's stated product offering directly and substantially overlaps with Lumos's core market of AI-driven analytics for institutional asset managers, hedge funds, and proprietary trading desks. The speed with which NovaSpark was incorporated, staffed by former Lumos employees, and brought to market strongly suggests that the venture was pre-planned and coordinated while the defendants were still employed at Lumos, using Lumos's own proprietary technology as the foundation.

Further underscoring the pre-planned nature of this scheme, NovaSpark received a $12 million seed-round investment from Blackpine Capital Partners LP, which closed on November 15, 2022 — barely six weeks after Anand's resignation. The timeline and magnitude of the funding round are inconsistent with any scenario in which NovaSpark was developed from a clean-room starting point and instead point to the use of Lumos trade secrets as the basis for NovaSpark's pitch to investors and its accelerated product development.

This memorandum assesses the viable claims available to Lumos, analyzes the evidentiary basis for each claim, discusses each defendant's restrictive covenant obligations under their respective Proprietary Information and Inventions Assignment Agreements ("PIIAAs"), and recommends an aggressive litigation strategy, including seeking an ex parte Temporary Restraining Order ("TRO") and preliminary injunction to halt the ongoing misappropriation and prevent further irreparable harm.

Based on our analysis of the facts, the applicable law, the evidentiary record, and the available remedies, we recommend that Lumos file suit in the Superior Court of the State of California, County of Santa Clara, asserting the following claims:

1. Trade secret misappropriation under the California Uniform Trade Secrets Act ("CUTSA"), Cal. Civ. Code §§ 3426–3426.11;

2. Breach of contract (PIIAA), including breach of the restrictive covenant provisions therein;

3. Breach of the duty of loyalty owed by each individual defendant during the period of their employment at Lumos;

4. Unfair business practices under Cal. Bus. & Prof. Code § 17200 et seq.; and

5. Conversion of Lumos's proprietary materials, codebases, and data.

We further recommend that the complaint be accompanied by an ex parte application for a TRO to be filed simultaneously, seeking an order requiring the immediate cessation of defendants' use of Lumos proprietary information, the preservation of all electronic devices and storage media in defendants' possession, and a prohibition on the destruction of any documents or files relevant to this matter. Upon issuance of a TRO, we recommend pursuing a preliminary injunction on the most expedited schedule available.

The balance of this memorandum sets forth the factual background, legal analysis, evidentiary assessment, and recommended litigation strategy in detail.

II. BACKGROUND AND FACTUAL SUMMARY

A. The Client — Lumos Analytics Inc.

Lumos Analytics Inc. was founded in approximately 2017 and is incorporated in the State of Delaware (File No. 6518274; EIN 82-4713956). The company maintains its principal place of business at 4700 Orchard Parkway, Suite 300, San Jose, California 95134. Lumos operates as a SaaS platform provider in the financial technology sector, and its primary product offering centers on the use of advanced artificial intelligence and machine-learning techniques to generate predictive analytics for the financial services industry.

Lumos's flagship product, marketed under the trade name "LumosEdge," employs proprietary ensemble machine-learning models to generate predictive signals for equity and fixed-income portfolio optimization. The platform is designed for and marketed to institutional asset managers, hedge funds, and proprietary trading desks — a specialized and highly competitive market in which the quality and accuracy of predictive signals constitute the primary basis of competition. The LumosEdge platform is the product of years of intensive research and development, representing substantial investment in data science, machine-learning engineering, proprietary data curation, and feature engineering.

As of the date of this memorandum, Lumos employs approximately 340 individuals across engineering, data science, product, sales, and corporate functions. For the fiscal year ending December 31, 2022, Lumos reported annual recurring revenue ("ARR") of approximately $67 million, reflecting strong growth in its institutional client base and continued expansion of its product capabilities.

Lumos has raised a total of approximately $185 million in venture capital financing through its Series D round. Notable among these funding rounds are its Series B ($40 million), led by Ridgeline Ventures (General Partner: Helen Trask), and its most recent Series D ($72 million), led by Northstar Growth Equity (Managing Director: Jonathan Holt), which closed in June 2022. The substantial capital raised underscores the significant market value attributed to Lumos's proprietary technology and market position by sophisticated institutional investors.

The company's leadership team includes Priya Chandrasekaran, Chief Executive Officer; Thomas Brightwell, General Counsel (and our primary client contact); and Rachel Fong, Vice President of Engineering. Ms. Fong has direct supervisory authority over the engineering teams in which the three individual defendants were employed and is well-positioned to testify regarding the nature, scope, and protective measures associated with the trade secrets at issue.

B. The Individual Defendants and Their Roles at Lumos

The three individual defendants — Rajiv Anand, Serena Mallick, and Derek Yun — were each senior members of the Lumos engineering organization. Each occupied a role requiring access to Lumos's most sensitive proprietary technologies, codebases, and data. Each executed a Proprietary Information and Inventions Assignment Agreement upon the commencement of their employment. The specific roles, tenure, and departure circumstances for each are discussed below.

Rajiv Anand. Mr. Anand, age 37, served as Principal Engineer — ML Infrastructure at Lumos from March 2019 through September 30, 2022, a tenure of approximately three and one-half years. In this role, Mr. Anand was one of the key architects of the LumosEdge signal-generation engine, which constitutes the core of Lumos's product offering. He had access to the company's most sensitive proprietary codebases, model architectures, hyperparameter configurations, and training data pipelines. His level of access and technical responsibility was among the highest in the engineering organization, reflecting the trust that Lumos placed in him.

Mr. Anand resigned from Lumos on September 30, 2022, effective immediately, without providing the customary notice period. Just three days later, on October 3, 2022, Mr. Anand incorporated NovaSpark Technologies Inc. in the State of Delaware. He now serves as CEO and co-founder of NovaSpark. Mr. Anand executed a PIIAA upon joining Lumos in March 2019, which contains the restrictive covenant provisions discussed in detail in Section IV.B below.

Serena Mallick. Ms. Mallick, age 34, served as Senior Software Engineer — Data Pipelines at Lumos from June 2020 through October 14, 2022, a tenure of approximately two years and four months. In this role, Ms. Mallick was the primary engineer responsible for building and maintaining the proprietary ETL (extract, transform, load) pipelines that ingest alternative financial data from external vendors into the LumosEdge platform. This system, known internally at Lumos as "DataStream," represents a critical piece of the company's technology stack, as the quality, reliability, and speed of data ingestion are essential to the accuracy and timeliness of the predictive signals generated by LumosEdge. The DataStream system integrates data feeds from 43 separate alternative-data vendors, each requiring custom ingestion logic, data normalization, quality-control procedures, and schema definitions.

Ms. Mallick resigned from Lumos on October 14, 2022. She commenced employment at NovaSpark as its Vice President of Engineering just three days later, on October 17, 2022. The brevity of the gap between her departure from Lumos and her start at NovaSpark further supports the inference that her departure was pre-planned and coordinated with Mr. Anand. Ms. Mallick executed a PIIAA upon her hire at Lumos in June 2020.

Derek Yun. Mr. Yun, age 31, served as ML Engineer II at Lumos from January 2021 through October 21, 2022, a tenure of approximately one year and ten months. In this role, Mr. Yun had direct access to proprietary training datasets, model hyperparameters, and the company's feature-engineering libraries — all of which are critical components of the LumosEdge platform and constitute trade secrets of considerable value. Mr. Yun's technical responsibilities involved the day-to-day development, training, and evaluation of machine-learning models, giving him detailed knowledge of the algorithms, data structures, and optimization techniques that underpin LumosEdge.

Mr. Yun resigned from Lumos on October 21, 2022. He joined NovaSpark as a founding engineer three days later, on October 24, 2022. Like Anand and Mallick, the speed of his transition strongly suggests pre-arranged coordination. Mr. Yun executed a PIIAA upon his hire at Lumos in January 2021.

C. NovaSpark Technologies Inc.

NovaSpark Technologies Inc. is a Delaware corporation (File No. 7294183; EIN 88-3291047) incorporated on October 3, 2022, by Rajiv Anand. As noted, NovaSpark was incorporated a mere three days after Mr. Anand's resignation from Lumos. The company's headquarters are located at 88 Bluxome Street, Floor 4, San Francisco, California 94107.

NovaSpark purports to offer AI-driven alternative-data analytics for hedge funds and proprietary trading desks — a product description that maps directly onto the core market served by Lumos's LumosEdge platform. While the full scope of NovaSpark's product capabilities is not yet publicly known, the overlap in target market, technology description, and the specific expertise of its founding team (all drawn from Lumos's engineering organization) creates a strong inference that NovaSpark's product is built upon, or at a minimum substantially informed by, Lumos's proprietary technology and trade secrets.

NovaSpark secured seed-round financing of $12 million from Blackpine Capital Partners LP (Managing Partner: Franklin Osei; headquartered at 101 Mission Street, 38th Floor, San Francisco, California 94105). This round closed on November 15, 2022, approximately six weeks after Anand's departure from Lumos. The speed with which NovaSpark was founded, staffed with former Lumos engineers, and funded at a $12 million level is, in our assessment, highly unusual for an early-stage startup and strongly suggestive of pre-planned coordination among the defendants while they were still employed at Lumos. It is difficult to conceive of a scenario in which a startup could be incorporated, develop a credible product vision and technology demonstration, engage a venture capital firm, negotiate terms, and close a $12 million round in a matter of weeks without having substantial pre-existing technology assets — technology that, in this case, we believe was misappropriated from Lumos.

We further note that Blackpine Capital Partners may have been unwittingly drawn into this scheme. Discovery directed at NovaSpark's investor pitch materials and communications with Blackpine may yield significant evidence regarding the extent to which Lumos's trade secrets were used or referenced in connection with the fundraising process.

D. Timeline of Departures and Coordination

The following detailed chronology sets forth the key events as currently known based on Lumos's IT security logs, HR records, corporate filings, and other available information. This timeline underscores the systematic and coordinated nature of the defendants' conduct:

September 26, 2022: Mr. Anand transfers approximately 3.2 gigabytes of files — including model architecture specifications and hyperparameter configuration files for the LumosEdge signal-generation engine — from Lumos's internal systems to a personal Hollowell Health IT account. This transfer was detected in Lumos's IT security logs, which recorded the destination, volume, and approximate content of the transfer. At the time of this transfer, Mr. Anand was still a full-time employee of Lumos.

September 28, 2022: Mr. Anand accesses and forwards the confidential "LumosEdge 3.0 Product Roadmap" — a 37-page PDF document containing the company's proprietary product strategy and planned feature development for calendar years 2023 through 2025 — to his personal email account at r.anand.personal@vaultmail.com. This document is classified internally at Lumos as "Confidential — Restricted Distribution" and is ordinarily accessible only to senior engineering leadership and the executive team. Mr. Anand was still employed at Lumos at the time of this transmission.

September 30, 2022: Mr. Anand resigns from Lumos, effective immediately, without providing advance notice. He does not complete Lumos's standard exit procedures, does not return any company materials, and does not confirm the deletion of any Lumos proprietary information from personal accounts or devices, as required by his PIIAA.

October 3, 2022: NovaSpark Technologies Inc. is incorporated in the State of Delaware by Mr. Anand — just three calendar days after his resignation from Lumos.

October 10, 2022: Ms. Mallick clones the entire DataStream ETL pipeline repository — comprising approximately 780 megabytes of proprietary source code, configuration files, data-schema definitions, and associated documentation — to a personal external USB drive bearing serial number WD-4837291. The repository represents the entirety of the DataStream system built and maintained by Ms. Mallick's team during her employment. At the time of this action, Ms. Mallick was still employed at Lumos.

October 14, 2022: Ms. Mallick resigns from Lumos. Like Mr. Anand, she does not complete Lumos's standard exit procedures, does not return company materials, and does not confirm the deletion of proprietary information from personal accounts or devices.

