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A federal judge has refused to dismiss misappropriation of trade secret claims brought by an inventor whose PowerPoint presentation to a would-be business partner began with a slide that spelled out a confidentiality provision. In his eight-page opinion in Koresko v. Bleiweis, U.S. District Judge Bruce W. Kauffman rejected a defense argument that the plaintiffs’ claims were purely contractual and that its misappropriation claims must therefore be dismissed under the “gist of the action” doctrine. Instead, Kauffman found that, under Pennsylvania law, “a tort claim may still lie against a defendant even though the conduct on which the tort is based falls within the scope of a contract.” In their brief, defense attorneys Diane Siegel Danoff and Robert W. Ashbrook of Dechert argued that “in a trade secrets case, there can be no liability for the tort of misappropriation of trade secrets when the use or disclosure of the trade secrets is governed by a contract between the parties.” Kauffman disagreed, saying “that the defendant’s conduct is governed by the contract … is not dispositive; rather, the essential question is whether the defendant’s conduct violates some additional duty that is distinct from the obligations the defendant accepted by entering into the contract.” According to court papers, plaintiffs PennMont Benefit Services Inc. and John J. Koresko, its general counsel, claim that Travelers Life and Annuity Co. approached them under the guise of partnering with PennMont to market and sell variable insurance and annuity products through a defined benefit program under �412(i) of the Internal Revenue Code, which Koresko developed. But instead of partnering with PennMont, the suit alleges that Travelers ignored the confidentiality clause it had allegedly agreed to prior to PennMont’s presentation of its ideas, and instead set out to market the idea with CJA Associates. According to the suit, Koresko had devised an innovative patent-pending pension program that uses variable insurance contracts to fund a defined benefit program. The claimed invention involves structuring benefit programs in a novel manner that allows larger tax deductions to participating employers, accelerated funding of a guaranteed pension payout and the purchase of insurance on a tax-advantaged basis. The suit alleges that in October 2001, Koresko met with a number of Travelers executives to discuss the possibility of PennMont and Travelers forming a partnership. Koresko claims he planned to reveal certain information about his invention at the meeting, and was concerned that its confidentiality might be compromised. The suit says Koresko sent Travelers a confidentiality agreement and requested that it be executed prior to the meeting, but that Travelers responded by saying the confidentiality agreement would be executed “after they get out of legal,” which might not be until after the meeting. Koresko claims he remained concerned about protecting PennMont’s intellectual property interests in the invention, and therefore decided to secure a confidentiality promise from Travelers on the day of the meeting. The suit alleges that the meeting began with Koresko giving a PowerPoint presentation in which the second slide was a confidentiality notice. After showing the confidentiality notice, Koresko claims he stopped to ask if everyone had read it, and if there were any objections. Having assured himself that PennMont would be protected by the confidentiality notice, Koresko proceeded to describe the invention to Travelers. The suit says Travelers employees gained access to information about the invention a second time in September 2002 when a Travelers vice president attended a seminar Koresko gave outside of Boston. By that time, the suit alleges, Travelers had already decided that CJA would be its exclusive partner and therefore had no intention of doing business with PennMont when it sent an executive to hear Koresko’s presentation. Koresko claims in the complaint that during the seminar, he again followed his practice of showing the audience a confidentiality notice. Just two months later, the suit alleges, Travelers sponsored a national teleconference for insurance agents and other insurance professionals in which CJA made a presentation that included confidential information about Koresko’s invention. The suit also alleges that Travelers and CJA engaged in a “smear campaign” designed to interfere with PennMont’s marketing of the invention. In the suit, PennMont and Koresko’s lawyer — Virginia I. Miller of Anderson Kill & Olick — brought claims for interference with present and prospective business and contractual relationships; misappropriation of trade secrets; commercial disparagement; and civil conspiracy against Travelers, CJA and Jeff Bleiweis, CJA’s senior vice president and general counsel. In a motion for partial dismissal, Travelers’ lawyers argued that the claims for misappropriation of trade secrets and conspiracy should be dismissed under the “gist of the action” doctrine. Kauffman found that the gist of the action doctrine “requires tort claims that ultimately arise out of a defendant’s failure to adhere to the terms of his contract with the plaintiff to be dismissed, thereby preventing a plaintiff from disguising what is fundamentally a contract claim as a tort claim in order to qualify for punitive damages.” Travelers argues that the gist of the action doctrine applied because the confidentiality notices Koresko showed the Travelers representatives created a contract governing the parties’ relations. At its core, Travelers argued, the plaintiffs’ misappropriation of trade secrets claim is an argument that Travelers has not satisfied its confidentiality obligations under that contract. Kauffman found that the central question he had to decide was “whether the gist of plaintiffs’ claim for misappropriation of trade secrets actually sounds in contract rather than tort.” In making such assessments, Kauffman said, courts “consider the nature and basis of the obligation the defendant is alleged to have violated.” A claim should be limited to a contract claim, Kauffman found, when the parties’ obligations “are defined by the terms of the contracts, and not by the larger social policies embodied in the law of torts.” But Kauffman found that a tort claim may nonetheless be viable against a defendant even where the conduct on which the tort is based falls within the scope of a contract. The critical question, Kauffman found, is whether the defendant’s conduct “violates some additional duty that is distinct from the obligations the defendant accepted by entering into the contract.” Koresko’s claims survive, Kauffman concluded, because “in this case, the obligations underlying plaintiffs’ claim for misappropriation of trade secrets extend beyond Travelers’ failure to adhere to any confidentiality agreement that might have been formed.” Kauffman noted that the plaintiffs also allege that Travelers did not fulfill its obligations to act in good faith. “First, Travelers [allegedly] obtained the information about the invention under the false pretense that it was interested in doing business with PennMont when, in fact, it had already decided to work exclusively with CJA,” Kauffman wrote. “And second, Travelers [allegedly] revealed the information that it knew to be confidential to PennMont’s competitor.” Such “deceptive conduct,” Kauffman said, “may constitute a violation of the parties’ confidentiality agreement; but it also violates Travelers’ duty to deal in good faith, as it is set forth in the tort of misappropriation of trade secrets.” Kauffman found that the duty on which the tort is based is one of good faith and fair dealing. “Since this is a duty that was imposed ‘as a matter of social policy’ rather than ‘by mutual consensus,’ the gist of plaintiffs’ misappropriation of trade secrets claim lies in tort rather than contract law,” Kauffman wrote.

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