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Criminal Law, Evidence, Intellectual Property

CONVICTION FOR UNLAWFUL USE OF SECRET SCIENTIFIC MATERIAL, STEMMING FROM DEFENDANT’S UPLOADING OF HIGH FREQUENCY TRADING SOURCE CODE OWNED BY GOLDMAN SACHS, AFFIRMED, SOURCE CODE HAD A PHYSICAL FORM AND WAS APPROPRIATED WITHIN THE MEANING OF THE STATUTE (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Fahey, affirming the Appellate Division, determined the evidence was sufficient to convict the defendant of violating Penal Law 165.07 (unlawful use of secret scientific material). Just before leaving the employ of Goldman Sachs to begin work at another company, the defendant had uploaded (copied) to a German server source code used by Goldman Sachs for high frequency trading. There was no evidence anyone other than the defendant had access to the uploaded source code. The major issues were whether the source code had a “physical form” or was “appropriated” within the mean of the statute:

… [W]e conclude that viewing the facts in the light most favorable to the People, a rational jury could have found that the “reproduction or representation” that defendant made of Goldman’s source code, when he uploaded it to the German server, was tangible in the sense of “material” or “having physical form.” The jury heard testimony that the representation of source code has physical form. … [T]he computer engineer … testified that while source code, as abstract intellectual property, does not have physical form, the “[r]epresentation of it” is material. He explained that when computer files are stored on a hard drive or CD, they are physically present on that hard drive or disc, and further stated that data is visible “in aggregate” when stored on such a medium. The jury also heard testimony that source code that is stored on a computer “takes up physical space in a computer hard drive.” Given that a reproduction of computer code takes up space on a drive, it is clear that it is physical in nature. In short, the changes that are made to the hard drive or disc, when code or other information is stored, are physical. * * *

We conclude that there is legally sufficient evidence that defendant created a tangible copy of the source code on the German server in violation of Penal Law § 165.07. * * *

… [W]e must decide is whether there is legally sufficient evidence that [defendant] had the necessary mens rea of “intent to appropriate . . . the use of secret scientific material” (Penal Law § 165.07).  * * *

Appropriation does not imply depriving another of property. In fact, larceny in general is defined as involving either intent to appropriate or intent to deprive, with the clear implication that the two terms refer to separate concepts. * * * … [D]efendant may have intended to “appropriate” the source code without intending to deprive Goldman of all possession or use. People v Aleynikov, 2018 NY Slip Op 03174, CtApp 5-3-18

​CRIMINAL LAW (CONVICTION FOR UNLAWFUL USE OF SECRET SCIENTIFIC MATERIAL, STEMMING FROM DEFENDANT’S UPLOADING OF HIGH FREQUENCY TRADING SOURCE CODE OWNED BY GOLDMAN SACHS, AFFIRMED, SOURCE CODE HAD A PHYSICAL FORM AND WAS APPROPRIATED WITHIN THE MEANING OF THE STATUTE (CT APP))/SECRET SCIENTIFIC MATERIAL (CRIMINAL LAW, CONVICTION FOR UNLAWFUL USE OF SECRET SCIENTIFIC MATERIAL, STEMMING FROM DEFENDANT’S UPLOADING OF HIGH FREQUENCY TRADING SOURCE CODE OWNED BY GOLDMAN SACHS, AFFIRMED, SOURCE CODE HAD A PHYSICAL FORM AND WAS APPROPRIATED WITHIN THE MEANING OF THE STATUTE (CT APP))/EVIDENCE (CRIMINAL LAW, CONVICTION FOR UNLAWFUL USE OF SECRET SCIENTIFIC MATERIAL, STEMMING FROM DEFENDANT’S UPLOADING OF HIGH FREQUENCY TRADING SOURCE CODE OWNED BY GOLDMAN SACHS, AFFIRMED, SOURCE CODE HAD A PHYSICAL FORM AND WAS APPROPRIATED WITHIN THE MEANING OF THE STATUTE (CT APP))/SOURCE CODE (CONVICTION FOR UNLAWFUL USE OF SECRET SCIENTIFIC MATERIAL, STEMMING FROM DEFENDANT’S UPLOADING OF HIGH FREQUENCY TRADING SOURCE CODE OWNED BY GOLDMAN SACHS, AFFIRMED, SOURCE CODE HAD A PHYSICAL FORM AND WAS APPROPRIATED WITHIN THE MEANING OF THE STATUTE (CT APP))/INTELLECTUAL PROPERTY (CONVICTION FOR UNLAWFUL USE OF SECRET SCIENTIFIC MATERIAL, STEMMING FROM DEFENDANT’S UPLOADING OF HIGH FREQUENCY TRADING SOURCE CODE OWNED BY GOLDMAN SACHS, AFFIRMED, SOURCE CODE HAD A PHYSICAL FORM AND WAS APPROPRIATED WITHIN THE MEANING OF THE STATUTE (CT APP))

