Milliman, Inc. et al v. Gradient A.I. Corp. et al

Filing 133

Judge Nathaniel M. Gorton: MEMORANDUM AND ORDER entered. For the foregoing reasons, defendant's motion for summary judgment (Docket No. 88 ) is DENIED. So ordered. (Warnock, Douglas)

Case 1:21-cv-10865-NMG Document 133 Filed 01/19/23 Page 1 of 13

United States District Court
District of Massachusetts
Milliman, Inc., et al.,
Plaintiffs,
v.
Gradient A.I. Corp., et al.,
Defendants.

)
)
)
)
)
)
)
)
)
)
)

Civil Action No.
21-10865-NMG

MEMORANDUM & ORDER
GORTON, J.
Milliman, Inc., Milliman Solutions, LLC (“Milliman”) and
Vigilytics LLC (“Vigilytics”) (collectively “plaintiffs”) bring
this suit against Gradient A.I. Corp. (“Gradient”) and two of
its officers, Stanford A. Smith (“Smith”) and Samuel Chase
Pettus (“Pettus”) (collectively “defendants”) alleging that they
infringed certain patents and misappropriated Milliman trade
secrets when they left the employ of Milliman to form Gradient.
Milliman asserts that defendants’ conduct constitutes 1)
patent infringement, 2) breach of confidentiality, 3) a
violation of the Defend Trade Secrets Act (“DTSA”), 18 U.S.C.
§ 1836; 4) a violation of the Massachusetts Uniform Trade Secret
Act (“MUTSA”), M.G.L. c. 93 §§ 42 et seq; and 5) unfair and
deceptive acts and practices in violation of M.G.L. c. 93A.
- 1 -

Case 1:21-cv-10865-NMG Document 133 Filed 01/19/23 Page 2 of 13

Pending before the Court is defendants’ motion for summary
judgment on Milliman’s trade secret claims.

For the reasons

that follow, that motion will be denied.
I.

Background
A.

The Parties

Plaintiff Milliman, Inc. is a Delaware corporation with a
principal place of business in Seattle, Washington.

Milliman

provides consulting and actuarial services such as data analysis
and predictive analytics.

Its leading practice areas are health

and life insurance.
Plaintiff Milliman Solutions, LLC is a limited liability
company organized in Delaware with a principal place of business
in Brookfield, Wisconsin.

Its sole member is Milliman, Inc.,

the above-mentioned Delaware corporation with its principal
place of business in Washington State.

It is a wholly-owned

subsidiary of its member and offers software products and
services for health, property, casualty and life insurance
companies.
Plaintiff Vigilytics LLC is a limited liability company
organized in New York with a principal place of business in
Victor, New York.

Apparently its sole member and president is

Andrew Paris who is a resident of New York State.
- 2 -

The company

Case 1:21-cv-10865-NMG Document 133 Filed 01/19/23 Page 3 of 13

is a healthcare analytics firm that owns multiple patents,
including the six patents licensed to Milliman and at issue in
this case.
Defendant Gradient is a Delaware corporation with a
principal place of business in Boston, Massachusetts.

It is a

consulting firm that offers predictive analytics to certain
sectors of the insurance industry.

Defendant Smith is the

founder and Chief Executive Officer of Gradient.

He was

employed by Milliman from 2011 to 2018 as the head of its
predictive analytics practice which was branded “Gradient”
internally and so known to Milliman clients.

According to

defendants, Smith supervised joint work that Gradient undertook
with Milliman’s healthcare practice, Intelliscript.
Intelliscript offered a predictive risk management service
called Curv.
Defendant Pettus is Health Sales Director at Gradient.

He

was employed by Milliman from 2012 to 2018, initially as a
business development manager and then as an employee in the
predictive analytics practice.
B.

