Trade secret protection applies of course only to confidential information. Absent certain specialized exemptions, publicizing the intricate details and applications of a trade secret extinguishes whatever “property right” once possessed by the holder. A closer question is what constitutes sufficient notice to a user of the claimed trade secret protection of certain information? The Southern District of New York recently confronted this issue. See Broker Genius Inc. v. Zalta, No. 17-cv-2099, 2017 WL 5991831 (S.D.N.Y. Dec. 4, 2017).
Plaintiff Broker Genius, Inc. (Broker Genius) the AutoPricer v.3 (AutoPricer) software, which assists in the automation of ticket pricing in secondary markets. The founder of Broker Genius claimed he intended to create software allowing brokers to build on their existing manual ticket implementation strategies. To that end, AutoPricer supposedly allowed the implementation of said strategies “within a user interface in which the user could engage with the software dynamically and have the ability to change [his or her] strategy very quickly.”
According to Broker Genius, because AutoPricer was an entirely new software, Broker Genius expended considerable time and resources to develop it, including by creating multiple versions. In the third version (at issue in this case), every user could access the complete software interface and architecture. Broker Genius then filed a patent application.
NRZ concurrently began to develop its own automated pricing software named TickPricer. Although there was no evidence that NRZ accessed the source code of AutoPricer, the Court believed that it is “abundantly clear from the documentary evidence and witness testimony that defendants closely modeled TickPricer on AutoPricer v.3 and relied heavily on their own knowledge of Broker Genius’s product to build their own software.” TickPricer became operational in December 2016 and NRZ terminated the License a month early.
That same month, Broker Genius filed against NRZ: (1) a complaint alleging, among other causes of action, violations of trade secret misappropriation under New York law and the Defend Trade Secrets Act (18 U.S.C. § 1831 et seq.); and (2) a request under Fed. R. Civ. P. 65 for an ex parte temporary restraining order to, inter alia, seize any of NRZ’s property which incorporated Broker Genius’s purported trade secrets and NRZ from marketing TickPricer.
To obtain a preliminary injunction, a plaintiff must show: “(1) a likelihood of success on the merits or … sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in the plaintiff’s favor; (2) a likelihood of irreparable injury in the absence of an injunction; (3) that the balance of hardships tips in the plaintiff’s favor; and (4) that the public interest would not be disserved by the issuance of an injunction.” See Benihana, Inc. v. Benihana of Tokyo, LLC, 784 F.3d 887 (2d Cir. 2015).
The Court held that Broker Genius was unlikely to prevail on its misappropriation of trade secrets claim – the sole claim on which it seeks a preliminary injunction – because the user interface of AutoPricer did not qualify as a trade secret, even though AutoPricer is undoubtedly valuable to Broker Genius and its competitors, and Broker Genius expended roughly $4 million developing it.
Courts in New York refer to the Restatement of Torts to define a trade secret. See Restatement of Torts § 757 (defining a trade secret in relevant part as “any formula … or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it”). Courts have routinely held that software user and architecture is a protectable trade secret, despite being “inherently broad concept[s].” See, e.g., Integrated Cash Mgmt. Serv., Inc. v. Dig Transactions, Inc., 920 F.2d 171 (2d Cir. 1990).
Absolute secrecy is not required for trade secret protection, but the information must be shrouded with a “substantial secrecy.” The holder forfeits trade secret protection by making certain disclosures. For example, if a person reveals a trade secret to individuals who are under no obligation to protect its confidentiality, or otherwise publicly discloses the trade secret, “his property right is extinguished.”
The Court concluded that Broker Genius failed to undertake “reasonable measures” to ensure the secrecy of the protectable elements of AutoPricer. The discreet disclosures in Broker Genius’s patent application and by its sales representatives in demonstrations, as well as its publication of screenshots of an AutoPricer predecessor software that exposed aspects of AutoPricer, did not standalone extinguish its property rights. However, “these types of disclosures – especially taken together – do strongly suggest that Broker Genius did not consider AutoPricer v.3’s software architecture or user interface to be trade secrets prior to initiating this litigation.”
More fatal to Broker Genius’s claims was the “unfettered access” it offered to all users. This is the “one disclosure that did destroy Broker Genius’s claim that [AutoPricer is] a trade secret.” Among other disclosures, Broker Genius granted each user access to the software and also sent update emails to explain the operational advantages of AutoPricer’s functionalities. Unfortunately, the avalanche of disclosures about AutoPricer “explains why defendants were able to duplicate major portions of AutoPricer v.3’s user interface… with such speed and for relatively low cost.”
Broker Genius’s “widespread and comprehensive disclosures extinguished the trade secret status,” of the components of AutoPricer that it claimed NRZ had misappropriated. Accordingly, the Court denied the motion for a preliminary injunction.
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