May 3, 2018
https://www.newyorkappellatedigest.com/wp-content/uploads/2018/03/NYAppelateLogo-White-1.png 0 0 Bruce Freeman https://www.newyorkappellatedigest.com/wp-content/uploads/2018/03/NYAppelateLogo-White-1.png Bruce Freeman2018-05-03 14:45:192020-01-24 05:55:16CONVICTION FOR UNLAWFUL USE OF SECRET SCIENTIFIC MATERIAL, STEMMING FROM DEFENDANT’S UPLOADING OF HIGH FREQUENCY TRADING SOURCE CODE OWNED BY GOLDMAN SACHS, AFFIRMED, SOURCE CODE HAD A PHYSICAL FORM AND WAS APPROPRIATED WITHIN THE MEANING OF THE STATUTE (CT APP).
Corporation Law, Employment Law, Intellectual Property, Trade Secrets, Unfair Competition

IN THIS MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT ACTION, DAMAGES CANNOT BE MEASURED BY THE DEVELOPMENT COSTS AVOIDED BY THE COMPANY WHICH MISAPPROPRIATED THE TRADE SECRETS (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Feinman, over an extensive three-judge dissenting opinion, determined that the “cost avoidance” measure of damages should not be applied in this misappropriation of trade secrets, unfair competition and unjust enrichment action. Plaintiff proved at trial that former employees defected to defendant rival company, bringing trade secrets with them. Plaintiff’s only proof of damages was its expert’s opinion about how much it would have cost the rival company to develop the product without the misappropriated trade secrets (“avoided costs”):

… [T]he measure of damages in a trade secret action must be designed, as nearly as possible, to restore the plaintiff to the position it would have been in but for the infringement. Whether those losses are measured by the defendant’s profits, revenues, cost savings or any other measure of unjust gain, there is “no presumption of law or of fact” that such a figure will adequately approximate the losses incurred by the plaintiff … . A plaintiff therefore may not elect to measure its damages by the defendant’s avoided costs in lieu of its own losses. * * *

… [D]amages in trade secret actions must be measured by the losses incurred by the plaintiff, and … damages may not be based on the infringer’s avoided development costs. * * *

… .[W]here a defendant saves, through its unlawful activities, costs and expenses that otherwise would have been payable to third parties, those avoided third-party payments do not constitute funds held by the defendant “at the expense of” the plaintiff. Therefore, a plaintiff bringing an unjust enrichment action may not recover as compensatory damages the costs that the defendant avoided due to its unlawful activity in lieu of the plaintiff’s own losses. E.J. Brooks Co. v Cambridge Sec. Seals, 2018 NY Slip Op 03171, CtApp 5-3-18

​CORPORATION LAW (MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT, IN THIS MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT ACTION, DAMAGES CANNOT BE MEASURED BY THE DEVELOPMENT COSTS AVOIDED BY THE COMPANY WHICH MISAPPROPRIATED THE TRADE SECRETS (CT APP))/TRADE SECRETS (MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT, IN THIS MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT ACTION, DAMAGES CANNOT BE MEASURED BY THE DEVELOPMENT COSTS AVOIDED BY THE COMPANY WHICH MISAPPROPRIATED THE TRADE SECRETS (CT APP))/UNFAIR COMPETITION (MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT, IN THIS MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT ACTION, DAMAGES CANNOT BE MEASURED BY THE DEVELOPMENT COSTS AVOIDED BY THE COMPANY WHICH MISAPPROPRIATED THE TRADE SECRETS (CT APP))/UNJUST ENRICHMENT  (MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT, IN THIS MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT ACTION, DAMAGES CANNOT BE MEASURED BY THE DEVELOPMENT COSTS AVOIDED BY THE COMPANY WHICH MISAPPROPRIATED THE TRADE SECRETS (CT APP))/DAMAGES (AVOIDED COSTS, (MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT, IN THIS MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT ACTION, DAMAGES CANNOT BE MEASURED BY THE DEVELOPMENT COSTS AVOIDED BY THE COMPANY WHICH MISAPPROPRIATED THE TRADE SECRETS (CT APP))/AVOIDED COSTS (DAMAGES, MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT, IN THIS MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT ACTION, DAMAGES CANNOT BE MEASURED BY THE DEVELOPMENT COSTS AVOIDED BY THE COMPANY WHICH MISAPPROPRIATED THE TRADE SECRETS (CT APP))/INTELLECTUAL PROPERTY (MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT, IN THIS MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT ACTION, DAMAGES CANNOT BE MEASURED BY THE DEVELOPMENT COSTS AVOIDED BY THE COMPANY WHICH MISAPPROPRIATED THE TRADE SECRETS (CT APP))

