Barnes & Noble Inc failed to win dismissal of Spring Design Inc's lawsuit accusing the largest U.S. bookseller of illegally copying its dual-display design for its Nook electronic book reader.

U.S. District Judge James Ware let Spring Design pursue claims accusing Barnes & Noble of misappropriating trade secrets, breach of contract and unfair competition, in a ruling Monday evening in federal court in San Jose, California.

Spring Design said it had shared the design of its Alex eReader with Barnes & Noble when the companies held talks in 2009 over a possible partnership. It said Barnes & Noble later incorporated features of Alex into Nook.

Barnes & Noble launched Nook in October 2009, and Forrester Research expects it will have sold about 2 million of them by the end of this year. Spring Design began shipping Alex in April 2010.

Both eReaders run on Google Inc's Android operating system, and compete with Amazon.com Inc's market-leading Kindle eReader.

In his ruling, Ware said there is a significant factual dispute over whether the information Spring Design shared substantially influenced the design of Nook.

He also said it is unclear whether Barnes & Noble marketing's claims that Nook is the first eReader to have features such as a color touch screen were intended to mislead consumers.

Mary Ellen Keating, a Barnes & Noble spokeswoman, said the New York-based company does not discuss pending litigation.

Spring Design and its lawyers did not immediately return calls seeking a comment.

Barnes & Noble launched Nook to help staunch declining sales and better compete with Kindle, which had been launched two years earlier. The company has said Nook has helped it to win 20 percent of the U.S. e-books market.

In morning trading, Barnes & Noble shares were down 30 cents, or 2.1 percent, at $14.27 on the New York Stock Exchange.

The case is Spring Design Inc v. Barnesandnoble.com LLC, U.S. District Court, Northern District of California, No. 09-05185.

(Reporting by Jonathan Stempel in New York; Additional reporting by Phil Wahba; editing by Dave Zimmerman and Maureen Bavdek)

Lawsuit