October 17, 2022: Ms. Mallick begins employment at NovaSpark as Vice President of Engineering — three calendar days after her resignation from Lumos.

October 18, 2022: Mr. Yun downloads 47 proprietary Jupyter notebooks containing feature-engineering code and model-training scripts from Lumos's internal repositories to a personal Larkspur Technologies account. These notebooks contain code that is central to Lumos's proprietary feature-engineering process and represents years of iterative research, development, and refinement. At the time of this download, Mr. Yun was still employed at Lumos.

October 21, 2022: Mr. Yun resigns from Lumos. He does not complete exit procedures, return materials, or confirm deletion of proprietary information.

October 24, 2022: Mr. Yun begins employment at NovaSpark as a founding engineer — three calendar days after his resignation from Lumos.

November 15, 2022: NovaSpark closes a $12 million seed-round investment from Blackpine Capital Partners LP.

December 12, 2022: Lumos's internal IT security team, in the course of a routine security audit, identifies anomalous data-exfiltration activity from the final weeks of Mr. Anand's, Ms. Mallick's, and Mr. Yun's respective periods of employment. The security team's analysis reveals the specific transfers, copies, and downloads described above.

December 15, 2022: Lumos, through its General Counsel Thomas Brightwell, retains Calderwood & Harkness LLP to investigate the matter and advise on available legal remedies.

It is significant that none of the three defendants returned company materials or confirmed the deletion of Lumos proprietary information upon departure, as expressly required by the PIIAA. The failure to comply with these return-of-materials obligations constitutes an independent breach of contract and raises additional concerns regarding the ongoing possession and potential use of Lumos trade secrets by the defendants and NovaSpark.

The pattern of conduct — systematic exfiltration of the most commercially valuable elements of Lumos's technology stack by three senior engineers in the days and weeks preceding their coordinated departure, followed by the near-immediate founding of a directly competing venture — presents a compelling picture of a deliberate and premeditated scheme to misappropriate Lumos's trade secrets for the benefit of NovaSpark.

III. IDENTIFICATION OF TRADE SECRETS AT ISSUE

In order to prevail on a claim under CUTSA, Lumos must identify its trade secrets with "reasonable particularity." Cal. Civ. Code § 3426.1(d); Brescia v. Angelin, 172 Cal. App. 4th 133, 149 (2009). Based on our investigation to date and our discussions with Lumos's General Counsel and VP of Engineering, we have identified five categories of proprietary technology and information that constitute the trade secrets at issue in this matter. Each is described below, along with an assessment of its qualification as a trade secret under CUTSA.

1. LumosEdge Ensemble ML Model Architecture. This category encompasses the proprietary neural-network topology, ensemble model design, and hyperparameter configurations that form the core of the LumosEdge signal-generation engine. The model architecture represents the culmination of years of research and development by Lumos's machine-learning engineering team and is the product of iterative experimentation, training, and optimization using proprietary datasets. The specific combination of model types, layer configurations, activation functions, regularization techniques, and hyperparameters that comprise the LumosEdge engine is not publicly known and constitutes the primary source of LumosEdge's competitive advantage. Mr. Anand, as the key architect of this system, had intimate knowledge of its design and took 3.2 gigabytes of related files when he departed.

2. Proprietary Feature-Engineering Libraries. Lumos has developed, through years of intensive research and development, a comprehensive library of 2,847 individually engineered features for financial signal generation. Each feature represents a specific transformation, aggregation, or derivation of raw or alternative data that the Lumos data-science team has determined to have predictive value for equity or fixed-income portfolio optimization. The development of these features required substantial expertise, experimentation, and domain-specific knowledge, and the library as a whole represents a significant competitive asset. The specific features, their mathematical formulations, and their implementation code are maintained on Lumos's internal systems and are not publicly available. Mr. Yun's 47 downloaded Jupyter notebooks contained code that directly implements and documents many of these engineered features.

3. DataStream ETL Pipeline Codebase and Data-Schema Definitions. The DataStream system is Lumos's proprietary ETL pipeline infrastructure, responsible for ingesting, transforming, normalizing, and loading alternative financial data from 43 separate external data vendors into the LumosEdge platform. The system includes custom ingestion connectors for each vendor, proprietary data normalization and quality-control logic, schema definitions that map disparate data sources into a unified analytical framework, and scheduling and monitoring components. The DataStream system was primarily built and maintained by Ms. Mallick's team and represents a substantial engineering investment. The entire DataStream repository — approximately 780 megabytes — was cloned by Ms. Mallick to a personal USB drive prior to her departure.

4. Curated and Labeled Training Dataset. Lumos maintains a curated and labeled training dataset comprising approximately 14.6 terabytes of historical financial and alternative data. This dataset has been assembled, cleaned, labeled, and structured over the course of several years and represents a critical input to the training and validation of LumosEdge's machine-learning models. The curation process involves significant manual and automated effort, including the identification and correction of data errors, the labeling of outcomes for supervised-learning tasks, and the alignment of disparate time series. The dataset is stored on Lumos's secure internal infrastructure and access is restricted to authorized engineering personnel. While the individual underlying raw data may be available from external vendors, the curated, labeled, and structured form of the dataset — including the specific selections, combinations, and transformations applied — is proprietary to Lumos and derives substantial economic value from its non-public nature.

5. Confidential Product Roadmap Materials. This category includes the unreleased "LumosEdge 3.0 Product Roadmap," a 37-page PDF document setting forth Lumos's proprietary product strategy, planned feature development, market positioning, competitive analysis, and technology investment priorities for calendar years 2023 through 2025. This document is classified as "Confidential — Restricted Distribution" and is accessible only to a limited number of senior executives and engineering leaders. The product roadmap contains highly sensitive strategic information, the disclosure of which to a competitor would cause significant competitive harm. Mr. Anand forwarded this document to his personal email on September 28, 2022.

Each of the foregoing categories satisfies the statutory definition of a "trade secret" under CUTSA. Specifically, each category (i) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Cal. Civ. Code § 3426.1(d).

With respect to the second element, Lumos maintains a comprehensive suite of security and confidentiality measures, including but not limited to: role-based access controls limiting access to proprietary systems and codebases to authorized personnel on a need-to-know basis; multi-factor authentication for all internal systems; internal classification and labeling systems for confidential documents; mandatory execution of PIIAAs by all employees; mandatory exit protocols requiring the return of all company materials and the deletion of proprietary information from personal accounts and devices; physical security measures at Lumos's offices, including badge access and visitor logging; and periodic security training for all employees. These measures are reasonable under the circumstances and satisfy the requirements of CUTSA.

IV. ANALYSIS OF CLAIMS

A. Claim 1: Misappropriation of Trade Secrets Under CUTSA (Cal. Civ. Code §§ 3426–3426.11)

1. Legal Standard

Under CUTSA, a plaintiff must establish two elements: (i) the existence of a trade secret and (ii) misappropriation of that trade secret. Cal. Civ. Code § 3426.1. "Misappropriation" is defined to include both the acquisition of a trade secret by a person who knows or has reason to know that the trade secret was acquired by improper means, and the disclosure or use of a trade secret by a person who used improper means to acquire knowledge of the trade secret or who, at the time of the disclosure or use, knew or had reason to know that the trade secret was derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use. Cal. Civ. Code § 3426.1(b).

"Improper means" includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. Cal. Civ. Code § 3426.1(a). Reverse engineering and independent development do not constitute improper means. Id.

2. Application to the Facts

Trade Secret Existence. As discussed in Section III above, all five categories of proprietary technology and information at issue qualify as trade secrets under CUTSA. Lumos invested substantial financial and human resources in developing these technologies over a period of several years. They are not publicly available and are not readily ascertainable by proper means. Lumos maintains comprehensive access controls, contractual protections (PIIAAs), internal classification systems, and other reasonable security measures to protect their secrecy. The 2,847 individually engineered features, the proprietary ensemble model architecture and hyperparameter configurations, the DataStream ETL pipeline integrating 43 alternative-data vendors, the 14.6-terabyte curated training dataset, and the LumosEdge 3.0 product roadmap all derive substantial independent economic value from their non-public nature. A competitor possessing this information would gain an enormous development-time and competitive advantage, sparing itself the years of research, development, testing, and investment that Lumos expended.

Misappropriation. Each defendant acquired Lumos trade secrets through improper means and/or in breach of a duty of confidentiality owed under the PIIAA. The specific acts of misappropriation are well-documented through Lumos's IT security logs:

• Rajiv Anand: Transferred approximately 3.2 GB of files — including model architecture specifications and hyperparameter configuration files — to a personal Hollowell Health IT account on September 26, 2022, and forwarded the confidential LumosEdge 3.0 Product Roadmap (37-page PDF) to his personal email address (r.anand.personal@vaultmail.com) on September 28, 2022. Both transfers occurred while Mr. Anand was still employed at Lumos and subject to his PIIAA obligations, and both involved the unauthorized removal of trade-secret materials from Lumos's controlled systems to personal, unsecured accounts.

• Serena Mallick: Cloned the entire DataStream ETL pipeline repository (approximately 780 MB) to a personal external USB drive (serial number WD-4837291) on October 10, 2022. This transfer occurred four days before Ms. Mallick's resignation and while she remained a full-time Lumos employee. The DataStream repository represents the entirety of a critical proprietary system and its removal to an uncontrolled personal device constitutes a clear act of misappropriation.

• Derek Yun: Downloaded 47 proprietary Jupyter notebooks containing feature-engineering code and model-training scripts to a personal Larkspur Technologies account on October 18, 2022. This download occurred three days before Mr. Yun's resignation and while he remained a Lumos employee. The notebooks contain detailed implementations of Lumos's proprietary feature-engineering processes and model-training methodologies.

Use and Disclosure. Beyond the initial acquisition, the circumstances strongly support an inference that the misappropriated trade secrets have been used and/or disclosed in connection with the development of NovaSpark's competing product. The rapid founding and development of a directly competing AI-driven analytics platform by a startup staffed entirely by former Lumos engineers who took proprietary materials with them creates a powerful inference of use. See Sargent Fletcher, Inc. v. Able Corp., 110 Cal. App. 4th 1658, 1665 (2003) (circumstantial evidence may establish use of trade secrets); Halcyon Enterprises v. Bramwell Partners LLC, 184 Cal. App. 4th 210, 239 (2010). The fact that NovaSpark secured $12 million in funding within weeks of its formation — in a market where product demonstrations and technology validation are typically required — further supports the inference that Lumos trade secrets were used, at a minimum, to create a product prototype or technology demonstration for potential investors.

We anticipate that defendants will argue that NovaSpark's technology was developed independently. However, the timeline renders this defense implausible. NovaSpark was incorporated on October 3, 2022, and was apparently in a position to pitch to investors and close a $12 million round by November 15, 2022. It is effectively impossible for a startup to develop from scratch a complex AI-driven financial analytics platform — one that competes directly with a product that took Lumos years and tens of millions of dollars in investment to build — in a period of approximately six weeks without relying on pre-existing proprietary technology.

3. Strength of Claim

Strong. Lumos has direct, log-level evidence of the acquisition of trade secrets by each defendant through improper means and in breach of their PIIAA obligations. The circumstantial evidence of use and disclosure is compelling given the timeline, the defendants' coordinated conduct, the nature of NovaSpark's product, and the speed of its development and funding. We believe this claim will withstand scrutiny at the TRO, preliminary injunction, and summary judgment stages.

B. Claim 2: Breach of Contract (PIIAA)

1. Legal Standard

Under California law, the elements of a breach-of-contract claim are: (i) the existence of a valid contract; (ii) the plaintiff's performance or excuse for non-performance; (iii) the defendant's breach; and (iv) resulting damages to the plaintiff. Oasis West Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 (2011).