May 3, 2018
https://www.newyorkappellatedigest.com/wp-content/uploads/2018/03/NYAppelateLogo-White-1.png 0 0 Bruce Freeman https://www.newyorkappellatedigest.com/wp-content/uploads/2018/03/NYAppelateLogo-White-1.png Bruce Freeman2018-05-03 14:30:302020-02-06 00:58:03IN THIS MISAPPROPRIATION OF TRADE SECRETS, UNFAIR COMPETITION, UNJUST ENRICHMENT ACTION, DAMAGES CANNOT BE MEASURED BY THE DEVELOPMENT COSTS AVOIDED BY THE COMPANY WHICH MISAPPROPRIATED THE TRADE SECRETS (CT APP).
Copyright, Intellectual Property

NO STATE COMMON LAW COPYRIGHT PROTECTION FOR PRE-1972 RECORDINGS PLAYED BY RADIO STATIONS.

In an extensive opinion by Judge Stein, with a concurrence and a two-judge dissent, the Court of Appeals determined the owner of master recordings of songs by the band “The Turtles” did not have a state common-law copyright interest in the public performance of pre-1972 recordings (i.e., recordings broadcast by radio stations). A federal law controls post-1972 recordings:

… [C]ommon sense supports the explanation … that the record companies and artists had a symbiotic relationship with radio stations, and wanted them to play their records to encourage name recognition and corresponding album sales … . … [T]he Federal Copyright Office explicitly recognized the technological advances affecting the interests of the various participants in the music industry as early as 1991 … . Nevertheless, those participants have co-existed for many years and, until now, were apparently “happy together.” While changing technology may have rendered it more challenging for the record companies and performing artists to profit from the sale of recordings, these changes, alone, do not now warrant the precipitous creation of a common-law right that has not previously existed.

Simply stated, New York’s common-law copyright has never recognized a right of public performance for pre-1972 sound recordings. Because the consequences of doing so could be extensive and far-reaching, and there are many competing interests at stake, which we are not equipped to address, we decline to create such a right for the first time now. … Under these circumstances, the recognition of such a right should be left to the legislature. Flo & Eddie, Inc. v Sirius XM Radio, Inc., 2016 NY Slip Op 08480, CtApp 12-20-16

 

COPYRIGHT (NO STATE COMMON LAW COPYRIGHT PROTECTION FOR PRE-1972 RECORDINGS PLAYED BY RADIO STATIONS)/SOUND RECORDINGS (NO STATE COMMON LAW COPYRIGHT PROTECTION FOR PRE-1972 RECORDINGS PLAYED BY RADIO STATIONS)/RADIO STATIONS COMMON LAW COPYRIGHT PROTECTION FOR PRE-1972 RECORDINGS PLAYED BY RADIO STATIONS)/PUBLIC PERFORMANCE, RIGHT OF (NO STATE COMMON LAW COPYRIGHT PROTECTION FOR PRE-1972 RECORDINGS PLAYED BY RADIO STATIONS)

December 20, 2016
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Freedom of Information Law (FOIL), Intellectual Property, Trade Secrets

TRADE SECRET EXEMPTION DOES NOT REQUIRE PROOF DISCLOSURE WOULD RESULT IN COMPETITIVE INJURY.

