Broker Genius Inc. v. Zalta et al
Filing
150
OPINION & ORDER: Plaintiff elected to seek an injunction only with respect to its claims of trade secret misappropriation. But the law of trade secrets is not so flexible as to allow elements of a software program that are necessarily disclosed to al l of its users without accompanying confidentiality obligations to be classified as protectable trade secrets. Accordingly, the Court denies plaintiff's motion for a preliminary injunction. SO ORDERED. (Signed by Judge Sidney H. Stein on 12/04/2017) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
BROKER GENIUS, INC.
Plaintiff,
‐against‐
17‐cv‐2099 (SHS)
NATHAN ZALTA, MICHAEL SHAMAH,
NRZ ENTERTAINMENT LLC,
JOSEPH BASSIL, and GONTHAM, LLC
OPINION & ORDER
Defendants.
SIDNEY H. STEIN, U.S. District Judge.
Broker Genius, Inc., a company that develops software for the ticket
broker industry, has sued its former licensees – defendants Nathan Zalta and
Michael Shamah, and their company, NRZ Entertainment LLC – alleging that
they used their access to Broker Genius’s AutoPricer v.3 software improperly
to acquire the knowledge and information they needed to build a copycat
competitor product called TickPricer. Broker Genius alleges that, in doing so,
defendants misappropriated Broker Genius’s trade secrets, engaged in
copyright infringement, breached their contractual obligations and the
implied duty of good faith and fair dealing, unjustly enriched themselves,
and tortiously interfered with Broker Genius’s current and prospective
business relations. (See Compl., ECF No. 1.) Plaintiff later joined two
additional defendants – software developer Joseph Bassil and his company,
Gontham, LLC – and alleges that they are also liable for trade secret
misappropriation, copyright infringement, and unjust enrichment for their
roles in helping Zalta, Shamah, and NRZ build TickPricer. (Am. Compl., ECF
No. 25.)
Broker Genius has now moved pursuant to Fed. R. Civ. P. 65 to
preliminarily enjoin the original defendants – Zalta, Shamah, and NRZ –
from using TickPricer or making it available to any third party. (See Order to
Show Cause, ECF No. 5; Pl.’s Pre‐Hearing Mem. 1.) Broker Genius seeks this
relief only in connection with its claims of trade secret misappropriation
pursuant to New York law and the Defend Trade Secrets Act of 2016
(“DTSA”), 18 U.S.C. § 1836, et seq. (Pl.’s Pre‐Hearing Mem. 17 n.25.)
Because Broker Genius discloses the information that it alleges to be its
trade secrets to each of its licensees as a matter of course and because it has
not shown that it required those licensees to maintain the confidentiality of
user‐facing elements of the AutoPricer v.3 software, plaintiff has established
neither a likelihood of success on the merits nor sufficiently serious questions
going to the merits of its trade secret misappropriation claims. Accordingly,
plaintiff’s motion for a preliminary injunction is denied.
I.
PROCEDURAL BACKGROUND
At the same time that Broker Genius filed its complaint on March 23,
2017, it requested that the Court issue an ex parte temporary restraining order
to, inter alia, seize any property of defendants NRZ, Zalta, and Shamah
containing Broker Genius’s trade secrets and to restrain them from marketing
their TickPricer software product. The Court denied plaintiff’s request for ex
parte relief, held a hearing later that same day with counsel for all sides
present, and granted a TRO directing defendants not to access or disclose
Broker Genius’s proprietary technology or information, not to violate any
confidentiality obligations owed to Broker Genius, and not to destroy
evidence, but the Court denied Broker Genius’s requests to seize defendants’
computers and prevent defendants from marketing the TickPricer product.
(See Order to Show Cause, ECF No. 5.)
A hearing on Broker Genius’s motion for a preliminary injunction was
held over the course of three days in June where witnesses were heard and
documentary evidence presented. The following constitutes this Court’s
findings of fact and conclusions of law.
II. FACTUAL BACKGROUND
A. Broker Genius’s Lengthy and Expensive Development of
AutoPricer
Broker Genius, Inc., is a software company that specializes in developing
software products and services to help automate the pricing of tickets in
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secondary markets. The secondary market for tickets for sporting events,
concerts, and theater performances is a multi‐billion dollar industry in which
ticket brokers purchase tickets from ticket sellers (e.g., Ticketmaster) in the
primary market and then resell to consumers through online exchanges (e.g.,
StubHub). (Prelim. Inj. Hr’g Tr. (“Tr.”) 223:23‐24; see also U.S. Patent
Application Publication No. US 2015/0025918 A1, DX‐1 ¶¶ 3‐9.)