2. The PIIAA and Its Restrictive Covenant Provisions

Each of the three individual defendants executed Lumos's standard Proprietary Information and Inventions Assignment Agreement upon the commencement of their respective employment. These agreements were a condition of employment and were signed prior to the defendants' gaining access to Lumos's proprietary systems and trade secrets. The PIIAAs are currently on file with Lumos's Human Resources department and have been provided to us for review. The PIIAA contains the following material restrictive covenant provisions:

(a) Assignment of Inventions Clause. The PIIAA provides that all inventions, works of authorship, developments, improvements, and trade secrets created, conceived, or reduced to practice by the employee during the period of employment, and that relate in any way to Lumos's business or anticipated business, are the sole and exclusive property of Lumos and are hereby assigned to Lumos. This provision ensures that any technology developed by the defendants during their employment — including the specific codebases, model architectures, feature-engineering work, and pipeline systems to which they contributed — belongs to Lumos.

(b) Confidentiality and Non-Disclosure Provision. The PIIAA contains a comprehensive confidentiality and non-disclosure provision that survives the termination of employment for a period of three (3) years. This provision prohibits each employee from disclosing or using, directly or indirectly, any confidential information or trade secrets of Lumos, except as required in the performance of their duties at Lumos. "Confidential Information" is broadly defined in the PIIAA to include, without limitation, proprietary technology, source code, algorithms, model architectures, data, datasets, business plans, product roadmaps, customer information, financial information, and any other information that is treated as confidential by Lumos.

(c) Non-Solicitation of Employees Clause. The PIIAA includes a twelve (12)-month post-separation prohibition on directly or indirectly soliciting, inducing, or encouraging any employee of Lumos to terminate their employment with Lumos or to accept employment with any other person, firm, or entity.

(d) Covenant Not to Use or Disclose Trade Secrets. Separately from the time-limited non-disclosure provision, the PIIAA contains a perpetual covenant not to use or disclose Lumos trade secrets at any time, whether during or after employment. This covenant expressly references the restrictive covenant framework of the PIIAA and survives the termination of employment in perpetuity.

(e) Return of Materials Obligation. The PIIAA requires that, upon the termination of employment for any reason, the employee must immediately return to Lumos all company materials, including documents, files, data, code, devices, and all copies thereof, in whatever form. The employee is further required to confirm in writing that they have returned all such materials and have not retained any copies. As noted, none of the three defendants complied with this obligation.

Enforceability Under California Law. We note that California Business and Professions Code § 16600 generally voids contractual provisions that restrain an individual from engaging in a lawful profession, trade, or business of any kind. This provision is broadly interpreted by California courts and renders traditional non-competition agreements unenforceable in most circumstances. See Edwards v. Kraft Quill CPAs LLP, 44 Cal. 4th 937 (2008). However, the PIIAA's restrictive covenant provisions are not traditional non-compete provisions. Rather, they are narrowly tailored to protect Lumos's legitimate trade-secret interests and confidential information, and California courts have consistently recognized that such provisions are enforceable.

Specifically, California courts enforce non-disclosure and confidentiality provisions that protect trade secrets. See Retirement Group v. Galante, 176 Cal. App. 4th 1226, 1237–38 (2009) ("[C]ontracts that restrain the misappropriation of trade secrets and confidential information are not the type of restraints that Section 16600 prohibits."). Similarly, covenants not to use trade secrets and non-solicitation provisions, to the extent they serve to protect legitimate trade-secret interests rather than to restrain competition generally, are enforceable. See The Retirement Group v. Galante, 176 Cal. App. 4th at 1238; Loral Corp. v. Moyes, 174 Cal. App. 3d 268, 276 (1985). The return-of-materials provision is plainly enforceable as a straightforward contractual obligation regarding company property.

Accordingly, we do not anticipate a successful challenge to the enforceability of the PIIAA's restrictive covenant provisions in this case. The provisions are carefully tailored to protect Lumos's trade secrets and confidential information and do not constitute an overbroad restraint on the defendants' ability to work in their respective fields.

3. Breach Analysis

All three defendants have breached their PIIAA obligations in the following respects:

• Copying and retention of proprietary materials: Each defendant copied substantial volumes of Lumos proprietary materials to personal accounts and devices (Anand: Hollowell Health IT and personal email; Mallick: personal USB drive; Yun: personal Larkspur Technologies account). These acts constitute a breach of the confidentiality, non-disclosure, and covenant-not-to-use-trade-secrets provisions.

• Failure to return company materials upon departure: None of the three defendants completed Lumos's exit protocols, returned company materials, or confirmed the deletion of proprietary information from personal accounts and devices, as required by the return-of-materials provision.

• Use and/or disclosure of Lumos trade secrets in connection with NovaSpark: As discussed above, the circumstances strongly support the inference that the misappropriated materials have been used in connection with the development of NovaSpark's competing product and/or disclosed to NovaSpark and its investors. Such use and disclosure would constitute a breach of the confidentiality, non-disclosure, and covenant-not-to-use-trade-secrets provisions.

Additionally, the non-solicitation clause may be implicated given the coordinated departures of three senior engineers within a period of approximately three weeks. While we do not yet have direct evidence that one defendant solicited the others to leave Lumos (as opposed to, for example, Anand inviting Mallick and Yun to join NovaSpark after they had independently decided to depart), the timing is highly suggestive. Discovery into the defendants' communications during the departure period should illuminate this issue.

4. Strength of Claim

Strong. The existence of a valid contract (the PIIAA) is clear and documented. Lumos performed its obligations by providing employment, compensation, and access to proprietary systems. The defendants' breaches are well-documented through IT security logs and the undisputed failure to return materials. Damages are demonstrable and include the competitive harm caused by the misuse of trade secrets and the cost of remediation.

C. Claim 3: Breach of Duty of Loyalty

1. Legal Standard

Under California law, employees owe a duty of loyalty to their employer during the period of their employment. This duty prohibits employees from engaging in activities that are in direct competition with the employer, from misappropriating corporate opportunities, from engaging in self-dealing at the employer's expense, and from acting in a manner that is fundamentally adverse to the employer's interests. See Fowler v. Varian Associates, Inc., 196 Cal. App. 3d 34, 41 (1987); Huong Que, Inc. v. Luu, 150 Cal. App. 4th 400, 410 (2007). The duty of loyalty exists independently of any contractual obligation and arises by operation of law from the employment relationship itself.

While California law does not prevent an employee from making preparations to compete with the employer after the termination of employment — for example, an employee may form a general intent to depart and even take preliminary steps such as incorporating a business entity — the duty of loyalty prohibits the employee from actually competing with the employer, from soliciting the employer's customers or employees, or from misappropriating the employer's proprietary information, trade secrets, or other assets while still employed. See Mamou v. Trendwest Resorts, Inc., 165 Cal. App. 4th 686, 719 (2008); Bancroft-Whitney Co. v. Glen, 64 Cal. 2d 327, 345–46 (1966).

2. Application to the Facts

The evidence demonstrates that each of the three individual defendants engaged in conduct that constitutes a breach of the duty of loyalty owed to Lumos during the period of their respective employment:

• Rajiv Anand: Mr. Anand's exfiltration activities on September 26 and September 28, 2022 occurred while he was still a full-time employee of Lumos. He was actively preparing to compete with Lumos — as demonstrated by the incorporation of NovaSpark just three days after his resignation — while simultaneously occupying a position of significant trust within Lumos's engineering organization and systematically copying the most sensitive proprietary materials from Lumos's systems. The transfer of 3.2 GB of model architecture files and the forwarding of the confidential product roadmap were acts taken in furtherance of a competing venture and are fundamentally inconsistent with the duty of loyalty.

• Serena Mallick: Ms. Mallick's cloning of the entire DataStream ETL pipeline repository to a personal USB drive on October 10, 2022, occurred four days before her resignation. At the time, she was still a Lumos employee with fiduciary-like obligations of loyalty and good faith. The act of copying the entirety of a proprietary codebase — one that she had helped build in her capacity as a Lumos employee — for the purpose of using it in a competing venture constitutes a clear breach of the duty of loyalty.

• Derek Yun: Mr. Yun's download of 47 proprietary Jupyter notebooks to a personal Larkspur Technologies account on October 18, 2022, occurred three days before his resignation. He, too, was still a Lumos employee at the time and owed a duty of loyalty. The download of materials containing proprietary feature-engineering code and model-training scripts — materials of significant competitive value — for use in a competing venture is directly contrary to his duty of loyalty.

Beyond the individual acts of exfiltration, the coordinated nature of the three defendants' departures supports the inference that all three were actively planning and coordinating the establishment of a competing venture while still employed at Lumos. The tight timeline — Anand's resignation on September 30, NovaSpark's incorporation on October 3, Mallick's resignation on October 14 and commencement at NovaSpark on October 17, Yun's resignation on October 21 and commencement at NovaSpark on October 24 — is inconsistent with three independent decisions to leave and instead suggests a pre-arranged plan. To the extent that any defendant solicited others to leave Lumos during the period of employment, such solicitation would constitute an additional breach of the duty of loyalty.

3. Strength of Claim

Strong as to all defendants. The critical fact is that all exfiltration activities occurred during the period of employment, when the duty of loyalty was at its peak. The evidence is direct and well-documented through IT security logs. California courts have recognized that the misappropriation of proprietary materials by departing employees in preparation for a competing venture constitutes a breach of the duty of loyalty. See Bancroft-Whitney Co. v. Glen, 64 Cal. 2d at 345–46.

D. Claim 4: Unfair Business Practices (Cal. Bus. & Prof. Code § 17200)

1. Legal Standard

California's Unfair Competition Law ("UCL"), codified at Business and Professions Code section 17200 et seq., prohibits "any unlawful, unfair or fraudulent business act or practice." The UCL establishes three independent prongs — "unlawful," "unfair," and "fraudulent" — each of which provides an independently sufficient basis for relief. See Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th 163, 180 (1999). Available remedies under the UCL include injunctive relief and restitution or disgorgement. See Glenrock Corporation, 29 Cal. 4th 1134, 1144 (2003).

2. Application to the Facts

"Unlawful" Prong. The defendants' conduct constitutes violations of CUTSA (misappropriation of trade secrets) and of the PIIAA (breach of contract), each of which serves as a predicate unlawful act sufficient to support a UCL claim under the "unlawful" prong. See Farmers Ins. Exchange v. Superior Court, 2 Cal. 4th 377, 383 (1992) (the UCL "borrows" violations of other laws and treats them as independently actionable under § 17200).

"Unfair" Prong. Even apart from the predicate violations, the defendants' conduct is "unfair" within the meaning of the UCL. NovaSpark's entire business model appears to be founded on misappropriated trade secrets, giving it an unfair and unjust competitive advantage over Lumos and other legitimate competitors in the AI-driven financial analytics market. The defendants' scheme to systematically extract proprietary technology from Lumos and use it to launch a competing venture inflicts substantial competitive harm and undermines the integrity of the market for engineering talent and proprietary technology in the technology sector. This conduct offends established public policy, is immoral, unethical, oppressive, or unscrupulous, and causes substantial injury to Lumos that is not outweighed by any countervailing benefit to consumers or competition.

Remedies. A UCL claim provides an additional and important basis for equitable relief, including injunctive relief to halt the defendants' unfair business practices and restitution or disgorgement of any profits that NovaSpark has obtained or may obtain through the use of misappropriated trade secrets. These remedies supplement and complement the remedies available under CUTSA and the breach-of-contract claims.

3. Strength of Claim

Moderate to strong. The UCL claim is well-supported by the predicate CUTSA and breach-of-contract violations and provides a valuable additional basis for equitable relief and potential disgorgement. While the UCL does not provide for the recovery of compensatory damages per se, the availability of injunctive relief and restitution/disgorgement makes it a strategically important claim.