The Third Department, in a full-fledged opinion by Justice Rose, determined the exemption from disclosure under the Freedom of Information Law (FOIL) for trade secrets did not require a showing that disclosure of the trade secrets would result in substantial competitive injury. Rather, the statute, Public Officers Law 87 (2) (d), provides two distinct exemptions from disclosure: one for bona fide trade secrets and one for documents which, if disclosed, would cause substantial injury to the competitive position of the owner of the documents. Supreme Court’s finding that the exemption for trade secrets did not require proof of injury to competitive position was upheld. There are strict criteria in place for determining whether information constitutes a bona fide trade secret. Applying those criteria, Supreme Court properly determined that several documents provided by petitioner (Verizon) to the Department of Public Service were exempt from FOIL disclosure as bona fide trade secrets:

 

As pertinent here, Public Officers Law § 87 (2) (d) protects from FOIL disclosure “all records” that “are trade secrets or are submitted to an agency by a commercial enterprise or derived from information obtained from a commercial enterprise and which if disclosed would cause substantial injury to the competitive position of the subject enterprise.” Respondents argue that this language unambiguously indicates that the Legislature intended to create a single FOIL exemption for all types of confidential commercial information imparted to an agency — including trade secrets — and to subject all such information to the same showing of substantial competitive injury. * * *

Our courts have long recognized “[t]he importance of trade secret protection and the resultant public benefit” … , and have developed a fact-intensive inquiry to determine whether specific commercial information is a bona fide trade secret worthy of such protection. First, it must be established that the information in question is a “‘formula, pattern, device or compilation of information which is used in one’s business, and which gives [one] an opportunity to obtain an advantage over competitors who do not know or use it'” … . Second, if the information fits this general definition, then an additional factual determination must be made

“concerning whether the alleged trade secret is truly secret by considering: (1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the business to guard the secrecy of the information; (4) the value of the information to the business and its competitors; (5) the amount of effort or money expended by the business in developing the information; [and] (6) the ease or difficulty with which the information could be properly acquired or duplicated by others” … .

Inasmuch as an entity seeking to establish the existence of a bona fide trade secret must make a sufficient showing with respect to each of these factors, we agree with Supreme Court that it is wholly unnecessary and overly burdensome to require the entity to then make a separate showing that FOIL disclosure of the trade secret would cause substantial injury to its competitive position.  Matter of Verizon N.Y., Inc. v New York State Pub. Serv. Commn.2016 NY Slip Op 00239, 3rd Dept 1-14-16

 

HUMAN RIGHTS LAW (REFUSAL TO ALLOW SAME-SEX MARRIAGE ON PETITIONER’S PROPERTY CONSTITUTED AN UNLAWFUL DISCRIMINATORY PRACTICE)/CONSTITUTIONAL LAW (REFUSAL TO ALLOW SAME-SEX MARRIAGE ON PETITIONERS’ PROPERTY DID NOT VIOLATE PETITIONERS’ RIGHTS TO FREE EXERCISE OF RELIGION, FREE SPEECH OR EXPRESSIVE ASSOCIATION)/SAME-SEX MARRIAGE (REFUSAL TO ALLOW VIOLATED HUMAN RIGHTS LAW)/PLACE OF PUBLIC ACCOMMODATION (DEFINED FOR PURPOSES OF UNLAWFUL DISCRIMINATION UNDER THE HUMAN RIGHTS LAW)

January 14, 2016
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Contract Law, Employment Law, Fiduciary Duty, Intellectual Property, Trade Secrets

Elements of Causes of Action for (1) Misappropriation of (a) Trade Secrets, (b) Business Ideas, and (c) Labor, Skills and Expenditures, (2) Breach of Fiduciary Duty (Delaware Law), (3) Aiding and Abetting Breach of Fiduciary Duty (Delaware Law), (4) Unjust Enrichment, and (5) Promissory Estoppel Described in Some Detail