Factual History

Milliman alleges that during the time Smith and Pettus were
employed by Milliman, they had access to Curv-related trade

- 3 -

Case 1:21-cv-10865-NMG Document 133 Filed 01/19/23 Page 4 of 13

secrets, including pricing information and copies of calibration
studies and Curv services agreements.
While utilized by Milliman, the Gradient A.I. predictive
analytics tool was marketed for use in workers’ compensation
risk management.

Smith hoped to expand its use to healthcare

risk management, similar to Curv.

Rather than have Gradient

compete internally with Curv, Milliman offered to sell the
Gradient A.I. business to Smith outright.

They negotiated an

Asset Purchase Agreement (“APA”), and the deal closed in July,
2018.
The APA involved the sale of specific Assets, which were
identified in Exhibit A of the agreement, and included
the Gradient A.I. software, data, and technology
(collectively, the “Software”) and the assets used in
connection with the Gradient A.I. business, as such
Software and assets are described and defined in
Exhibit A.
The APA expressly excluded the sale of Health Intellectual
Property (“Health IP”), defined as:
All rights, title and interest (including any and all
intellectual property rights) in and to the data,
information, data summaries, and know-how provided by
or originating in any part from Seller’s health
practice.

- 4 -

Case 1:21-cv-10865-NMG Document 133 Filed 01/19/23 Page 5 of 13

The APA emphasizes that “purchaser shall have no license or
right to use any Health Intellectual Property” and the
definition of Assets explicitly excludes Health IP.
Milliman submits that Gradient misappropriated its trade
secrets, i.e. its Health IP.

Plaintiff stresses that its trade

secrets include confidential methods for importing and
processing health insurer accounts, formulae involved in
assigning group risk scores, and pricing, sales and marketing
methodologies developed by Intelliscript for the Curv platform.
Milliman asserts that its trade secrets were developed from:
data, information, data summaries, and know-how
provided by or originating in any form from
[Milliman’s] health practice.
C.

Procedural History

In May, 2021, Milliman and Vigilytics filed a complaint
alleging patent infringement and misappropriation of trade
secrets.

The complaint sets forth twelve counts: 1)

infringement of the six asserted patents against Gradient
(Counts I-VI), 2) breach of a confidentiality agreement against
Smith and Pettus (Count VII), 3) violation of the DTSA, 18
U.S.C. § 1836, against Smith and Pettus (Count VIII), 4)
violation of the DTSA against Gradient (Count IX), 5) violation
of MUTSA, M.G.L. c. 93 §§ 42 et seq against Smith and Pettus
(Count X), 6) violation of MUTSA against Gradient (Count XI),
- 5 -

Case 1:21-cv-10865-NMG Document 133 Filed 01/19/23 Page 6 of 13

and 7) unfair and deceptive acts and practices in violation of
M.G.L. c. 93A against all defendants (Count XII).
Two months later, defendants moved to dismiss the patent
infringement claims.
2022.

This Court denied that motion in March,

In September, 2022, defendants moved for summary judgment

with respect to Milliman’s trade secret claims.
II.

Motion for Summary Judgment
A.

Legal Standard

The role of summary judgment is “to pierce the pleadings
and to assess the proof in order to see whether there is a
genuine need for trial.” Mesnick v. Gen. Elec. Co., 950 F.2d
816, 822 (1st Cir. 1991) (quoting Garside v. Osco Drug, Inc.,
895 F.2d 46, 50 (1st Cir. 1990)).

The burden is on the moving

party to show, through the pleadings, discovery and affidavits,
“that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a).
A fact is material if it “might affect the outcome of the
suit under the governing law . . . .” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986).

A genuine issue of material

fact exists where the evidence with respect to the material fact

- 6 -

Case 1:21-cv-10865-NMG Document 133 Filed 01/19/23 Page 7 of 13

in dispute “is such that a reasonable jury could return a
verdict for the nonmoving party.” Id.
If the moving party satisfies its burden, the burden shifts to
the non-moving party to set forth specific facts showing that
there is a genuine, triable issue. Celotex Corp. v. Catrett, 477
U.S. 317, 324 (1986).