E. Claim 5: Conversion

1. Legal Standard

The tort of conversion requires: (i) the plaintiff's ownership or right to possession of property; (ii) the defendant's wrongful act of dominion over the plaintiff's property that is inconsistent with the plaintiff's property rights; and (iii) damages. See Welco Electronics, Inc. v. Mora, 223 Cal. App. 4th 202, 208 (2014).

2. Application to the Facts

The proprietary files, codebases, datasets, and documents taken by the defendants are Lumos's property. Lumos has an ownership interest in these materials by virtue of the employment relationship, the PIIAAs (which assign all work-related inventions to Lumos), and Lumos's investments in their development. The defendants' acts of copying these materials to personal accounts and devices, retaining them after the termination of employment, and failing to return them upon departure constitute wrongful acts of dominion over Lumos's property that are inconsistent with Lumos's ownership rights.

The physical USB drive bearing serial number WD-4837291, which contains the DataStream ETL pipeline repository, constitutes a tangible item containing Lumos's proprietary property. The digital copies stored on the defendants' personal Hollowell Health IT accounts, Larkspur Technologies accounts, and personal email represent additional instances of converted property.

We note that the tort of conversion has traditionally been applied to tangible personal property, and its application to intangible property such as electronic data and digital files has been the subject of evolving jurisprudence in California. However, California courts have recognized conversion claims involving electronic data and other intangible property in appropriate circumstances. See Kremen v. Cohen, 337 F.3d 1024, 1033–34 (9th Cir. 2003) (applying California law and recognizing conversion of intangible property); Halcyon Enterprises v. Bramwell Partners LLC, 184 Cal. App. 4th 210, 239 n.22 (2010). To the extent that the converted property includes tangible items (e.g., the USB drive containing copied data) or digital files that have been transferred to the defendants' personal custody, the conversion claim is on solid ground.

3. Strength of Claim

Moderate. The conversion claim is viable and adds to the breadth of the remedial framework available to Lumos. However, it is potentially subsumed in part by the trade-secret and contract claims, which address much of the same underlying conduct. We include it for completeness and to preserve all available theories of recovery, particularly given that conversion may support the recovery of certain categories of damages (e.g., the value of the specific property taken) that are not duplicative of trade-secret damages.

V. EVIDENCE SUMMARY AND ASSESSMENT

A. Digital Forensic Evidence

The cornerstone of Lumos's evidentiary case is the digital forensic evidence from Lumos's internal IT security systems. Lumos's IT security team maintains detailed logs of user activity, including file transfers, email transmissions, cloud-account connections, and removable-media usage. These logs document the following key exfiltration events with specificity:

Rajiv Anand:

• September 26, 2022: Transfer of approximately 3.2 gigabytes of files — including model architecture specifications and hyperparameter configuration files for the LumosEdge signal-generation engine — from Lumos internal systems to a personal Hollowell Health IT account. The transfer was logged by Lumos's data loss prevention ("DLP") system, which recorded the source files, the destination (Hollowell Health IT), the volume of data transferred, and the timestamp of the transfer.

• September 28, 2022: Forwarding of the confidential "LumosEdge 3.0 Product Roadmap" (37-page PDF, classified "Confidential — Restricted Distribution") to the personal email address r.anand.personal@vaultmail.com. This transmission was logged by Lumos's email security system, which recorded the sender, recipient, subject line, attachment filename and size, and the timestamp of the transmission.

Serena Mallick:

• October 10, 2022: Cloning of the entire DataStream ETL pipeline repository (approximately 780 megabytes) to a personal external USB drive. The Lumos endpoint-security system recorded the connection of an external USB storage device bearing serial number WD-4837291 to Ms. Mallick's workstation, the volume and nature of the data transferred to the device, and the duration of the connection. The repository that was cloned encompasses the complete DataStream codebase, including source code, configuration files, data-schema definitions, and associated documentation.

Derek Yun:

• October 18, 2022: Download of 47 proprietary Jupyter notebooks containing feature-engineering code and model-training scripts to a personal Larkspur Technologies account. The transfer was recorded by Lumos's cloud-access security broker ("CASB") system, which logged the connection to the personal Larkspur Technologies account, the specific files transferred, and the timestamps of each transfer.

These logs are maintained in the ordinary course of business by Lumos's IT security team and are subject to standard retention and integrity controls. They should be admissible as business records under California Evidence Code section 1271 and, if the matter is removed to federal court, under Federal Rule of Evidence 803(6). The IT security personnel who maintain and monitor these systems will be available to testify as to the creation, maintenance, and reliability of the logs.

Recommendation: Independent Forensic Analysis. We strongly recommend that Lumos retain an independent digital-forensics firm to conduct a comprehensive forensic analysis of the IT security logs and associated evidence. This step serves several purposes: (i) it provides independent validation of the conclusions drawn by Lumos's internal IT team; (ii) it ensures that the chain of custody and evidentiary integrity are maintained to the standards required for litigation; (iii) it positions the forensic examiner to serve as an expert witness at the TRO, preliminary injunction, and trial stages; and (iv) it bolsters Lumos's credibility before the court. If litigation proceeds, we further recommend seeking court-ordered forensic imaging of the defendants' personal devices (laptops, phones, tablets), personal cloud storage accounts (Hollowell Health IT, Larkspur Technologies, personal email accounts), and NovaSpark's computing systems and repositories, to be conducted by a neutral, court-appointed or jointly agreed-upon forensic examiner. This will be a critical component of our discovery strategy.

B. Contractual Evidence

Executed PIIAAs for all three defendants are on file with Lumos's Human Resources department. Each PIIAA is signed by the respective defendant and a Lumos representative and is dated as of the defendant's start date. We have reviewed each agreement and confirmed that they contain the restrictive covenant provisions described in Section IV.B above, including the confidentiality and non-disclosure provision, the non-solicitation of employees clause, the assignment of inventions clause, the perpetual covenant not to use or disclose trade secrets, and the return-of-materials obligation.

In addition, Lumos maintains standard exit documentation and protocols that are designed to ensure compliance with the return-of-materials and confidentiality obligations upon an employee's departure. None of the three defendants completed these exit protocols. Specifically, none returned company-issued devices or materials, and none signed the standard "Departing Employee Certification" form confirming the return of all company property and the deletion of all proprietary information from personal accounts and devices. The absence of completed exit documentation supports both the breach-of-contract claim and the inference that the defendants departed with the intention of retaining Lumos proprietary materials.

C. Circumstantial Evidence of Coordination

In addition to the direct forensic evidence of exfiltration, a substantial body of circumstantial evidence supports the conclusion that the defendants' conduct was pre-planned and coordinated. This evidence includes:

• Tight timeline of departures and NovaSpark formation: The chronology — Anand's resignation on September 30, NovaSpark's incorporation on October 3, Mallick's resignation on October 14, Mallick's commencement at NovaSpark on October 17, Yun's resignation on October 21, Yun's commencement at NovaSpark on October 24 — reflects a level of coordination that is inconsistent with three independent employment decisions. The three-day gaps between each defendant's resignation and their commencement at NovaSpark are particularly suggestive, indicating that employment at NovaSpark was pre-arranged.

• Speed of NovaSpark's funding: NovaSpark closed a $12 million seed round from Blackpine Capital Partners on November 15, 2022 — approximately six weeks after Anand's resignation. Seed-round fundraising typically requires, at minimum, the development of a pitch deck, a product vision and technology demonstration, multiple investor meetings, term-sheet negotiation, due diligence, and legal closing processes. The speed of this process strongly suggests that the pitch process was initiated while the defendants were still employed at Lumos and that Lumos's trade secrets were used as the basis for NovaSpark's technology presentation to investors.

• Direct product overlap: NovaSpark's stated product offering — AI-driven alternative-data analytics for hedge funds and proprietary trading desks — directly overlaps with the core market served by Lumos's LumosEdge platform. This is not a case in which former employees have departed to pursue an unrelated business opportunity; the defendants have established a venture that competes head-to-head with their former employer in the same narrow market niche.

• Composition of the NovaSpark team: As of the date of this memorandum, the three defendants constitute the entire known founding technical team of NovaSpark. All three were senior members of the Lumos engineering organization with access to the company's most sensitive proprietary technologies. The concentration of former Lumos engineers at NovaSpark amplifies the risk of trade-secret contamination and the inference that Lumos technology forms the foundation of NovaSpark's product.

Taken together, the circumstantial evidence paints a compelling picture of a pre-planned scheme to depart Lumos, take the company's most valuable proprietary technology, and use it to establish and fund a competing venture.

D. Testimony Sources

In addition to the documentary and forensic evidence, Lumos has identified the following key witnesses who can provide testimony in support of its claims:

• Priya Chandrasekaran, CEO: Ms. Chandrasekaran can testify to the value of the trade secrets at issue, the competitive harm caused by the defendants' conduct, Lumos's business strategy and market position, and the impact of the misappropriation on Lumos's operations, customer relationships, and competitive standing.

• Rachel Fong, VP of Engineering: Ms. Fong can provide detailed testimony regarding the technical nature and scope of the trade secrets at issue, the security measures maintained by Lumos to protect its proprietary technology (including access controls, internal classification systems, and engineering policies), the individual defendants' roles and levels of access, and the development effort and investment required to create the technologies that were misappropriated.

• Thomas Brightwell, General Counsel: Mr. Brightwell can authenticate the PIIAAs executed by each defendant, testify regarding Lumos's corporate policies and exit procedures, and authenticate corporate records and communications relevant to the matter.

• IT Security Personnel: Members of Lumos's IT security team can authenticate the data-exfiltration logs, testify regarding the systems and processes used to detect and record the anomalous activity, explain the technical details of the exfiltration events, and establish the chain of custody for the digital forensic evidence.

Each of these witnesses should be prepared to provide declarations in support of the TRO and preliminary injunction applications and should be available for testimony at any evidentiary hearing.

VI. RECOMMENDED LITIGATION STRATEGY

A. Venue and Forum

We recommend filing suit in the Superior Court of the State of California, County of Santa Clara. This venue is appropriate for the following reasons:

• Lumos's principal place of business is located in San Jose, within Santa Clara County.

• The PIIAAs at issue were executed in Santa Clara County.