The First Department, in a full-fledged opinion by Justice Richter, determined the complaint stated causes of action against the Cohen defendants for essentially stealing plaintiffs’ ideas for a website. Defendant Cohen, an investor, eventually served as chairman and CEO of a company formed by plaintiffs to develop the website. The complaint alleged that Cohen caused a strain among the partners which stalled the project. Cohen circulated a liquidation agreement which was never addressed by the other partners. Then, the complaint alleged, Cohen took the plaintiffs’ ideas and website-development work to the founders of Pinterest, which, the complaint alleged, was formed based upon the ideas Cohen misappropriated from plaintiffs. The plaintiffs sued the Cohen defendants and Pinterest. All the causes of action against Pinterest were dismissed by Supreme Court. The First Department held the complaint stated causes of action against the Cohen defendants for (1) breach of fiduciary duty (under Delaware Law), (2) misappropriation of trade secrets, (3) misappropriation of ideas, (4) and misappropriation of labor, skill and expenditures. (Apparently the unjust enrichment cause of action, which Supreme Court dismissed only re: Pinterest, was not a subject of the appeal.) The First Department found that all the causes of action against Pinterest were properly dismissed.   The opinion includes detailed descriptions of the elements of breach of fiduciary duty (Delaware law), aiding and abetting breach of fiduciary duty, unjust enrichment, misappropriation of trade secrets, misappropriation of ideas, misappropriation of labor, skills and expenditures, and promissory estoppel. The discussions are too extensive to be fairly summarized here.  Schroeder v Pinterest Inc., 2015 NY Slip Op 07232. 1st Dept 10-6-15

 

October 6, 2015
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Civil Procedure, Contract Law, Intellectual Property, Personal Property

Once an Amended Complaint is Served the Action Must Proceed As if the Original Complaint Never Existed—A Summary Judgment Motion Based Upon an Affirmative Defense Asserted for the First Time in the Answer to the Amended Complaint Was Properly Brought, Even Though a Prior Summary Judgment Motion on the Same Ground Had Been Denied/Medical Billing Software, i.e., Intellectual Property, Is “Personal Property” Covered by General Obligations Law 5-903—The Automatic Renewal Provision of the Medical Billing Contract Was Therefore Void

The First Department, in a full-fledged opinion by Justice Gische, determined that an amended complaint supersedes the original complaint and an affirmative defense asserted in the answer to the amended complaint could be the basis of a summary judgment motion, even though the same ground was asserted in a prior, unsuccessful summary judgment motion. The substantive issue was whether billing software licensed to a doctor was “service … to or for … personal property” within the meaning of General Obligations Law 5-903 (2).  The court determined the billing software was covered by the General Obligations Law and, therefore, the automatic renewal provision in the contract between the software company and the doctor could not be enforced.  The “General Obligations Law” affirmative defense was not asserted in the original answer and a summary judgment motion based on the unpled affirmative defense had previously been denied:

We find that the second summary judgment motion, brought after the pleadings were amended on a substantive issue not previously decided by the court, was procedurally proper. “Once plaintiff served the amended complaint, the original complaint was superseded, and the amended complaint became the only complaint in the action. The action was then required to proceed as though the original pleading had never been served” … . Thus, defendant’s appeal from the prior order denying summary judgment became moot …, and “sufficient cause . . . exist[ed]” for his motion for summary judgment dismissing the amended complaint … . …

General Obligations Law § 5-903 does not define “personal property,” although it broadly defines “person” as “an individual, firm, company, partnership or corporation” and also states that its restrictions apply unless “the person receiving the service” is served with advanced notice calling its attention to the renewal clause in the contract (General Obligations Law § 5-903[2]). The statute does not require that the person own the “personal property” being serviced, and section 5-903 has been analyzed by courts in a variety of circumstances to determine its applicability. Personal property has been interpreted to include intellectual property as well as tangible personal property … . The purpose of the notice provision is to protect service recipients from the harm of unintended automatic renewals of contracts for consecutive periods … . Since § 5-903 is remedial in nature it is construed broadly … .

We find that the parties’ agreement was “for service . . . to or for . . . personal property” within the meaning of the General Obligations Law. The services provided were directly and inextricably related to the billing and medical records of the practice, which are personal property. Healthcare IQ LLC v Tsai Chung Chao, 2014 NY Slip Op 03216, 1st Dept 5-6-14

 

May 6, 2015
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Contract Law, Intellectual Property, Tortious Interference with Contract, Trade Secrets, Unfair Competition

Tortious Interference with Contract and Unfair Competition Causes of Action Proven–Elements Explained—Punitive Damages Not Warranted–Purpose Explained

The First Department, in a full-fledged opinion by Justice Sweeney, determined that the trial judge (bench trial) properly found that JC Penney (JCP) had tortiously interfered with the exclusivity provision of a contract between Macy’s and Martha Stewart Living Omnimedia (MSLO), but that the trial judge had improperly dismissed the cause of action alleging tortious interference with the confidentiality provision of the contract and the cause of action for unfair competition. The First Department agreed with the trial judge that punitive damages were not warranted.  Macy’s had entered a contract with MSLO which gave Macy’s the exclusive right to manufacture and sell MSLO products. JCP was found to have knowingly and forcefully engaged in negotiations with MSLO which resulted in MSLO’s breaching both the exclusivity and confidentiality provisions of the Macy’s contract:

To sustain its claim of tortious interference with contract, Macy’s must prove (1) that it had a valid contract with MSLO; (2) that JCP had knowledge of Macy’s contract with MSLO; (3) that JCP intentionally induced MSLO to breach its contract with Macy’s; (4) that MSLO breached its contract with Macy’s; (5) that MSLO would not have breached its contract with Macy’s absent JCP’s conduct; and (6) that Macy’s sustained damages … .

* * * On the record before us, the evidence establishes that JCP had, as the court found, a “certainty” or “substantial certainty” that it actions would result in a breach, particularly in light of the unambiguous language of the contract requirement that all MSLO goods in the Exclusive Product Categories, including all such goods sold in any MSLO Store, had to be manufactured by Macy’s. * * *

… Macy’s alleges that JCP induced MSLO to disclose the terms of its agreement and confidential financial information. This was a violation of the confidentiality provision of the agreement. Macy’s sufficiently demonstrated that the material disclosed does not fall under any exception to the confidentiality provisions as required by law or legal processes. Further, Macy’s demonstrated that the scope of disclosure was not properly limited with respect to the information provided and the personnel receiving it. As noted, JCP sought this information almost from the inception of its discussion with MSLO. The information was tantamount to trade secrets, as JCP’s executives acknowledged. * * *

It is well settled that “the primary concern in unfair competition is the protection of a business from another’s misappropriation of the business’ organization [or its] expenditure of labor, skill, and money'” (Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663, 671 [1981]…). Indeed, “the principle of misappropriation of another’s commercial advantage [is] a cornerstone of the tort” (52 NY2d at 671). Allegations of a “bad faith misappropriation of a commercial advantage belonging to another by exploitation of proprietary information” can give rise to a cause of action for unfair competition … .

Here, the agreement between Macy’s and MSLO provided Macy’s with valuable exclusive rights to the Martha Stewart trademark and MSLO’s designs in the Exclusive Product Categories, which, as the court found, gave Macy’s a competitive advantage. It is conceded that the MSLO brand had significant value in the retail world, and the record shows JCP was fully aware of Macy’s commercial advantage as the exclusive distributor of these branded products. JCP’s actions in attempting to misappropriate this commercial advantage by inducing MSLO to breach its agreement falls squarely within Ruder and Finn’s definition of unfair competition … . * * *

…In order to be entitled to punitive damages, a private litigant “must not only demonstrate egregious tortious conduct by which he or she was aggrieved, but also that such conduct was part of a pattern of similar conduct directed at the public generally … . Punitive damages are “a social exemplary remedy, not a private compensatory remedy” Macy’s Inc v Martha Stewart Living Omnimedia Inc, 2015 NY Slip Op 01728, 1st Dept 2-26-15

 

February 26, 2015
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Civil Procedure, Employment Law, Evidence, Intellectual Property, Trade Secrets

Discovery of Trade Secrets Should Have Been Allowed Upon Execution of Confidentiality Agreement, Documents Indispensable to Defense and Not Otherwise Available

The Fourth Department determined Supreme Court should have allowed discovery of documents from MREC which included trade secrets because the documents were indispensable to the defense and were otherwise unavailable:

We agree … that Supreme Court abused its discretion in denying the cross motion insofar as it sought to condition disclosure of the documents on plaintiff’s execution of a confidentiality agreement … . We therefore modify the order accordingly. “Discoverability of such documents involves a two-fold analysis: the moving party must show that the discovery demand would require it to reveal a trade secret, which then shifts the burden of the responding party to show that the information was indispensable to proving its [case]”… . Here, MREC met its burden of establishing that the documents sought by plaintiff contained information “not known by those outside the business, [and that the documents] were kept under lock and key, were the product of substantial effort and expense, and could not be easily acquired or duplicated” … . We nevertheless conclude that plaintiff established that the documents sought “were indispensable to [its] case and were otherwise unavailable if they could not be obtained from [MREC]”  … . Conley & Son Excavating Co Ltd v Delta Alliance LLC, 2014 NY Slip Op 06468, 4th Dept 9-26-14