The Court must view the entire record in

the light most favorable to the non-moving party and make all
reasonable inferences in that party’s favor. O’Connor v.
Steeves, 994 F.2d 905, 907 (1st Cir. 1993).

Summary judgment is

warranted if, after viewing the record in the non-moving party’s
favor, the Court determines that no genuine issue of material
fact exists and that the moving party is entitled to judgment as
a matter of law.
B.

Trade Secret

The Defend Trade Secrets Act (“DTSA”) confers a federal
cause of action on an owner of a trade secret that has been
misappropriated, so long as 1) the trade secret owner has taken
reasonable measures to keep such information secret and 2) the
information comprises independent economic value. See 18 U.S.C.
§§ 1836(b)(1) and 1839(3).

The DTSA defines “misappropriation”

as
disclosure or use of a trade secret of another without
express or implied consent by a person who . . . at
the time of disclosure or use, knew or had reason to
- 7 -

Case 1:21-cv-10865-NMG Document 133 Filed 01/19/23 Page 8 of 13

know that the knowledge of the trade secret was . . .
acquired under circumstances giving rise to a duty to
maintain the secrecy of the trade secret or limit the
use of the trade secret.
Id. at § 1839(5)(B).
Similarly, in Massachusetts, a plaintiff can establish
misappropriation of trade secrets pursuant to M.G.L. c. 93, § 42
by proving that the defendant acquired them through improper
means (including by theft, bribery, misrepresentation or breach
of contract but not by reverse engineering) or by disclosing or
using trade secrets obtained through improper means without that
person’s consent. M.G.L. c. 93, § 42.

The standard for

misappropriation under Massachusetts law is substantially
similar to that under the DTSA. Compare 18 U.S.C. § 1839(5)-(6),
with M.G.L. c. 93, § 42(1)-(2).
To prevail on a claim of misappropriation of trade secrets
in Massachusetts, a plaintiff must establish that 1) the
information at issue constitutes a trade secret, 2) the
plaintiff took reasonable measures to secure the confidentiality
of the information and 3) the defendant obtained the trade
secret through improper means. Optos, Inc. v. Topcon Medical
Systems, Inc., 777 F. Supp. 2d 217, 238 (D. Mass. 2011).

- 8 -

Case 1:21-cv-10865-NMG Document 133 Filed 01/19/23 Page 9 of 13

C.

Application

Defendants allege that Milliman forfeited any right to
assert any of its 16 claimed trade secrets for two reasons: 1)
under the plain language of the APA, Milliman sold the asserted
trade secrets to Gradient and 2) Milliman did not take the steps
reasonably required to protect the claimed trade secrets.
1.

Ownership

Gradient’s first argument is based in its interpretation of
the APA.

The asserted trade secrets were purportedly contained

in the emails of former Milliman employees who became employed
by Gradient as part of the transaction.

Gradient contends that

when Milliman included the subject emails in the property
conveyed pursuant to the APA, Milliman sold the asserted trade
secrets to Gradient.

Gradient submits that, as a result of that

sale, it now owns the asserted trade secrets.

Citing Focused

Impressions, Inc. v. Sourcing Group, LLC, 2020 WL 1892062, at
*11, 14 (D. Mass. Apr. 16, 2020), Gradient asserts that, because
ownership is the “essential element” to a trade secret claim,
Milliman’s trade secret claim should be dismissed.
According to Gradient, because the APA obligated Milliman
to transfer all “Assets” but excluded “Health Intellectual
Property,” the emails containing the asserted trade secrets are
Assets, not Health IP.

Gradient suggests that the emails are
- 9 -

Case 1:21-cv-10865-NMG Document 133 Filed 01/19/23 Page 10 of 13

not trade secrets at all but rather Assets that Milliman sold to
Gradient pursuant to the transaction.
Milliman vigorously disputes that interpretation and
contends that 1) the APA explicitly excluded Health IP from the
transaction, 2) the trade secrets are “undeniably” Health IP,
and thus, 3) Milliman did not sell its trade secrets pursuant to
the APA.
In support of its argument that the asserted trade secrets
are Health IP, plaintiff contends that the APA is governed by
New York law and its well-established principles of contract
interpretation,
a written agreement that is complete, clear and
unambiguous on its face must be enforced according to
the plain meaning of its terms.
Greenfield v. Philles Records, Inc., 780 N.E.2d 166, 170 (N.Y.
2002).

