Square, Inc. et al v. REM Holdings 3, LLC

Filing 306

**WITHDRAWN BY ORDER OF 2/10/16 (DOC. #313)** MEMORANDUM AND ORDER re: #283 MOTION to Strike #257 Order, DEFENDANTS' MOTION TO STRIKE PLAINTIFFS' NOVEMBER 25, 2015 SUPPLEMENTAL RESPONSES TO DEFENDANTS' INTERROGATORY NUMBER FIVE filed by Counter Defendant James McKelvey, Jr., Consolidated Filer Defendant Jack Dorsey, Counter Defendant Square, Inc. IT IS HEREBY ORDERED that defendants' motion to strike plaintiffs' November 25, 2015 supplemental responses to defendants' Interrogatory No. 5 (#283) is DENIED in part and GRANTED in part as explained herein. IT IS FURTHER ORDERED that the defendants shall submit a proposal forextending the period for discovery related to Trade Secret #2 and for briefing on the Trade Secret aspects of defendants' summary judgment motion no later than February 5, 2016. Signed by District Judge Stephen N. Limbaugh, Jr on 2/1/16. (CSG) Modified on 2/10/2016 (CSG).

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

ROBERT E. MORLEY, JR., et al.
Plaintiffs,
vs.

SQUARE, INC., et al.,
Defendants.

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Case No. 4:14cv172
Case No. 4:10cv2243 SNLJ
CONSOLIDATED

and
SQUARE, INC., et al.
Plaintiffs,
vs.
REM HOLDINGS 3, LLC,
Defendant.

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MEMORANDUM AND ORDER
This matter is before the Court on defendants’1 motion to strike plaintiffs’
November 25, 2015 supplemental responses to defendants’ Interrogatory No. 5 (#283).

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This memorandum refers to Robert Morley’s (“Morley”) and his company REM
Holdings 3, LLC (“REM”) as plaintiff or plaintiffs. Square, Inc. and its founders,
defendants Jack Dorsey and James McKelvey (collectively, “Square”) are referred to as
defendants.

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Plaintiff claims that the defendants improperly use Robert Morley’s contributions to
the defendants’ “Square Reader” technology and wrongfully cut him out of the business.
The instant motion pertains to plaintiff’s trade secret claims. Previously, this Court
addressed cross-motions to compel in which plaintiff sought technical information about
the “Square Reader” technology, and defendants sought greater specificity for plaintiffs’
trade secret allegations. Defendants refused to provide additional sensitive information
about the Square Reader until plaintiffs sufficiently described what their “trade secrets”
were.
After a phone conference with the Court, plaintiffs supplemented identification of
their trade secrets, specifically in response to defendants’ Interrogatory No. 5. Plaintiffs set
forth a numbered list of Dr. Morley’s trade secrets and an identification of each element of
those trade secrets, both in a limiting (as opposed to an “including but not limited to”)
fashion:
1. Dr. Morley’s headphone-jack card reader invention, which is defined in
the following patent claims:
a. All claims of the ’729 patent;
b. All claims of the ’394 patent;
c. Claims 1–6 and 14–20 of the ’248 patent;
d. All claims of the ’946 patent;
e. All claims of U.S. Patent Application 14/083, 315;
f. All claims of U.S. Patent Application 14/444,608;
2. Dr. Morley’s algorithm for decoding an audio signal from a headset-jack
card reader on a smart phone, comprising the steps:
a. Peak detection;
b. Determining 1s and 0s from the distance between peaks;
c. Start sentinel detection;
d. Error checking: parity and longitudinal redundancy check;
e. Framing of 5 bit characters in track 2;

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f. Odd parity bit check;
g. End sentinel detection;
h. Determination of stable 0s duration in leading 0s;
i. Low pass filtering to reduce noise;
j. Inverse filtering to undo phase distortion of high pass filter.
3. Related to both of the above, the trade secret idea of partitioning the
functions of a traditional magnetic stripe card reader such that the card reader
hardware is minimal and the resources of the smart phone perform most of
the work.
(#236-2 at 18-19).
Defendants still objected to all three enumerated trade secrets. The Court held that
Trade Secret #1 was sufficiently specific. With respect to Trade Secret #2, defendants
objected that the plaintiffs had not committed to a “binding representation” that the secret
required all then steps to be practiced in the listed order. The Court held that “Trade
Secret #2 speaks for itself in that there is no suggestion that the order is not binding, and it
is therefore a sufficient response.” (#257 at 7.) However, the Court ordered plaintiff to
“improve upon” the “vague language” of Trade Secret #3 by providing a “final
supplement” to the interrogatory responses by November 3, 2015. Plaintiff did so, filing a
“Fourth Supplemental Response” answering the Court’s questions about Trade Secret #3
on November 2, 2015.
Defendants’ motion pertains to plaintiff’s service of yet a Fifth Supplemental
Response on November 25, 2015. The Fifth Supplemental Response, in relevant part, did
two things:

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First, plaintiffs revised the section of their interrogatory response titled Third
Supplemental Response: they added four steps to the previously 10-step algorithm set
forth in Trade Secret #2, changed the order of the steps, and added the note that the steps
were to be in the “general order” stated. Plaintiffs also added a paragraph to Trade Secret
#2, stating that defendants obtained the algorithm under false pretenses and that they
implemented several or all of the steps of the algorithm in the decoding software for the
Square reader and application.
Second, under a new section titled Fifth Supplemental Response, plaintiffs wrote
Plaintiffs have provided additional clarification and detail responsive to this
Interrogatory within the above responses. Plaintiffs further clarify that,
with respect to each of the three trade secrets articulated above, Dr. Morley’s
trade secret know-how and expertise provided in implementing and
prototyping those inventions for Square constitute part of each trade secret.
(See #284-3 at 4-6.)
Defendants now move to strike plaintiff’s Fifth Supplemental Response, arguing
that when defendants filed their motion in July 2014 (#151), they sought an order requiring
plaintiffs to identify their trade secret allegations with “specificity and finality.” (#284 at
7.) Defendants say that the algorithm set forth in the original Third and Fourth
Supplemental Responses, served November 2, 2015, was to be the plaintiffs’ “final”
response. Indeed, plaintiffs’ notice of compliance with the Court’s order (# ) stated that
they had “served their final supplemental response to Defendants’ Interrogatory #5.”
Defendants fault plaintiffs for altering the language of the Third Supplemental
Response and suggest plaintiffs were at best unorthodox and at worst malicious in doing

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so. Although it is true that altering the language of what was previously served as the
“Third Supplemental Response” is an unusual practice, plaintiffs explained in the Fifth
Supplemental Response that they had “provided additional clarification and detail in the
above responses.” It would have been more transparent to have simply restated Trade
Secret #2 in the Fifth Supplemental Response, but the Court does not find that plaintiffs
sought to deceive anyone by proceeding differently.
More substantively, defendants contend that plaintiffs’ responses as served on
November 2 were immutable and that plaintiffs’ November 25 revision and addition was
forbidden. Defendants state they have been prejudiced by the late changes to the
algorithm because expert discovery was by then nearly over. In addition, defendants
argue that the new supplement includes vague and indeterminate concepts like
“know-how” and “experience.”
Plaintiffs respond that they filed their Fifth Supplemental Response on the last day
of fact discovery. They believed they were entitled to update all discovery responses until
the November 25 fact discovery deadline, as they understood the Court’s use of the word
“final” as a reference to the fact that Square had repeatedly asked for supplemental
responses.

Moreover, they state that any suggestion that plaintiffs have “reversed

engineered” their trade secret identification after reviewing defendants’ technical
information is refuted by the simple fact that they served the Fifth Supplemental Response
before they obtained such discovery from defendants. Furthermore, plaintiffs explain
that, in the short time they had to reframe their trade secrets, they at first relied on Dr.

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Morley’s handwritten deposition exhibit for articulation of Morley’s decoding algorithm
trade secret. That articulation became Trade Secret #2 in their Third Supplemental
Response, but that Supplemental Response explicitly stated that the information in their
previous responses remained relevant to claims and offered helpful clarity and detail.
After the Court’s ruling on the cross-motions to compel, plaintiffs knew that their format
and style for Trade Secret #2 had been approved, so they supplemented the response by
“port[ing] additional detail from …previous responses,” reprising the information “in the
format now approved by the Court.” Thus, plaintiffs maintain that there could have been
no surprise to defendants because was no new information presented by the Fifth
Supplemental Response.
However, plaintiffs do not adequately explain their delay in finalizing Trade Secret
#2, and it is that delay that primary affected defendants’ ability to litigate this case. The
Court’s implicit “approval” of plaintiffs’ Trade Secret #2 articulation occurred on October
27, 2015. Plaintiffs supplemented their other trade secret response on November 2, and
then they waited 23 days to revise Trade Secret #2. They filed their Fifth Supplemental
Response the same day that opening expert reports were due. Defendants state that they
needed more time in fact and/or expert discovery to litigate this claim effectively. In
addition, the Court notes that plaintiffs’ trade secret claim is a subject of defendants’
recently-filed summary judgment motion.
The Court declines to “strike” plaintiffs’ Fifth Supplemental Response in its
entirety, but the Court agrees that plaintiffs’ attempt to include vague notions of Morley’s

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“know-how” and “experience” as a trade secret is improper. As for the remainder of
defendants’ objections, the Court will reopen discovery for the limited purpose of
completing discovery needed to address plaintiffs’ revised Trade Secret #2. The Court
will also permit defendants to file a new summary judgment argument as to Section VII of
their memorandum. The Court will thus entertain a proposal from defendants for
appropriate additional discovery and a revised briefing schedule as to the Trade Secret
aspects of the summary judgment motion.
Accordingly,
IT IS HEREBY ORDERED that defendants’ motion to strike plaintiffs’ November
25, 2015 supplemental responses to defendants’ Interrogatory No. 5 (#283) is DENIED in
part and GRANTED in part as explained herein.
IT IS FURTHER ORDERED that the defendants shall submit a proposal for
extending the period for discovery related to Trade Secret #2 and for briefing on the Trade
Secret aspects of defendants’ summary judgment motion no later than February 5, 2016.

Dated this 1st day of February, 2016.

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STEPHEN N. LIMBAUGH, JR.
UNITED STATES DISTRICT JUDGE

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