Adtile Technologies Inc. v. Perion Network Ltd. et al

Filing 53

MEMORANDUM ORDER denying 11 MOTION for Preliminary Injunction filed by Adtile Technologies Inc. Signed by Judge Sue L. Robinson on 6/23/2016. (fms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

ADTILE TECHNOLOGIES INC.,
Plaintiff,

v.
PERI ON NETWORK LTD. and
INTERCEPT INTERACTIVE, INC.
d/b/a UNDERTONE,
Defendants.

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Civ. No. 15-1193-SLR

MEMORANDUM ORDER
At Wilmington this ~~day of June, 2016, having reviewed the papers filed in
connection with Adtile's motion for preliminary injunction, and having heard oral
argument on same;
IT IS ORDERED that Adtile's motion (D.I. 11) is denied, for the reasons that
follow:
1. Procedural background. On December 22, 2015, plaintiff Adtile
Technologies, Inc. ("Adtile") filed a complaint alleging, inter alia, Delaware statutory
misappropriation of trade secrets, common law misappropriation of confidential
information, copyright infringement, and Lanham Act false designation of origin and
unfair competition, against defendants Perion Network Ltd. ("Perion") and Intercept
Interactive, Inc. d/b/a Undertone{"Undertone") (collectively, "defendants"). (D.L 1) On
February 19, 2016, Perion moved to dismiss the complaint for lack of personal
jurisdiction and Undertone moved to stay the present action and compel arbitration.

(D.I. 22, 25) The court has jurisdiction over the copyright and Lanham Act claims
pursuant to 28 U.S.C. §§ 1331, 1338(a) and (b) and 15U.S.C.§1121(a). The court
has supplemental jurisdiction over Adtile's additional claims pursuant to 28 U.S.C. §
1367(a).
2. Adtile is a company organized under the laws of the State of California with its
principal place of business in San Diego, California. Adtile develops multi-sensor
advertising technology and services for smartphones and tablets, with a focus on· mobile
"Motion Ads." (D.I. 1 at~. 8) Undertone is a marketing company organized under the
laws of the State of New York with a principal place of business in New York, New York.
Perion is a company organized under the laws of Israel with a principal place of
business in Holan, Israel. (D.I. 1 at~~ 9-10)
3. ·Factual background. Since 2013, Adtile has spent considerable time on its
product development and secured over $7 million in investments to develop and launch
Motion Ads. Adtile's Motion Ads provide users a unique motion-activated advertising
experience, allowing them to interact with ads by tilting, twisting or drawing a design and
having the ads respond to such input with visual and audio effects. (D.I. 12 at 1-3)
Adtile owns copyright registrations for its "hand phone" image 1 and "Full-Tilt Library
software," and has sought trademark registration for the "handphone" image and the
phrase "Motion Ads." Adtile alleges that it possesses certain trade secret and
confidential information related to its Motion Ads, as well as common law trademark
rights in its proprietary "handphone" image. (D. I. 13

1

at~~

6-22, exs. E-H)

A simple black and white icon of fingers holding a phone.

2

4. On February 14, 2014, Undertone and Adtile entered into discussions
regarding Adtile's sensor-enabled technology pursuant to a non-disclosure agreement
("NOA"). In July 2014, Adtile provided a demo Motion Ad to Undertone. On August 18,
2014, the parties entered into a license agreement ("License Agreement") and a new
NOA, which provides that Adtile would produce Motion Ads and Undertone would sell
such ads to its customers. Adtile was still developing its "Ad Builder," software that
allows users to create Motion Ads using Adtile's technology. The parties worked
together over the next nine months using Undertone's secure platform to communicate.
(D.I. 12 at 4-6) Adtile alleges that it agreed to teach Undertone how to create Motion
Ads with the object code of the licensed software. (Id. at 5) Undertone alleges that it
purchased eight motion-activated ads built by Adtile. In two such ads, Adtile used the
handphone image, without attribution. (D.I. 30 at 5)
5. The License Agreement provided that Adtile owned the proprietary licensed
software product, the Ad Builder (the "Licensed Software"), and any related
documentation (the "Licensed Documentation"). (D.I. 33, ex. 11 at B) Undertone was
allowed to use the Licensed Software and Licensed Documentation for its internal
purposes, but Adtile was allowed to approve the showing of any ads created with the
Licensed Software. (Id. at § 1.1 (a)) The License Agree.ment further provided that
Undertone would own any "deliverables," i.e., work product produced by Adtile for
Undertone. Undertone was to be deemed the author of the deliverables for copyright ·
purposes. Adtile retained the owner.ship of "all technology," including the code libraries
developed for the Motion Ads and used by Adtile to provide deliverables. The License