• A

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT ATTORNEY-CLIENT PRIVILEGED COMMUNICATION
This memorandum has been prepared by attorneys at Calderwood & Harkness LLP in anticipation of litigation and is protected by the attorney-client privilege and the attorney work-product doctrine. This memorandum is intended solely for the use of the addressees. Any disclosure, distribution, or copying of this memorandum or any attachment without the prior written consent of Calderwood & Harkness LLP is strictly prohibited.
CALDERWOOD & HARKNESS LLP
INTERNAL MEMORANDUM
TO: Marcus Delgado, Responsible Partner, intellectual Property Practice Group Catherine Bloom, Billing Partner, intellectual Property Practice Group
FROM: Wendy Schultz, Lead Associate, intellectual Property Practice Group Omar Siddiqui, Working Associate, intellectual Property Practice Group
DATE: January 5, 2023
RE: Case Assessment and Litigation Strategy — Lumos Analytics Inc. v. Rajiv Anand, Serena Mallick, Derek Yun, and NovaSpark Technologies Inc.
MATTER NO.: 1008-00005
CLIENT: Lumos Analytics Inc.
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I. EXECUTIVE SUMMARY
Calderwood & Harkness LLP was retained on December 15, 2022 by Lumos Analytics Inc. ("Lumos" or "Lumos AI"), a Delaware-incorporated, California-headquartered software-as-a-service ("SaaS") company specializing in artificial-intelligence-driven financial analytics, through its General Counsel, Thomas Brightwell. This memorandum provides a comprehensive case assessment and recommended litigation strategy in connection with the misappropriation of Lumos's most valuable proprietary technology and trade secrets by three former senior engineers and the competing startup they subsequently founded.
On December 12, 2022, Lumos's internal IT security team identified anomalous data-exfiltration activity that had occurred during the final weeks of employment of three former senior engineers: Rajiv Anand (former Principal Engineer — ML Infrastructure), Serena Mallick (former Senior Software Engineer — Data Pipelines), and Derek Yun (former ML Engineer II). Each of these individuals had occupied positions of significant trust and had access to Lumos's most sensitive and commercially valuable proprietary technologies, codebases, training datasets, and strategic product roadmaps. The forensic evidence indicates that each defendant systematically copied substantial volumes of proprietary materials to personal accounts and devices shortly before departing the company.
All three individual defendants departed Lumos in rapid succession between September 30 and October 21, 2022. Within days of their respective departures, each joined or co-founded NovaSpark Technologies Inc. ("NovaSpark"), a competing startup that was incorporated in Delaware by Rajiv Anand on October 3, 2022 — just three days after his resignation from Lumos — and is now headquartered at 88 Bluxome Street, Floor 4, San Francisco, California 94107. NovaSpark's stated product offering directly and substantially overlaps with Lumos's core market of AI-driven analytics for institutional asset managers, hedge funds, and proprietary trading desks. The speed with which NovaSpark was incorporated, staffed by former Lumos employees, and brought to market strongly suggests that the venture was pre-planned and coordinated while the defendants were still employed at Lumos, using Lumos's own proprietary technology as the foundation.
Further underscoring the pre-planned nature of this scheme, NovaSpark received a $12 million seed-round investment from Blackpine Capital Partners LP, which closed on November 15, 2022 — barely six weeks after Anand's resignation. The timeline and magnitude of the funding round are inconsistent with any scenario in which NovaSpark was developed from a clean-room starting point and instead point to the use of Lumos trade secrets as the basis for NovaSpark's pitch to investors and its accelerated product development.
This memorandum assesses the viable claims available to Lumos, analyzes the evidentiary basis for each claim, discusses each defendant's restrictive covenant obligations under their respective Proprietary Information and Inventions Assignment Agreements ("PIIAAs"), and recommends an aggressive litigation strategy, including seeking an ex parte Temporary Restraining Order ("TRO") and preliminary injunction to halt the ongoing misappropriation and prevent further irreparable harm.
Based on our analysis of the facts, the applicable law, the evidentiary record, and the available remedies, we recommend that Lumos file suit in the Superior Court of the State of California, County of Santa Clara, asserting the following claims:
1. Trade secret misappropriation under the California Uniform Trade Secrets Act ("CUTSA"), Cal. Civ. Code §§ 3426–3426.11;
2. Breach of contract (PIIAA), including breach of the restrictive covenant provisions therein;
3. Breach of the duty of loyalty owed by each individual defendant during the period of their employment at Lumos;
4. Unfair business practices under Cal. Bus. & Prof. Code § 17200 et seq.; and
5. Conversion of Lumos's proprietary materials, codebases, and data.
We further recommend that the complaint be accompanied by an ex parte application for a TRO to be filed simultaneously, seeking an order requiring the immediate cessation of defendants' use of Lumos proprietary information, the preservation of all electronic devices and storage media in defendants' possession, and a prohibition on the destruction of any documents or files relevant to this matter. Upon issuance of a TRO, we recommend pursuing a preliminary injunction on the most expedited schedule available.
The balance of this memorandum sets forth the factual background, legal analysis, evidentiary assessment, and recommended litigation strategy in detail.
II. BACKGROUND AND FACTUAL SUMMARY
A. The Client — Lumos Analytics Inc.
Lumos Analytics Inc. was founded in approximately 2017 and is incorporated in the State of Delaware (File No. 6518274; EIN 82-4713956). The company maintains its principal place of business at 4700 Orchard Parkway, Suite 300, San Jose, California 95134. Lumos operates as a SaaS platform provider in the financial technology sector, and its primary product offering centers on the use of advanced artificial intelligence and machine-learning techniques to generate predictive analytics for the financial services industry.
Lumos's flagship product, marketed under the trade name "LumosEdge," employs proprietary ensemble machine-learning models to generate predictive signals for equity and fixed-income portfolio optimization. The platform is designed for and marketed to institutional asset managers, hedge funds, and proprietary trading desks — a specialized and highly competitive market in which the quality and accuracy of predictive signals constitute the primary basis of competition. The LumosEdge platform is the product of years of intensive research and development, representing substantial investment in data science, machine-learning engineering, proprietary data curation, and feature engineering.
As of the date of this memorandum, Lumos employs approximately 340 individuals across engineering, data science, product, sales, and corporate functions. For the fiscal year ending December 31, 2022, Lumos reported annual recurring revenue ("ARR") of approximately $67 million, reflecting strong growth in its institutional client base and continued expansion of its product capabilities.
Lumos has raised a total of approximately $185 million in venture capital financing through its Series D round. Notable among these funding rounds are its Series B ($40 million), led by Ridgeline Ventures (General Partner: Helen Trask), and its most recent Series D ($72 million), led by Northstar Growth Equity (Managing Director: Jonathan Holt), which closed in June 2022. The substantial capital raised underscores the significant market value attributed to Lumos's proprietary technology and market position by sophisticated institutional investors.
The company's leadership team includes Priya Chandrasekaran, Chief Executive Officer; Thomas Brightwell, General Counsel (and our primary client contact); and Rachel Fong, Vice President of Engineering. Ms. Fong has direct supervisory authority over the engineering teams in which the three individual defendants were employed and is well-positioned to testify regarding the nature, scope, and protective measures associated with the trade secrets at issue.
B. The Individual Defendants and Their Roles at Lumos
The three individual defendants — Rajiv Anand, Serena Mallick, and Derek Yun — were each senior members of the Lumos engineering organization. Each occupied a role requiring access to Lumos's most sensitive proprietary technologies, codebases, and data. Each executed a Proprietary Information and Inventions Assignment Agreement upon the commencement of their employment. The specific roles, tenure, and departure circumstances for each are discussed below.
Rajiv Anand. Mr. Anand, age 37, served as Principal Engineer — ML Infrastructure at Lumos from March 2019 through September 30, 2022, a tenure of approximately three and one-half years. In this role, Mr. Anand was one of the key architects of the LumosEdge signal-generation engine, which constitutes the core of Lumos's product offering. He had access to the company's most sensitive proprietary codebases, model architectures, hyperparameter configurations, and training data pipelines. His level of access and technical responsibility was among the highest in the engineering organization, reflecting the trust that Lumos placed in him.
Mr. Anand resigned from Lumos on September 30, 2022, effective immediately, without providing the customary notice period. Just three days later, on October 3, 2022, Mr. Anand incorporated NovaSpark Technologies Inc. in the State of Delaware. He now serves as CEO and co-founder of NovaSpark. Mr. Anand executed a PIIAA upon joining Lumos in March 2019, which contains the restrictive covenant provisions discussed in detail in Section IV.B below.
Serena Mallick. Ms. Mallick, age 34, served as Senior Software Engineer — Data Pipelines at Lumos from June 2020 through October 14, 2022, a tenure of approximately two years and four months. In this role, Ms. Mallick was the primary engineer responsible for building and maintaining the proprietary ETL (extract, transform, load) pipelines that ingest alternative financial data from external vendors into the LumosEdge platform. This system, known internally at Lumos as "DataStream," represents a critical piece of the company's technology stack, as the quality, reliability, and speed of data ingestion are essential to the accuracy and timeliness of the predictive signals generated by LumosEdge. The DataStream system integrates data feeds from 43 separate alternative-data vendors, each requiring custom ingestion logic, data normalization, quality-control procedures, and schema definitions.
Ms. Mallick resigned from Lumos on October 14, 2022. She commenced employment at NovaSpark as its Vice President of Engineering just three days later, on October 17, 2022. The brevity of the gap between her departure from Lumos and her start at NovaSpark further supports the inference that her departure was pre-planned and coordinated with Mr. Anand. Ms. Mallick executed a PIIAA upon her hire at Lumos in June 2020.
Derek Yun. Mr. Yun, age 31, served as ML Engineer II at Lumos from January 2021 through October 21, 2022, a tenure of approximately one year and ten months. In this role, Mr. Yun had direct access to proprietary training datasets, model hyperparameters, and the company's feature-engineering libraries — all of which are critical components of the LumosEdge platform and constitute trade secrets of considerable value. Mr. Yun's technical responsibilities involved the day-to-day development, training, and evaluation of machine-learning models, giving him detailed knowledge of the algorithms, data structures, and optimization techniques that underpin LumosEdge.
Mr. Yun resigned from Lumos on October 21, 2022. He joined NovaSpark as a founding engineer three days later, on October 24, 2022. Like Anand and Mallick, the speed of his transition strongly suggests pre-arranged coordination. Mr. Yun executed a PIIAA upon his hire at Lumos in January 2021.
C. NovaSpark Technologies Inc.
NovaSpark Technologies Inc. is a Delaware corporation (File No. 7294183; EIN 88-3291047) incorporated on October 3, 2022, by Rajiv Anand. As noted, NovaSpark was incorporated a mere three days after Mr. Anand's resignation from Lumos. The company's headquarters are located at 88 Bluxome Street, Floor 4, San Francisco, California 94107.
NovaSpark purports to offer AI-driven alternative-data analytics for hedge funds and proprietary trading desks — a product description that maps directly onto the core market served by Lumos's LumosEdge platform. While the full scope of NovaSpark's product capabilities is not yet publicly known, the overlap in target market, technology description, and the specific expertise of its founding team (all drawn from Lumos's engineering organization) creates a strong inference that NovaSpark's product is built upon, or at a minimum substantially informed by, Lumos's proprietary technology and trade secrets.
NovaSpark secured seed-round financing of $12 million from Blackpine Capital Partners LP (Managing Partner: Franklin Osei; headquartered at 101 Mission Street, 38th Floor, San Francisco, California 94105). This round closed on November 15, 2022, approximately six weeks after Anand's departure from Lumos. The speed with which NovaSpark was founded, staffed with former Lumos engineers, and funded at a $12 million level is, in our assessment, highly unusual for an early-stage startup and strongly suggestive of pre-planned coordination among the defendants while they were still employed at Lumos. It is difficult to conceive of a scenario in which a startup could be incorporated, develop a credible product vision and technology demonstration, engage a venture capital firm, negotiate terms, and close a $12 million round in a matter of weeks without having substantial pre-existing technology assets — technology that, in this case, we believe was misappropriated from Lumos.
We further note that Blackpine Capital Partners may have been unwittingly drawn into this scheme. Discovery directed at NovaSpark's investor pitch materials and communications with Blackpine may yield significant evidence regarding the extent to which Lumos's trade secrets were used or referenced in connection with the fundraising process.
D. Timeline of Departures and Coordination
The following detailed chronology sets forth the key events as currently known based on Lumos's IT security logs, HR records, corporate filings, and other available information. This timeline underscores the systematic and coordinated nature of the defendants' conduct:
September 26, 2022: Mr. Anand transfers approximately 3.2 gigabytes of files — including model architecture specifications and hyperparameter configuration files for the LumosEdge signal-generation engine — from Lumos's internal systems to a personal Hollowell Health IT account. This transfer was detected in Lumos's IT security logs, which recorded the destination, volume, and approximate content of the transfer. At the time of this transfer, Mr. Anand was still a full-time employee of Lumos.
September 28, 2022: Mr. Anand accesses and forwards the confidential "LumosEdge 3.0 Product Roadmap" — a 37-page PDF document containing the company's proprietary product strategy and planned feature development for calendar years 2023 through 2025 — to his personal email account at r.anand.personal@vaultmail.com. This document is classified internally at Lumos as "Confidential — Restricted Distribution" and is ordinarily accessible only to senior engineering leadership and the executive team. Mr. Anand was still employed at Lumos at the time of this transmission.
September 30, 2022: Mr. Anand resigns from Lumos, effective immediately, without providing advance notice. He does not complete Lumos's standard exit procedures, does not return any company materials, and does not confirm the deletion of any Lumos proprietary information from personal accounts or devices, as required by his PIIAA.
October 3, 2022: NovaSpark Technologies Inc. is incorporated in the State of Delaware by Mr. Anand — just three calendar days after his resignation from Lumos.
October 10, 2022: Ms. Mallick clones the entire DataStream ETL pipeline repository — comprising approximately 780 megabytes of proprietary source code, configuration files, data-schema definitions, and associated documentation — to a personal external USB drive bearing serial number WD-4837291. The repository represents the entirety of the DataStream system built and maintained by Ms. Mallick's team during her employment. At the time of this action, Ms. Mallick was still employed at Lumos.
October 14, 2022: Ms. Mallick resigns from Lumos. Like Mr. Anand, she does not complete Lumos's standard exit procedures, does not return company materials, and does not confirm the deletion of proprietary information from personal accounts or devices.
October 17, 2022: Ms. Mallick begins employment at NovaSpark as Vice President of Engineering — three calendar days after her resignation from Lumos.
October 18, 2022: Mr. Yun downloads 47 proprietary Jupyter notebooks containing feature-engineering code and model-training scripts from Lumos's internal repositories to a personal Larkspur Technologies account. These notebooks contain code that is central to Lumos's proprietary feature-engineering process and represents years of iterative research, development, and refinement. At the time of this download, Mr. Yun was still employed at Lumos.
October 21, 2022: Mr. Yun resigns from Lumos. He does not complete exit procedures, return materials, or confirm deletion of proprietary information.
October 24, 2022: Mr. Yun begins employment at NovaSpark as a founding engineer — three calendar days after his resignation from Lumos.
November 15, 2022: NovaSpark closes a $12 million seed-round investment from Blackpine Capital Partners LP.
December 12, 2022: Lumos's internal IT security team, in the course of a routine security audit, identifies anomalous data-exfiltration activity from the final weeks of Mr. Anand's, Ms. Mallick's, and Mr. Yun's respective periods of employment. The security team's analysis reveals the specific transfers, copies, and downloads described above.
December 15, 2022: Lumos, through its General Counsel Thomas Brightwell, retains Calderwood & Harkness LLP to investigate the matter and advise on available legal remedies.
It is significant that none of the three defendants returned company materials or confirmed the deletion of Lumos proprietary information upon departure, as expressly required by the PIIAA. The failure to comply with these return-of-materials obligations constitutes an independent breach of contract and raises additional concerns regarding the ongoing possession and potential use of Lumos trade secrets by the defendants and NovaSpark.
The pattern of conduct — systematic exfiltration of the most commercially valuable elements of Lumos's technology stack by three senior engineers in the days and weeks preceding their coordinated departure, followed by the near-immediate founding of a directly competing venture — presents a compelling picture of a deliberate and premeditated scheme to misappropriate Lumos's trade secrets for the benefit of NovaSpark.
III. IDENTIFICATION OF TRADE SECRETS AT ISSUE
In order to prevail on a claim under CUTSA, Lumos must identify its trade secrets with "reasonable particularity." Cal. Civ. Code § 3426.1(d); Brescia v. Angelin, 172 Cal. App. 4th 133, 149 (2009). Based on our investigation to date and our discussions with Lumos's General Counsel and VP of Engineering, we have identified five categories of proprietary technology and information that constitute the trade secrets at issue in this matter. Each is described below, along with an assessment of its qualification as a trade secret under CUTSA.
1. LumosEdge Ensemble ML Model Architecture. This category encompasses the proprietary neural-network topology, ensemble model design, and hyperparameter configurations that form the core of the LumosEdge signal-generation engine. The model architecture represents the culmination of years of research and development by Lumos's machine-learning engineering team and is the product of iterative experimentation, training, and optimization using proprietary datasets. The specific combination of model types, layer configurations, activation functions, regularization techniques, and hyperparameters that comprise the LumosEdge engine is not publicly known and constitutes the primary source of LumosEdge's competitive advantage. Mr. Anand, as the key architect of this system, had intimate knowledge of its design and took 3.2 gigabytes of related files when he departed.
2. Proprietary Feature-Engineering Libraries. Lumos has developed, through years of intensive research and development, a comprehensive library of 2,847 individually engineered features for financial signal generation. Each feature represents a specific transformation, aggregation, or derivation of raw or alternative data that the Lumos data-science team has determined to have predictive value for equity or fixed-income portfolio optimization. The development of these features required substantial expertise, experimentation, and domain-specific knowledge, and the library as a whole represents a significant competitive asset. The specific features, their mathematical formulations, and their implementation code are maintained on Lumos's internal systems and are not publicly available. Mr. Yun's 47 downloaded Jupyter notebooks contained code that directly implements and documents many of these engineered features.
3. DataStream ETL Pipeline Codebase and Data-Schema Definitions. The DataStream system is Lumos's proprietary ETL pipeline infrastructure, responsible for ingesting, transforming, normalizing, and loading alternative financial data from 43 separate external data vendors into the LumosEdge platform. The system includes custom ingestion connectors for each vendor, proprietary data normalization and quality-control logic, schema definitions that map disparate data sources into a unified analytical framework, and scheduling and monitoring components. The DataStream system was primarily built and maintained by Ms. Mallick's team and represents a substantial engineering investment. The entire DataStream repository — approximately 780 megabytes — was cloned by Ms. Mallick to a personal USB drive prior to her departure.
4. Curated and Labeled Training Dataset. Lumos maintains a curated and labeled training dataset comprising approximately 14.6 terabytes of historical financial and alternative data. This dataset has been assembled, cleaned, labeled, and structured over the course of several years and represents a critical input to the training and validation of LumosEdge's machine-learning models. The curation process involves significant manual and automated effort, including the identification and correction of data errors, the labeling of outcomes for supervised-learning tasks, and the alignment of disparate time series. The dataset is stored on Lumos's secure internal infrastructure and access is restricted to authorized engineering personnel. While the individual underlying raw data may be available from external vendors, the curated, labeled, and structured form of the dataset — including the specific selections, combinations, and transformations applied — is proprietary to Lumos and derives substantial economic value from its non-public nature.
5. Confidential Product Roadmap Materials. This category includes the unreleased "LumosEdge 3.0 Product Roadmap," a 37-page PDF document setting forth Lumos's proprietary product strategy, planned feature development, market positioning, competitive analysis, and technology investment priorities for calendar years 2023 through 2025. This document is classified as "Confidential — Restricted Distribution" and is accessible only to a limited number of senior executives and engineering leaders. The product roadmap contains highly sensitive strategic information, the disclosure of which to a competitor would cause significant competitive harm. Mr. Anand forwarded this document to his personal email on September 28, 2022.
Each of the foregoing categories satisfies the statutory definition of a "trade secret" under CUTSA. Specifically, each category (i) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Cal. Civ. Code § 3426.1(d).
With respect to the second element, Lumos maintains a comprehensive suite of security and confidentiality measures, including but not limited to: role-based access controls limiting access to proprietary systems and codebases to authorized personnel on a need-to-know basis; multi-factor authentication for all internal systems; internal classification and labeling systems for confidential documents; mandatory execution of PIIAAs by all employees; mandatory exit protocols requiring the return of all company materials and the deletion of proprietary information from personal accounts and devices; physical security measures at Lumos's offices, including badge access and visitor logging; and periodic security training for all employees. These measures are reasonable under the circumstances and satisfy the requirements of CUTSA.
IV. ANALYSIS OF CLAIMS
A. Claim 1: Misappropriation of Trade Secrets Under CUTSA (Cal. Civ. Code §§ 3426–3426.11)
1. Legal Standard
Under CUTSA, a plaintiff must establish two elements: (i) the existence of a trade secret and (ii) misappropriation of that trade secret. Cal. Civ. Code § 3426.1. "Misappropriation" is defined to include both the acquisition of a trade secret by a person who knows or has reason to know that the trade secret was acquired by improper means, and the disclosure or use of a trade secret by a person who used improper means to acquire knowledge of the trade secret or who, at the time of the disclosure or use, knew or had reason to know that the trade secret was derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use. Cal. Civ. Code § 3426.1(b).
"Improper means" includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. Cal. Civ. Code § 3426.1(a). Reverse engineering and independent development do not constitute improper means. Id.
2. Application to the Facts
Trade Secret Existence. As discussed in Section III above, all five categories of proprietary technology and information at issue qualify as trade secrets under CUTSA. Lumos invested substantial financial and human resources in developing these technologies over a period of several years. They are not publicly available and are not readily ascertainable by proper means. Lumos maintains comprehensive access controls, contractual protections (PIIAAs), internal classification systems, and other reasonable security measures to protect their secrecy. The 2,847 individually engineered features, the proprietary ensemble model architecture and hyperparameter configurations, the DataStream ETL pipeline integrating 43 alternative-data vendors, the 14.6-terabyte curated training dataset, and the LumosEdge 3.0 product roadmap all derive substantial independent economic value from their non-public nature. A competitor possessing this information would gain an enormous development-time and competitive advantage, sparing itself the years of research, development, testing, and investment that Lumos expended.
Misappropriation. Each defendant acquired Lumos trade secrets through improper means and/or in breach of a duty of confidentiality owed under the PIIAA. The specific acts of misappropriation are well-documented through Lumos's IT security logs:
• Rajiv Anand: Transferred approximately 3.2 GB of files — including model architecture specifications and hyperparameter configuration files — to a personal Hollowell Health IT account on September 26, 2022, and forwarded the confidential LumosEdge 3.0 Product Roadmap (37-page PDF) to his personal email address (r.anand.personal@vaultmail.com) on September 28, 2022. Both transfers occurred while Mr. Anand was still employed at Lumos and subject to his PIIAA obligations, and both involved the unauthorized removal of trade-secret materials from Lumos's controlled systems to personal, unsecured accounts.
• Serena Mallick: Cloned the entire DataStream ETL pipeline repository (approximately 780 MB) to a personal external USB drive (serial number WD-4837291) on October 10, 2022. This transfer occurred four days before Ms. Mallick's resignation and while she remained a full-time Lumos employee. The DataStream repository represents the entirety of a critical proprietary system and its removal to an uncontrolled personal device constitutes a clear act of misappropriation.
• Derek Yun: Downloaded 47 proprietary Jupyter notebooks containing feature-engineering code and model-training scripts to a personal Larkspur Technologies account on October 18, 2022. This download occurred three days before Mr. Yun's resignation and while he remained a Lumos employee. The notebooks contain detailed implementations of Lumos's proprietary feature-engineering processes and model-training methodologies.