 

September 26, 2014
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Civil Procedure, Evidence, Intellectual Property, Trade Secrets

Criteria for Discovery from Non-Party Explained/Criteria for Discovery of Trade Secrets Explained

The Second Department explained the criteria for discovery demanded of a non-party [Morgan Stanley] and described the relevant considerations when discovery is opposed on the ground that the material requested constitutes trade secrets.  The court concluded Morgan Stanley had demonstrated certain of the discovery requests related to protected trade secrets:

Pursuant to CPLR 3101(a)(4), a party may obtain discovery from a nonparty in possession of material and necessary evidence, so long as the nonparty is apprised of the “circumstances or reasons” requiring disclosure. Pursuant to the Court of Appeals' recent decision in Matter of Kapon v Koch ( ____ NY3d ____, 2014 NY Slip Op 02327 [2014]), disclosure from a nonparty requires no more than a showing that the requested information is “material and necessary,” i.e. relevant to the prosecution or defense of an action (id., *1). However, “the subpoenaing party must first sufficiently state the circumstances or reasons' underlying the subpoena (either on the face of the subpoena itself or in a notice accompanying it), and the witness, in moving to quash, must establish either that the discovery sought is utterly irrelevant' to the action or that the futility of the process to uncover anything legitimate is inevitable or obvious'” (id.). Should the nonparty witness meet this burden, “the subpoenaing party must then establish that the discovery sought is material and necessary' to the prosecution or defense of an action, i.e., that it is relevant” (id.). * * *

Notwithstanding New York's policy of liberal discovery (see id., * 4-5), a party seeking disclosure of trade secrets must show that such information is “indispensable to the ascertainment of truth and cannot be acquired in any other way” … . A witness who objects to disclosure on the ground that the requested information constitutes a trade secret bears only a minimal initial burden of demonstrating the existence of a trade secret … . Contrary to [plaintiff's] contention, Morgan Stanley met its minimal initial burden of showing that the documents requested in paragraphs 11 through 19 in the section of the subpoena duces tecum entitled “Requests for Production” contained trade secrets … . Thus, the burden shifted to [plaintiff] to demonstrate that the information contained in those documents was indispensable to the ascertainment of truth, and could not be acquired in any other way … . Ferolito v Arizona Beverages USA LLC, 2014 NY Slip Op 05153, 2nd Dept 7-9-14

 

July 9, 2014
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Contract Law, Insurance Law, Intellectual Property, Trade Secrets

No Duty to Defend Where Causes of Action Are Excluded from Coverage Under the Terms of the Policy

The Third Department determined that the terms of two insurance policies prohibited plaintiff’s suit for a declaration the insurance companies had a duty to defend and indemnify plaintiff.  The causes of action brought against plaintiff (tortious interference with contract, unfair and deceptive trade practices and misappropriation of trade secrets) did not constitute a violation of “a person’s right to privacy” within the meaning of the policies. And the causes of action explicitly excluded from coverage, therefore the insurance companies were not obligated to provide a defense:

…[P]laintiff’s actions —–tortious interference with contract and business relations, unfair and deceptive trade practices and misappropriation of trade secrets –do not constitute a violation of “a person’s right of privacy” within the meaning of either Twin City’s or CastlePoint’s policy.

…[I]it is well settled that “[a]n insurer need not provide a defense . . . when it demonstrates that the complaint’s allegations cast that pleading solely and entirely within the policy exclusions, and further, that . . . the allegations, in toto, are subject to no other interpretation” … . Here, Twin City relies upon three exclusions relative to the personal and advertising injury coverage otherwise afforded by its policy — the intentional conduct exclusion, the breach of contract exclusion and the trademark exclusion [FN4]. In the context of an insurance policy, “the phrase ‘arising out of’ is ordinarily understood to mean originating from, incident to, or having connection with . . . [and] requires only that there be some causal relationship between the injury and the risk for which coverage is provided or excluded” … . Without belaboring the point, suffice it to say that our review of the underlying complaint leads us to conclude that all of the allegations contained therein with respect to plaintiff fall within at least one of the cited exclusions. Accordingly, coverage was properly denied for this reason as well. Sportsfield Specialties Inc v Twin City Fire Ins Co, 2014 NY Slip Op 02646, 3rd Dept 4-17-14

 

April 17, 2014
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