3

Agreement specifically permitted Undertone to purchase, license, or develop similar or
competitive technology, products, or services. (Id. at § 2.2)
6. The Full-Tilt Library software was publicly available on the Internet as of
February 2015, under a broad "open source" license. Adtile "acquired the Full-Tilt
Library in August of 2015" and obtained a copyright registration thereon. (D.I. 12 at 15;
D.I. 31 at~~ 20-24; D.I. 37 at~ 4)
7. Adtile alleges that from February to April 2015, Undertone placed only one
new Motion Ad order with Adtile, but continued to access the secure platform and ask
Adtile's employees questions about the Motion Ads' features. According to Adtile, after
accessing Adtile's proprietary information, Undertone sought to terminate the
agreement. (D.1..12 at 7) Undertone alleges that it sought termination after Adtile
began refusing to provide Motion Ads under the License Agreement. Moreover, Adtile
had still not provided Undertone with the Licensed Software. (D.I. 30 at 5-6) On June
12, 2015, Adtile and Undertone terminated the License Agreement ("Termination
Agreement"). (D.I. 33, ex. 16) In relevant part, the Termination Agreement required
Undertone to return to Adtile "all copies of the Licensed Software and Licensed
Documentation." (Id. at§ 3) Moreover, § 2.2 of the License Agreement survived the
Termination Agreement, therefore, Undertone remained the owner of any deliverables.

(Id. at§ 2)
8. According to Adtile, in June 2015, Perion inquired about using and investing in
Adtile's technology. 2 Perion stated that it had also reached out to Undertone, as
Undertone used motion-activated ads with great success. Adtile informed Perion that

2

Adtile and Perion previously explored a relationship in August 2014.

4

Undertone was a client and was using Adtile's technology. (D.I. 13 at

,m 38-42)

Perion

announced on December 1, 2015 that it had acquired Undertone for $180 million. (D.I.
14, ex. A) Adtile has sent cease and desist letters to both Undertone and Perion. (D.I.
12 at 9; D.I. 13 at ilil 47, 64, ex. S)
9. Standard. "The decision to grant or deny ... injunctive relief is an act of
equitable discretion by the district court." eBay, Inc. v. MercExchange, LLC, 547 U.S.
388, 391 (2006); Abbott Labs. v. Andrx Pharm., Inc., 452F.3d1331, 1334 (Fed. Cir.
2006). The grant of such relief is considered an "extraordinary remedy" that should be
granted only in "limited circumstances." See Kos Pharma., Inc. v. Andrx Corp., 369
F.3d 700, 708 (3d Cir. 2004) (citation omitted). A party seeking preliminary injunction
relief must demonstrate: (1) a reasonable likelihood of success on the merits; (2) the
prospect of irreparable harm in the absence of an injunction; (3) that this harm would
exceed harm to the opposing party; and (4) the public interest favors such relief. See,
e.g., Sciele Pharma Inc. v. Lupin Ltd., 684 F.3d 1253, 1259 (Fed. Cir. 2012); Abbott
Labs v. Sandoz, Inc., 544 F.3d 1341, 1344 (Fed. Cir. 2008). "If either or both of the

fundamental requirements-likelihood of success on the merits and probability of
irreparable harm if relief is not granted-are absent, an injunction cannot issue."
Antares Pharma., Inc. v. Medac Pharma., Inc., 55 F. Supp. 3d 526, 529 (D. Del. 2014)

(citing McKeesport Hosp. v. Accreditation Council for Graduate Med. Educ., 24 F.3d
519, 523 (3d Cir. 1994)). Even if a movant demonstrates a likelihood of success on the
merits, there is no presumption of irreparable harm. See, e.g., eBay, 547 U.S. at 393.
To establish irreparable harm, the movant must "clearly establish[] that monetary
damages could not suffice." Id. at 1348.