Use and Disclosure. Beyond the initial acquisition, the circumstances strongly support an inference that the misappropriated trade secrets have been used and/or disclosed in connection with the development of NovaSpark's competing product. The rapid founding and development of a directly competing AI-driven analytics platform by a startup staffed entirely by former Lumos engineers who took proprietary materials with them creates a powerful inference of use. See Sargent Fletcher, Inc. v. Able Corp., 110 Cal. App. 4th 1658, 1665 (2003) (circumstantial evidence may establish use of trade secrets); Halcyon Enterprises v. Bramwell Partners LLC, 184 Cal. App. 4th 210, 239 (2010). The fact that NovaSpark secured $12 million in funding within weeks of its formation — in a market where product demonstrations and technology validation are typically required — further supports the inference that Lumos trade secrets were used, at a minimum, to create a product prototype or technology demonstration for potential investors.
We anticipate that defendants will argue that NovaSpark's technology was developed independently. However, the timeline renders this defense implausible. NovaSpark was incorporated on October 3, 2022, and was apparently in a position to pitch to investors and close a $12 million round by November 15, 2022. It is effectively impossible for a startup to develop from scratch a complex AI-driven financial analytics platform — one that competes directly with a product that took Lumos years and tens of millions of dollars in investment to build — in a period of approximately six weeks without relying on pre-existing proprietary technology.
3. Strength of Claim
Strong. Lumos has direct, log-level evidence of the acquisition of trade secrets by each defendant through improper means and in breach of their PIIAA obligations. The circumstantial evidence of use and disclosure is compelling given the timeline, the defendants' coordinated conduct, the nature of NovaSpark's product, and the speed of its development and funding. We believe this claim will withstand scrutiny at the TRO, preliminary injunction, and summary judgment stages.
B. Claim 2: Breach of Contract (PIIAA)
1. Legal Standard
Under California law, the elements of a breach-of-contract claim are: (i) the existence of a valid contract; (ii) the plaintiff's performance or excuse for non-performance; (iii) the defendant's breach; and (iv) resulting damages to the plaintiff. Oasis West Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 (2011).
2. The PIIAA and Its Restrictive Covenant Provisions
Each of the three individual defendants executed Lumos's standard Proprietary Information and Inventions Assignment Agreement upon the commencement of their respective employment. These agreements were a condition of employment and were signed prior to the defendants' gaining access to Lumos's proprietary systems and trade secrets. The PIIAAs are currently on file with Lumos's Human Resources department and have been provided to us for review. The PIIAA contains the following material restrictive covenant provisions:
(a) Assignment of Inventions Clause. The PIIAA provides that all inventions, works of authorship, developments, improvements, and trade secrets created, conceived, or reduced to practice by the employee during the period of employment, and that relate in any way to Lumos's business or anticipated business, are the sole and exclusive property of Lumos and are hereby assigned to Lumos. This provision ensures that any technology developed by the defendants during their employment — including the specific codebases, model architectures, feature-engineering work, and pipeline systems to which they contributed — belongs to Lumos.
(b) Confidentiality and Non-Disclosure Provision. The PIIAA contains a comprehensive confidentiality and non-disclosure provision that survives the termination of employment for a period of three (3) years. This provision prohibits each employee from disclosing or using, directly or indirectly, any confidential information or trade secrets of Lumos, except as required in the performance of their duties at Lumos. "Confidential Information" is broadly defined in the PIIAA to include, without limitation, proprietary technology, source code, algorithms, model architectures, data, datasets, business plans, product roadmaps, customer information, financial information, and any other information that is treated as confidential by Lumos.
(c) Non-Solicitation of Employees Clause. The PIIAA includes a twelve (12)-month post-separation prohibition on directly or indirectly soliciting, inducing, or encouraging any employee of Lumos to terminate their employment with Lumos or to accept employment with any other person, firm, or entity.
(d) Covenant Not to Use or Disclose Trade Secrets. Separately from the time-limited non-disclosure provision, the PIIAA contains a perpetual covenant not to use or disclose Lumos trade secrets at any time, whether during or after employment. This covenant expressly references the restrictive covenant framework of the PIIAA and survives the termination of employment in perpetuity.
(e) Return of Materials Obligation. The PIIAA requires that, upon the termination of employment for any reason, the employee must immediately return to Lumos all company materials, including documents, files, data, code, devices, and all copies thereof, in whatever form. The employee is further required to confirm in writing that they have returned all such materials and have not retained any copies. As noted, none of the three defendants complied with this obligation.
Enforceability Under California Law. We note that California Business and Professions Code § 16600 generally voids contractual provisions that restrain an individual from engaging in a lawful profession, trade, or business of any kind. This provision is broadly interpreted by California courts and renders traditional non-competition agreements unenforceable in most circumstances. See Edwards v. Kraft Quill CPAs LLP, 44 Cal. 4th 937 (2008). However, the PIIAA's restrictive covenant provisions are not traditional non-compete provisions. Rather, they are narrowly tailored to protect Lumos's legitimate trade-secret interests and confidential information, and California courts have consistently recognized that such provisions are enforceable.
Specifically, California courts enforce non-disclosure and confidentiality provisions that protect trade secrets. See Retirement Group v. Galante, 176 Cal. App. 4th 1226, 1237–38 (2009) ("[C]ontracts that restrain the misappropriation of trade secrets and confidential information are not the type of restraints that Section 16600 prohibits."). Similarly, covenants not to use trade secrets and non-solicitation provisions, to the extent they serve to protect legitimate trade-secret interests rather than to restrain competition generally, are enforceable. See The Retirement Group v. Galante, 176 Cal. App. 4th at 1238; Loral Corp. v. Moyes, 174 Cal. App. 3d 268, 276 (1985). The return-of-materials provision is plainly enforceable as a straightforward contractual obligation regarding company property.
Accordingly, we do not anticipate a successful challenge to the enforceability of the PIIAA's restrictive covenant provisions in this case. The provisions are carefully tailored to protect Lumos's trade secrets and confidential information and do not constitute an overbroad restraint on the defendants' ability to work in their respective fields.
3. Breach Analysis
All three defendants have breached their PIIAA obligations in the following respects:
• Copying and retention of proprietary materials: Each defendant copied substantial volumes of Lumos proprietary materials to personal accounts and devices (Anand: Hollowell Health IT and personal email; Mallick: personal USB drive; Yun: personal Larkspur Technologies account). These acts constitute a breach of the confidentiality, non-disclosure, and covenant-not-to-use-trade-secrets provisions.
• Failure to return company materials upon departure: None of the three defendants completed Lumos's exit protocols, returned company materials, or confirmed the deletion of proprietary information from personal accounts and devices, as required by the return-of-materials provision.
• Use and/or disclosure of Lumos trade secrets in connection with NovaSpark: As discussed above, the circumstances strongly support the inference that the misappropriated materials have been used in connection with the development of NovaSpark's competing product and/or disclosed to NovaSpark and its investors. Such use and disclosure would constitute a breach of the confidentiality, non-disclosure, and covenant-not-to-use-trade-secrets provisions.
Additionally, the non-solicitation clause may be implicated given the coordinated departures of three senior engineers within a period of approximately three weeks. While we do not yet have direct evidence that one defendant solicited the others to leave Lumos (as opposed to, for example, Anand inviting Mallick and Yun to join NovaSpark after they had independently decided to depart), the timing is highly suggestive. Discovery into the defendants' communications during the departure period should illuminate this issue.
4. Strength of Claim
Strong. The existence of a valid contract (the PIIAA) is clear and documented. Lumos performed its obligations by providing employment, compensation, and access to proprietary systems. The defendants' breaches are well-documented through IT security logs and the undisputed failure to return materials. Damages are demonstrable and include the competitive harm caused by the misuse of trade secrets and the cost of remediation.
C. Claim 3: Breach of Duty of Loyalty
1. Legal Standard
Under California law, employees owe a duty of loyalty to their employer during the period of their employment. This duty prohibits employees from engaging in activities that are in direct competition with the employer, from misappropriating corporate opportunities, from engaging in self-dealing at the employer's expense, and from acting in a manner that is fundamentally adverse to the employer's interests. See Fowler v. Varian Associates, Inc., 196 Cal. App. 3d 34, 41 (1987); Huong Que, Inc. v. Luu, 150 Cal. App. 4th 400, 410 (2007). The duty of loyalty exists independently of any contractual obligation and arises by operation of law from the employment relationship itself.
While California law does not prevent an employee from making preparations to compete with the employer after the termination of employment — for example, an employee may form a general intent to depart and even take preliminary steps such as incorporating a business entity — the duty of loyalty prohibits the employee from actually competing with the employer, from soliciting the employer's customers or employees, or from misappropriating the employer's proprietary information, trade secrets, or other assets while still employed. See Mamou v. Trendwest Resorts, Inc., 165 Cal. App. 4th 686, 719 (2008); Bancroft-Whitney Co. v. Glen, 64 Cal. 2d 327, 345–46 (1966).
2. Application to the Facts
The evidence demonstrates that each of the three individual defendants engaged in conduct that constitutes a breach of the duty of loyalty owed to Lumos during the period of their respective employment:
• Rajiv Anand: Mr. Anand's exfiltration activities on September 26 and September 28, 2022 occurred while he was still a full-time employee of Lumos. He was actively preparing to compete with Lumos — as demonstrated by the incorporation of NovaSpark just three days after his resignation — while simultaneously occupying a position of significant trust within Lumos's engineering organization and systematically copying the most sensitive proprietary materials from Lumos's systems. The transfer of 3.2 GB of model architecture files and the forwarding of the confidential product roadmap were acts taken in furtherance of a competing venture and are fundamentally inconsistent with the duty of loyalty.
• Serena Mallick: Ms. Mallick's cloning of the entire DataStream ETL pipeline repository to a personal USB drive on October 10, 2022, occurred four days before her resignation. At the time, she was still a Lumos employee with fiduciary-like obligations of loyalty and good faith. The act of copying the entirety of a proprietary codebase — one that she had helped build in her capacity as a Lumos employee — for the purpose of using it in a competing venture constitutes a clear breach of the duty of loyalty.
• Derek Yun: Mr. Yun's download of 47 proprietary Jupyter notebooks to a personal Larkspur Technologies account on October 18, 2022, occurred three days before his resignation. He, too, was still a Lumos employee at the time and owed a duty of loyalty. The download of materials containing proprietary feature-engineering code and model-training scripts — materials of significant competitive value — for use in a competing venture is directly contrary to his duty of loyalty.
Beyond the individual acts of exfiltration, the coordinated nature of the three defendants' departures supports the inference that all three were actively planning and coordinating the establishment of a competing venture while still employed at Lumos. The tight timeline — Anand's resignation on September 30, NovaSpark's incorporation on October 3, Mallick's resignation on October 14 and commencement at NovaSpark on October 17, Yun's resignation on October 21 and commencement at NovaSpark on October 24 — is inconsistent with three independent decisions to leave and instead suggests a pre-arranged plan. To the extent that any defendant solicited others to leave Lumos during the period of employment, such solicitation would constitute an additional breach of the duty of loyalty.
3. Strength of Claim
Strong as to all defendants. The critical fact is that all exfiltration activities occurred during the period of employment, when the duty of loyalty was at its peak. The evidence is direct and well-documented through IT security logs. California courts have recognized that the misappropriation of proprietary materials by departing employees in preparation for a competing venture constitutes a breach of the duty of loyalty. See Bancroft-Whitney Co. v. Glen, 64 Cal. 2d at 345–46.
D. Claim 4: Unfair Business Practices (Cal. Bus. & Prof. Code § 17200)
1. Legal Standard
California's Unfair Competition Law ("UCL"), codified at Business and Professions Code section 17200 et seq., prohibits "any unlawful, unfair or fraudulent business act or practice." The UCL establishes three independent prongs — "unlawful," "unfair," and "fraudulent" — each of which provides an independently sufficient basis for relief. See Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th 163, 180 (1999). Available remedies under the UCL include injunctive relief and restitution or disgorgement. See Glenrock Corporation, 29 Cal. 4th 1134, 1144 (2003).
2. Application to the Facts
"Unlawful" Prong. The defendants' conduct constitutes violations of CUTSA (misappropriation of trade secrets) and of the PIIAA (breach of contract), each of which serves as a predicate unlawful act sufficient to support a UCL claim under the "unlawful" prong. See Farmers Ins. Exchange v. Superior Court, 2 Cal. 4th 377, 383 (1992) (the UCL "borrows" violations of other laws and treats them as independently actionable under § 17200).