In particular, contracts are to be construed with the

parties’ intent in mind. Kolbe v. Tibbetts, 3 N.E.3d 1151, 1156
(N.Y. 2013) (“Particular words should be considered, not as if
isolated from the context, but in the light of the obligation as
a whole and the intention of the parties manifested thereby.”).
Both parties agree that the APA explicitly excludes Health
IP from the sale or transfer of Assets.

The parties disagree,

however, as to whether Milliman’s asserted trade secrets are
- 10 -

Case 1:21-cv-10865-NMG Document 133 Filed 01/19/23 Page 11 of 13

Health IP or Assets as defined by the APA.

That dispute alone

disrupts defendant’s attempt to secure summary judgment.
The APA defines Health IP as
all rights, title and interest (including any and all
intellectual property rights) in and to the data,
information, data summaries, and know-how provided by
or originating in any part from Seller’s health
practice.
Milliman emphasizes that its asserted trade secrets were
“provided by or originat[ed] in” Milliman’s Intelliscript health
practice.”

Defendants suggest that they were jointly developed

by the Gradient A.I. business and the Curv team but Milliman
disagrees, thus creating a genuine dispute of material fact.
Moreover, Milliman refutes Gradient’s claim that the emails
are Assets under the APA.

The APA limits the sale to

specifically defined Assets that were itemized in Exhibit A of
the APA.

That list included the Gradient A.I. software, certain

web pages, patches, trademarks and a list of assigned contracts.
Exhibit A does not refer to emails or correspondence and
Milliman thus contends that emails are not Assets pursuant to
the APA.

Gradient disagrees, suggesting that the requirement to

transfer emails, like the requirement to transfer all Assets,
makes the emails Assets.

The parties’ conflict with respect to

contractual interpretation and as to whether the trade secrets

- 11 -

Case 1:21-cv-10865-NMG Document 133 Filed 01/19/23 Page 12 of 13

were sold present genuine disputes of material fact that cannot
be resolved by summary judgment.
2.

Trade Secret Protections

Gradient’s second argument that Milliman failed to take the
steps reasonably required to protect its claimed trade secrets
fares no better because factual questions persist as to whether
Milliman took such actions, and if so, whether they were
reasonable.
Defendants submit that transferring emails containing
asserted trade secrets to a competitor and leaving them in the
competitor’s possession for three years is not a reasonable
preventative to protecting trade secrets.

Gradient describes at

least three measures that Milliman could have taken to protect
its trade secrets but did not.
Milliman rejoins that it protected the trade secrets
through 1) confidentiality agreements, 2) the APA’s ongoing
requirement that Gradient identify and remove Health IP
discovered in its systems and 3) security measures such as
password protection, access restriction and security testing.
Thus, Gradient’s claim that Milliman failed to take legally
sufficient steps to protect its trade secrets is also genuinely
disputed thus precluding resolution by summary judgment.

- 12 -

Case 1:21-cv-10865-NMG Document 133 Filed 01/19/23 Page 13 of 13

3.

Chapter 93A Claims

Finally, defendants allege that Milliman’s Chapter 93A
claim is derivative of its misappropriation of trade secrets
claim and thus should also be dismissed.

Because the Court will

not dismiss the trade secret claim, the Chapter 93A claim
remains viable as well.
ORDER
For the forgoing reasons, defendant’s motion for summary
judgment (Docket No. 88) is DENIED.

So ordered.
/s/ Nathaniel M. Gorton
Nathaniel M. Gorton
United States District Judge
Dated: January 19, 2023

- 13 -