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10. Likelihood of success on the merits - Delaware statutory

misappropriation of trade secrets. To prevail on a claim of trade secret
misappropriation under the Delaware Uniform Trade Secrets Act, a plaintiff must show
the "[a]cquisition of a trade secret of another by a person who knows or has reason to
know that the trade secret was acquired by improper means" or, alternatively, the
"[d]isclosure or use of a trade secret of another without express or implied consent" by a
person who either: (1) acquired the secret by improper means; (2) knew or had reason
to know that their knowledge of the trade secret was (A) derived by another who
acquired it by improper means, (B) "[a]cquired under circumstances giving rise to a duty
to maintain its secrecy or limit its use," or (C) acquired by accident or mistake. See 6
Del. C. § 2001 (2). A trade secret
shall mean information, including a formula, pattern, compilation, program,
device, method, technique or process, that:
a. Derives independent economic value, actual or potential, from
not being generally known to, and not being readily ascertainable by
proper means by, other persons who can obtain economic value from its
disclosure or use; and
b. Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.

Id. at.§ 2001 (2).
11. Adtile argues that the same day Undertone signed the Termination
Agreement, Adtile discovered a motion-activated ad for Discover. The ad, created by
Undertone, included Adtile's proprietary ornamentation, layout, and user experiences,
and displayed Adtile's "handphone" image. (D.I. 13 at~ 45, ex. Q) Moreover, it alleges
that Undertone continued to produce motion-activated ads using Adtile's technology and

6

falsely represented that certain Motion Ads belonged to Undertone alone. 3 (Id. at

,m 46-

60, exs. R, T, V) More specifically, Adtile argues that Undertone has disclosed and
used its trade secrets - certain software and "proprietary ornamentation, layout, and
user experiences," as well as the unique combination thereof- outside of the use
allowed by the License Agreement. Adtile concludes that the only way for Undertone to
make its Motion Ads is to use Adtile's technology. (D.I. 12 at 11-12; D.I. 44 at 2)
12. According to Undertone's declarant, a senior software engineer, the methods
for creating motion-activated ads are publicly available. "The code for motion-activated
ads can be viewed when an ad is delivered on a web browser; the data from the
hardware sensors necessary to create motion-activated ads is readily accessible by
using JavaScript; and there are open source libraries available on the Internet to
analyze the data." (D.I. 31 at

,m 2, 5-7, 12, 16-18) Adtile also has patents and

published patent applications on certain of its technology and design. (D.I. 32, exs. 1-3)
Moreover, Undertone uses third-party vendors to create motion-activated ads and also
builds such ads in-house, 4 "using standard programming languages alongside publiclyavailable, open source licensed JavaScript libraries, such as "shake.js." (D.I. 31 at ilil
14-15)
13. In 2009, Medialets created the first shakable advertisement for Levi's
Dockers, shortly after Apple released the iOS3 operating system in 2009. 5 Other

3

As to Perion, Adtile maintains that together with Undertone, Perion continues to
produce mobile ads using Adtile's confidential and trade secret information and
featuring Adtile's copyrights and trademarks. (D.I. 13 at ilil 61-68; D.I. 14, ex. B, C)
4 Having additionally acquired Sparkflow in June 2015, a third-party company that
independently designed a platform with the capability of building motion-activated ads.
5 Eric Litman, Medialets Shakes Up Mobile Advertising (April 22, 2009),
https://www.medialets.com/medialets-shakes-up-mobile-advertising/.