"Unfair" Prong. Even apart from the predicate violations, the defendants' conduct is "unfair" within the meaning of the UCL. NovaSpark's entire business model appears to be founded on misappropriated trade secrets, giving it an unfair and unjust competitive advantage over Lumos and other legitimate competitors in the AI-driven financial analytics market. The defendants' scheme to systematically extract proprietary technology from Lumos and use it to launch a competing venture inflicts substantial competitive harm and undermines the integrity of the market for engineering talent and proprietary technology in the technology sector. This conduct offends established public policy, is immoral, unethical, oppressive, or unscrupulous, and causes substantial injury to Lumos that is not outweighed by any countervailing benefit to consumers or competition.
Remedies. A UCL claim provides an additional and important basis for equitable relief, including injunctive relief to halt the defendants' unfair business practices and restitution or disgorgement of any profits that NovaSpark has obtained or may obtain through the use of misappropriated trade secrets. These remedies supplement and complement the remedies available under CUTSA and the breach-of-contract claims.
3. Strength of Claim
Moderate to strong. The UCL claim is well-supported by the predicate CUTSA and breach-of-contract violations and provides a valuable additional basis for equitable relief and potential disgorgement. While the UCL does not provide for the recovery of compensatory damages per se, the availability of injunctive relief and restitution/disgorgement makes it a strategically important claim.
E. Claim 5: Conversion
1. Legal Standard
The tort of conversion requires: (i) the plaintiff's ownership or right to possession of property; (ii) the defendant's wrongful act of dominion over the plaintiff's property that is inconsistent with the plaintiff's property rights; and (iii) damages. See Welco Electronics, Inc. v. Mora, 223 Cal. App. 4th 202, 208 (2014).
2. Application to the Facts
The proprietary files, codebases, datasets, and documents taken by the defendants are Lumos's property. Lumos has an ownership interest in these materials by virtue of the employment relationship, the PIIAAs (which assign all work-related inventions to Lumos), and Lumos's investments in their development. The defendants' acts of copying these materials to personal accounts and devices, retaining them after the termination of employment, and failing to return them upon departure constitute wrongful acts of dominion over Lumos's property that are inconsistent with Lumos's ownership rights.
The physical USB drive bearing serial number WD-4837291, which contains the DataStream ETL pipeline repository, constitutes a tangible item containing Lumos's proprietary property. The digital copies stored on the defendants' personal Hollowell Health IT accounts, Larkspur Technologies accounts, and personal email represent additional instances of converted property.
We note that the tort of conversion has traditionally been applied to tangible personal property, and its application to intangible property such as electronic data and digital files has been the subject of evolving jurisprudence in California. However, California courts have recognized conversion claims involving electronic data and other intangible property in appropriate circumstances. See Kremen v. Cohen, 337 F.3d 1024, 1033–34 (9th Cir. 2003) (applying California law and recognizing conversion of intangible property); Halcyon Enterprises v. Bramwell Partners LLC, 184 Cal. App. 4th 210, 239 n.22 (2010). To the extent that the converted property includes tangible items (e.g., the USB drive containing copied data) or digital files that have been transferred to the defendants' personal custody, the conversion claim is on solid ground.
3. Strength of Claim
Moderate. The conversion claim is viable and adds to the breadth of the remedial framework available to Lumos. However, it is potentially subsumed in part by the trade-secret and contract claims, which address much of the same underlying conduct. We include it for completeness and to preserve all available theories of recovery, particularly given that conversion may support the recovery of certain categories of damages (e.g., the value of the specific property taken) that are not duplicative of trade-secret damages.
V. EVIDENCE SUMMARY AND ASSESSMENT
A. Digital Forensic Evidence
The cornerstone of Lumos's evidentiary case is the digital forensic evidence from Lumos's internal IT security systems. Lumos's IT security team maintains detailed logs of user activity, including file transfers, email transmissions, cloud-account connections, and removable-media usage. These logs document the following key exfiltration events with specificity:
Rajiv Anand:
• September 26, 2022: Transfer of approximately 3.2 gigabytes of files — including model architecture specifications and hyperparameter configuration files for the LumosEdge signal-generation engine — from Lumos internal systems to a personal Hollowell Health IT account. The transfer was logged by Lumos's data loss prevention ("DLP") system, which recorded the source files, the destination (Hollowell Health IT), the volume of data transferred, and the timestamp of the transfer.
• September 28, 2022: Forwarding of the confidential "LumosEdge 3.0 Product Roadmap" (37-page PDF, classified "Confidential — Restricted Distribution") to the personal email address r.anand.personal@vaultmail.com. This transmission was logged by Lumos's email security system, which recorded the sender, recipient, subject line, attachment filename and size, and the timestamp of the transmission.
Serena Mallick:
• October 10, 2022: Cloning of the entire DataStream ETL pipeline repository (approximately 780 megabytes) to a personal external USB drive. The Lumos endpoint-security system recorded the connection of an external USB storage device bearing serial number WD-4837291 to Ms. Mallick's workstation, the volume and nature of the data transferred to the device, and the duration of the connection. The repository that was cloned encompasses the complete DataStream codebase, including source code, configuration files, data-schema definitions, and associated documentation.
Derek Yun:
• October 18, 2022: Download of 47 proprietary Jupyter notebooks containing feature-engineering code and model-training scripts to a personal Larkspur Technologies account. The transfer was recorded by Lumos's cloud-access security broker ("CASB") system, which logged the connection to the personal Larkspur Technologies account, the specific files transferred, and the timestamps of each transfer.
These logs are maintained in the ordinary course of business by Lumos's IT security team and are subject to standard retention and integrity controls. They should be admissible as business records under California Evidence Code section 1271 and, if the matter is removed to federal court, under Federal Rule of Evidence 803(6). The IT security personnel who maintain and monitor these systems will be available to testify as to the creation, maintenance, and reliability of the logs.
Recommendation: Independent Forensic Analysis. We strongly recommend that Lumos retain an independent digital-forensics firm to conduct a comprehensive forensic analysis of the IT security logs and associated evidence. This step serves several purposes: (i) it provides independent validation of the conclusions drawn by Lumos's internal IT team; (ii) it ensures that the chain of custody and evidentiary integrity are maintained to the standards required for litigation; (iii) it positions the forensic examiner to serve as an expert witness at the TRO, preliminary injunction, and trial stages; and (iv) it bolsters Lumos's credibility before the court. If litigation proceeds, we further recommend seeking court-ordered forensic imaging of the defendants' personal devices (laptops, phones, tablets), personal cloud storage accounts (Hollowell Health IT, Larkspur Technologies, personal email accounts), and NovaSpark's computing systems and repositories, to be conducted by a neutral, court-appointed or jointly agreed-upon forensic examiner. This will be a critical component of our discovery strategy.
B. Contractual Evidence
Executed PIIAAs for all three defendants are on file with Lumos's Human Resources department. Each PIIAA is signed by the respective defendant and a Lumos representative and is dated as of the defendant's start date. We have reviewed each agreement and confirmed that they contain the restrictive covenant provisions described in Section IV.B above, including the confidentiality and non-disclosure provision, the non-solicitation of employees clause, the assignment of inventions clause, the perpetual covenant not to use or disclose trade secrets, and the return-of-materials obligation.
In addition, Lumos maintains standard exit documentation and protocols that are designed to ensure compliance with the return-of-materials and confidentiality obligations upon an employee's departure. None of the three defendants completed these exit protocols. Specifically, none returned company-issued devices or materials, and none signed the standard "Departing Employee Certification" form confirming the return of all company property and the deletion of all proprietary information from personal accounts and devices. The absence of completed exit documentation supports both the breach-of-contract claim and the inference that the defendants departed with the intention of retaining Lumos proprietary materials.
C. Circumstantial Evidence of Coordination
In addition to the direct forensic evidence of exfiltration, a substantial body of circumstantial evidence supports the conclusion that the defendants' conduct was pre-planned and coordinated. This evidence includes:
• Tight timeline of departures and NovaSpark formation: The chronology — Anand's resignation on September 30, NovaSpark's incorporation on October 3, Mallick's resignation on October 14, Mallick's commencement at NovaSpark on October 17, Yun's resignation on October 21, Yun's commencement at NovaSpark on October 24 — reflects a level of coordination that is inconsistent with three independent employment decisions. The three-day gaps between each defendant's resignation and their commencement at NovaSpark are particularly suggestive, indicating that employment at NovaSpark was pre-arranged.
• Speed of NovaSpark's funding: NovaSpark closed a $12 million seed round from Blackpine Capital Partners on November 15, 2022 — approximately six weeks after Anand's resignation. Seed-round fundraising typically requires, at minimum, the development of a pitch deck, a product vision and technology demonstration, multiple investor meetings, term-sheet negotiation, due diligence, and legal closing processes. The speed of this process strongly suggests that the pitch process was initiated while the defendants were still employed at Lumos and that Lumos's trade secrets were used as the basis for NovaSpark's technology presentation to investors.
• Direct product overlap: NovaSpark's stated product offering — AI-driven alternative-data analytics for hedge funds and proprietary trading desks — directly overlaps with the core market served by Lumos's LumosEdge platform. This is not a case in which former employees have departed to pursue an unrelated business opportunity; the defendants have established a venture that competes head-to-head with their former employer in the same narrow market niche.
• Composition of the NovaSpark team: As of the date of this memorandum, the three defendants constitute the entire known founding technical team of NovaSpark. All three were senior members of the Lumos engineering organization with access to the company's most sensitive proprietary technologies. The concentration of former Lumos engineers at NovaSpark amplifies the risk of trade-secret contamination and the inference that Lumos technology forms the foundation of NovaSpark's product.
Taken together, the circumstantial evidence paints a compelling picture of a pre-planned scheme to depart Lumos, take the company's most valuable proprietary technology, and use it to establish and fund a competing venture.
D. Testimony Sources
In addition to the documentary and forensic evidence, Lumos has identified the following key witnesses who can provide testimony in support of its claims:
• Priya Chandrasekaran, CEO: Ms. Chandrasekaran can testify to the value of the trade secrets at issue, the competitive harm caused by the defendants' conduct, Lumos's business strategy and market position, and the impact of the misappropriation on Lumos's operations, customer relationships, and competitive standing.
• Rachel Fong, VP of Engineering: Ms. Fong can provide detailed testimony regarding the technical nature and scope of the trade secrets at issue, the security measures maintained by Lumos to protect its proprietary technology (including access controls, internal classification systems, and engineering policies), the individual defendants' roles and levels of access, and the development effort and investment required to create the technologies that were misappropriated.
• Thomas Brightwell, General Counsel: Mr. Brightwell can authenticate the PIIAAs executed by each defendant, testify regarding Lumos's corporate policies and exit procedures, and authenticate corporate records and communications relevant to the matter.
• IT Security Personnel: Members of Lumos's IT security team can authenticate the data-exfiltration logs, testify regarding the systems and processes used to detect and record the anomalous activity, explain the technical details of the exfiltration events, and establish the chain of custody for the digital forensic evidence.
Each of these witnesses should be prepared to provide declarations in support of the TRO and preliminary injunction applications and should be available for testimony at any evidentiary hearing.
VI. RECOMMENDED LITIGATION STRATEGY
A. Venue and Forum
We recommend filing suit in the Superior Court of the State of California, County of Santa Clara. This venue is appropriate for the following reasons:
• Lumos's principal place of business is located in San Jose, within Santa Clara County.
• The PIIAAs at issue were executed in Santa Clara County.
• A

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT ATTORNEY-CLIENT PRIVILEGED COMMUNICATION

CALDERWOOD & HARKNESS LLP

INTERNAL MEMORANDUM

MATTER NO.: 1008-00005

I. EXECUTIVE SUMMARY

II. BACKGROUND AND FACTUAL SUMMARY

III. IDENTIFICATION OF TRADE SECRETS AT ISSUE

IV. ANALYSIS OF CLAIMS

V. EVIDENCE SUMMARY AND ASSESSMENT

VI. RECOMMENDED LITIGATION STRATEGY

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