Facts and Procedural History
Plaintiff Broker Genius created software called AutoPricer v.3 (“AutoPricer”), which assists in the automation for the pricing of tickets in secondary markets. The founder of Broker Genius claimed that he started the company to create software that allowed brokers to build on their existing manual ticket implementation strategies. Broker Genius’s innovation was purportedly to allow the implementation of these 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 such software did not previously exist in the marketplace, Broker Genius expended considerable time and resources on developing AutoPricer, including through honing the user interface through trial and error and customer feedback. As such, Broker Genius created multiple versions of AutoPricer. The third version, released in 2015, was at issue in the instant litigation. In this version, access to the complete software interface and architecture is available to every user. Broker Genius filed a patent application wherein it described the functionality of AutoPricer identically to its description in the case.
NRZ concurrently began to develop its own automatic ticket pricing software named TickPricer. Although there was no evidence that defendants’ accessed the source code of AutoPricer, 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 its license with Broker Genius a month early.
That same month, Broker Genius filed against defendants: (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 defendants’ property containing Broker Genius’s trade secrets and restrain defendant from marketing TickPricer.
Legal Analysis and Conclusions
To obtain a preliminary injunction under federal common law, 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 v. Benihana of Tokyo, 784 F.3d 887, 895 (2d Cir. 2015).
The court held that plaintiff was not likely 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 the Software.
Courts in New York refer to the Restatement of Torts to formulate a definition of 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. v. Dig Transactions, 920 F.2d 171, 173-74 (2d Cir. 1990) (also holding that a trade secret can exist in a combination of constituent elements, irrespective of whether each element by itself is deemed in the public domain).
Absolute secrecy is not required, but the information claimed to be a trade secret must be shrouded with a “substantial secrecy.” “Reasonable measures” is the lodestar for a trade secret being sufficiently guarded. Of course, the holder can forfeit trade secret protection by making certain disclosures. 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.” See Ruckelhaus v. Monsanto Co., 46 U.S. 986, 1002 (1984).
The court concluded that plaintiff had 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, evaluated individually did not extinguish its property rights in AutoPricer. 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.” (emphasis in original).
More fatal to plaintiff’s claims was its “unfettered access” that it offered to all users. This is the “one disclosure that did destroy Broker Genius’s claim that [AutoPricer is] a trade secret.” (emphasis in original). Broker Genius granted each user access to the software itself and technical manuals, as well as sent update emails to explain the operational advantages of AutoPricer’s functionalities. Its customer service staff provided answers to user questions centered on elements of AutoPricer that Broker Genius elsewhere claimed were trade secrets. 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 plaintiff’s motion for a preliminary injunction.
Richard Raysman is a partner at Holland & Knight and Peter Brown is the principal at Peter Brown & Associates. They are co-authors of “Computer Law: Drafting and Negotiating Forms and Agreements” (Law Journal Press).