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companies such as Olive Media and Leadbolt followed suit. Today, there are several
key players who create, market and sell motion-activated ads, including Sizmek, Celtra,
Karge, and Google. (D.I. 33 at

,m 6-8)

On the record at bar, Adtile has alleged trade

secrets in its Motion Ads. Adtile does not exclude subject matter, such as the
previously publically available Full-Tilt software, 6 visual details of published Motion Ads,
or patented material. Medtronic Vascular, Inc. v. Advanced Cardiovascular Sys., Inc.,
Civ. No. 98-80-SLR, 2005 WL 388592, at *1, n.1 (D. Del. Feb. 2, 2005) (Publication of a
patent containing a trade secret destroys the trade secret, as it "put[s] the world on
notice."); Sun Media Sys., Inc. v. KDSM, LLC, 564 F. Supp. 2d 946, 969 (S.D. Iowa
2008) (Well-known and common-sense methods throughout the advertising industry
may not properly be considered proprietary information.). The court cannot discern
what (if any) trade secrets Adtile does possess, i.e., what information is in fact not
"generally known to" or "readily ascertainable by proper means" by Undertone and
others. 7
14. Adtile argues that Undertone's continued production of Motion Ads and the
"striking visual and user experience similarity" between such post and pre-License
Agreement ads evidences misappropriation. Adtile does not address Undertone's
contentions that certain information used to make its Motion Ads is publically available
or that Undertone creates such ads with different technology. Nor does Adtile address
the fact that Undertone hires third parties to create Motion Ads, other than to contend

6

Adtile provides no explanation on how parties previously using open source code may
now be said to be using confidential or copyrighted material.
7 That Adtile points to correspondence from Undertone stating that it would return and
destroy Adtile's information does not help to inform the court about what information is
properly considered a trade secret. (D. I. 13, exs. U, W)

8

that Undertone must have provided such parties with Adtile's trade secrets. The record
at bar does not include persuasive evidence that Undertone is using Adtile's purported
trade secrets. 8
15. Likelihood of success - common law misappropriation of confidential
information. A plaintiff asserting a claim for misappropriation or conversion of
confidential information must plead that: (1) it had a property interest in the confidential
information; (2) the defendant wrongfully exerted dominion over the confidential
information; and (3) the plaintiff sustained damages as a result. Sustainable Energy
Generation Grp., LLC v. Photon Energy Projects B. V., Civ. No. 8524-VCP, 2014 WL
2433096, at *14 (Del. Ch. May 30, 2014) (citation omitted). Adtile alleges, using the
same reasoning described above regarding trade secrets, that it had confidential
information and that defendants misappropriated it. That Adtile shared confidential
information with Undertone under the License Agreement and NOA is a reasonable
conclusion. However, as with the trade secret allegation, Adtile has not separated such
confidential information from any publically available information. Without such
delineation, the court cannot conclude that Adtile has a property interest in the allegedly
confidential information or that Undertone is currently using the allegedly confidential
information. 9

8

The parties also dispute whether a single demo ad created by Adtile and provided to
Undertone is a deliverable (Undertone's position) or rightly belongs to Adtile (Adtile's
position). This dispute does not create an issue for the present analysis, as Adtile
created such ad.
9 The court does not reach defendants' additional argument that this claim fails against
Undertone as "arising from" the breach of contract claim. (D.I. 30 at 11)
9

16. Likelihood of success - copyright infringement. To establish copyright
infringement, Adtile must prove that (1) it owns a valid copyright, and (2) the defendants
copied protectable elements of the copyrighted work. Feist Publications Inc. v. Rural
Tel. Serv. Co., 499 U.S. 340, 361 (1991). "[C]opying may be proved inferentially by
showing that the defendant had access to the allegedly infringed copyrighted work and
that the allegedly infringing work is substantially similar to the copyrighted work."
Whelan Associates, Inc. v. Jaslow Dental Lab., Inc., 797 F.2d 1222, 1231-32 (3d Cir.
1986).
Copyright certificates produced by a plaintiff constitute prima facie
evidence of both copyright validity and ownership. One element of
copyright validity is the originality of the work; a certificate provides prima
facie evidence of such originality. This prima facie presumption of validity
and ownership is rebuttable; where evidence in the record casts doubt on
the issue, there is no assumption of validity. A defendant may rebut the
prima facie effect of a copyright registration by producing evidence that
the copyrighted work was itself copied from another work, thus challenging
the originality of plaintiff's work. Upon proof by a defendant that a plaintiff
had access to similar prior works, the burden of proving originality shifts
back to plaintiff.
Midway Mfg. Co. v. Bandai-Am., Inc., 546 F. Supp. 125, 139 (D.N.J. 1982) (citations
.
'

omitted).
17. Undertone challenges the validity of the handphone copyright by presenting
the results of a "Google Image Search" of "hand phone icon" to show that many similar
icons exist. (D.I. 33, ex. 12) Adtile alleges that such a search has no relevance as it
was conducted in 2016, "well after Adtile spent significant time independently creating
the 'handphone"' image. (D.I. 44 at 6-7)
18. In the case at bar, a review of the parties' briefing and evidence reveals that
Adtile registered the copyright for the handphone image on June 19, 2015. (D.I. 13, ex.

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F) Undertone had access to the handphone image during the period of licensing. Such
image (without any attribution) was provided to Undertone in two of the Motion Ads
Adtile created under the License Agreement (the Nestle Perrier Motion Ad created in
November 2014, and Estee Lauder ad created in December 2014). (D.I. 33

at~

24)

Undertone then used the handphone image in the Discover ad. After receiving a cease
I

and desist letter, Undertone took down both the Nestle Perrier and Discover ads and
discontinued use of the handphone image. Although neither party further analyzed the
Google search results to determine if any of the handphone icons were created or
existed prior to 2014, such an argument is reasonable given the ubiquity of cellphones
in 2014. At the present time, defendants are not using the handphone image, rendering
any argument as to ongoing harm to Adtile moot. 10
19. As to the Full-Tilt Library software, Adtile states that the "analysis of
Undertone's ads revealed that the source code for such ads copy the copyrighted
software." (D.I. 12 at 15) Again, Adtile does not explain how it distinguishes the
copyrighted "version" from the public open-source "version." As with the handphone
image, Undertone has represented that it does not currently use the Full-Tilt Library
software.
20. Likelihood of success - false designation of origin and unfair
competition. To succeed on this claim, plaintiff must prove by a preponderance of the

evidence that: (1) defendants use a false designation of origin; (2) such use occurs in
interstate commerce in connection with goods and services; (3) such false designation
is likely to cause confusion, mistake or deception as to the origin, sponsorship, or

10

Defendants' representation to the court at oral argument (March 22, 2016).
11

approval of plaintiff's goods or services by another person; and (4) plaintiff has been or
is likely to be damaged. Am. Tel. & Tel. Co. v. Winback & Conserve Program, Inc., 42
F.3d 1421, 1428 (3d Cir. 1994) (citing 3 McCarthy on Trademarks, § 27.03[1][a] at 2721.9); 15 U.S.C. §· 1125(a).
21. Adtile alleges that Undertone is taking credit for Adtile's Motion Ads (for
example, the Nestle Perrier Motion Ad) and has even accepted an award for a Motion
Ad without giving Adtile credit. More specifically, Undertone's "false designation of
origin is demonstrated by its use of Adtile's 'handphone' mark as a source indicator."
(D.I. 12 at 16) Adtile concludes that this is likely to cause confusion or mistake as to the
origin of the Motion Ads or indicate that Adtile approves the ads. To support the
allegation of confusion, Adtile's declarant, its founder and CEO, states generally that he
"received a number of complaints from prospective advertisers and others in the
industry expressing confusion based on the Undertone ads." He points to one instance
at a tradeshow on September 21-23, 2015, where two attendees came to the Adtile
booth and stated that they had seen Adtile's "Vita Coco" ad with the handphone image.
Such ad was actually created by Undertone. (D.I. 13 at '153) Adtile further alleges th~t
the handphone image is inherently distinctive and "is a source designation for Adtile."
22. Adtile has applied for a trademark in the handphone image, but has yet to
receive it. "Where a mark has not been federally registered or has not achieved
incontestability, validity depends on proof of secondary meaning, unless the
unregistered or contestable mark is inherently distinctive." Ford Motor Co. v. Summit
Motor Products, Inc., 930 F.2d 277, 291 (3d Cir. 1991) (citations omitted). "Where the
trademark owner and the alleged infringer deal in competing goods or services, the

12

court need rarely look beyond the mark itself. In those cases the court will generally
examine the registered mark, determine whether it is inherently distinctive or has
acquired sufficient secondary meaning to make it distinctive, and compare it against the
challenged mark." Interpace Corp. v. Lapp, Inc., 721 F.2d 460, 462 (3d Cir. 1983). In
the case at bar, Adtile has not offered analysis to support its allegation that the
handphone image is inherently distinctive. Moreover, Adtile provided Undertone two
Motion Ads under the License Agreement, which included the handphone image without
attribution. Those ads were deliverables and, as such, belong to Undertone. In sum,
Adtile has not met its burden as to likelihood of confusion.
23. Likelihood of success on the merits - conclusion. Adtile seeks to
establish likelihood of success on the merits for four causes of action: Delaware
statutory misappropriation of trade secrets, common law misappropriation of confidential
information, copyright infringement, and Lanham Act false designation of origin and
unfair competition. The court has determined that Adtile's trade secrets and confidential
information are not sufficiently delineated from what is either publically available (the
Full-Tilt software) or discernable from the Motion Ads (the visual pieces and related
code). That Adtile included, without attribution, the handphone image in two ads
provided to Undertone as deliverables under the License Agreement weakens Adtile's
copyright and trademark infringement arguments. The court concludes that Adtile has
not shown likelihood of success on the merits.
24. Irreparable harm. Adtile alleges that money damages will not suffice to
compensate it for the erosion of its market share, profits, and the premium price its
Motion Ad products command. According to Adtile, it is losing the opportunity to

13

develop its client base. (D.I. 12 at 17) Defendants respond that Adtile delayed in filing
the .action at bar and seeking the present injunction; the parties were able to quantify
the value of Adtile's technology and product by assigning a price to the deliverables
under the License Agreement; and Adtile does not offer evidence in support of its
statement that it is losing market share and profits. (D. I. 30 at 15-17) This factor is
neutral.
25. Reputation and goodwill. Adtile alleges that its goodwill and reputation are
being damaged by defendants' unfair competition and conduct. (D.I. 12 at 17)
Specifically, Adtile's declarant states that, without an injunction, "Adtile will lose its
reputation as the creator of the revolutionary Motion Ad," in part because customers
may believe that "Undertone's lower quality sensor-enabled product is produced by
Adtile." (D.I. 13

at~

67-68) Defendants respond that such statements are belied by a

public article, dated December 21, 2015, wherein Adtile's declarant explained that "a
major wireless phone carrier - LG Uplus of South Korea - recently picked up the
technology, rolling it out over its entire network." (D.I. 32, ex. 4) This factor is neutral.
26. Irreparable harm - conclusion. Adtile and Undertone previously agreed
on monetary compensation for Motion Ads made by Adtile for Undertone. The court
cannot delineate on the record at bar what, if any, trade secrets and confidential
information Adtile possesses, which cuts against the grant of injunctive relief. Cf.
Williams v. Curtiss-Wright Corp., 681 F.2d 161, 163-65 (3d Cir. 1982) (affirming the

grant of a preliminary injunction on trade secret claims) .
.27. Balance of hardships. This factor is largely neutral. Adtile seeks to
prevent defendants from selling any motion-activated ads, regardless of source. Adtile

14

alleges that it stands to lose significant revenues, a stellar reputation as a technology
innovator, and substantial market share without an injunction. According to Adtile, it is
losing its first-to-market advantage and is being forced to compete against defendants
for its own technology. (D.I. 12at18-19) Defendants have offered evidence that they
produce motion-activated ads in-house and also purchase such ads from third parties.
Defendants stand to lose substantial contracts and relationships if enjoined. Such a
disruption would also cause harm to third parties, which have contracted with
Undertone. (D.I. 30 at 18-19)
28. Public interest. This factor is largely neutral. The public has an interest in
trade secrets and confidentiality agreements, as well as preventing copyright
infringement. However, Adtile has not shown a likelihood of success on these causes
of action. Moreover, certain of the disputed information is publically available or may be
gleaned from viewing and dissecting published Motion Ads. As discussed above, Adtile
is not the only company involved in the making of motion-activated ads, yet it seeks to
have the court enjoin defendants from making, buying, or selling any motion-activated
ads, i.e., wholly eliminate one of its competitors.
29. Conclusion. For the foregoing reasons, Adtile's motion for preliminary
injunction (D. I. 11) is denied.

.

u~~ge
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