Broker Genius was founded in 2013 by Shmuel (“Sam”) Sherman, who
had previously worked as a ticket broker on the secondary market and
currently serves as the company’s CEO. (Tr. 181:1‐13.) Sherman testified that
he started Broker Genius in order to build a software product that would
allow brokers to “implement the strategies” they had already been using to
price tickets manually, but “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.” (Tr. 182:10‐15.) Sherman recognized that
brokers did not only need an automatic pricing solution, but that they also
needed a user interface that would enable them to efficiently “analyze the
market” in order to define and price their inventory against comparable
listings. (Tr. 182:15‐22, 185:11‐16.) At the time of Broker Genius’s founding in
2013, no other software offered these capabilities. (Tr. 182:8‐22, 185:11‐16.)
Sherman and plaintiff’s expert, Dr. Eric Koskinen, testified that because
Broker Genius was creating a type of product that did not already exist in the
marketplace, it spent considerable time creating its own roadmap for the
functions the software should perform and refining its user interface through
trial and error and responses to customer feedback. (Tr. 112:11‐24, 114:3‐18,
189:19‐190:8.) Accordingly, Broker Genius created multiple iterations of its
product over the course of two years; it released the first version in
September 2013 and did not launch the version at issue in this case –
AutoPricer v.3 – until July 2015. (Koskinen Expert Report, PX‐62 § 5.2.1; see
also Deposition of Sam Sherman, May 19, 2017, Pl.’s Pre‐Hearing Mem., PX‐
84; Tr. 66:9‐14.) This development process necessitated an investment of over
$4 million. (Tr. 199:3‐5.)
During the early stages of Broker Genius’s development of its automatic
pricing technology, it decided to protect its invention by filing a patent
application with the U.S. Patent Office. Broker Genius’s patent application
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was published on January 22, 2015 as Pub. No. US 2015/0025918 A1 (the “’918
Patent Application”). The ‘918 Patent Application describes a comprehensive
system to automate the entire “ticket management process” – from
forecasting market trends and purchasing event tickets to pricing the tickets
for sale through various marketplaces. (‘918 Patent Application, DX‐1 ¶ 22.)
A major portion of the system described in the application has a functionality
which enables brokers to “manage all of their electronic tickets from one
interface,” automatically change the prices of tickets based on
“predetermined user inputs,” and “upload[ ] [their] ticket listings seamlessly
to multiple secondary ticket exchange servers and integrat[e] with them in
real time.” (DX‐1 ¶¶ 22, 33.) This is the same functionality that is found in
AutoPricer v.3 – the software at issue in this case.
B. Broker Genius’s Alleged Trade Secrets
AutoPricer v.3 is a dynamic automatic pricing software that allows ticket
brokers to manage their ticket inventories by setting pricing rules that enable
the prices of their tickets to automatically adjust to reflect changes in the
market. To accomplish this, AutoPricer v.3 integrates with point of sale
(“POS”) ticket inventory systems used by the brokers (e.g., SkyBox), as well as
the ticket exchanges in which tickets are sold to consumers (e.g., StubHub).
In Dr. Koskinen’s expert report, he identified fourteen “software
components” that Broker Genius claims are the trade secrets that defendants
misappropriated to create TickPricer. (Koskinen Expert Report, PX‐62; see
also Pl.’s Identification of Asserted Trade Secrets, June 5, 2017; Tr. 97:13‐98:2.)
These claimed trade secrets are generally comprised of: (1) AutoPricer v.3’s
application architecture (see SC001, SC014), (2) its overall user experience and
user interface (“UX/UI”), including certain inter‐operating and interactive
software components (see SC003‐SC0012), and (3) its techniques for
improving the speed of pricing calculations and making the software scalable
to accommodate an expanding user base (see SC002, SC013).1
Broker Genius also considers the AutoPricer v.3 source code to be a trade secret (see Am.
Compl. ¶ 21), but it concedes that there is no evidence that defendants misappropriated –
or even accessed – that source code (Tr. 105:22‐106:1).
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At the preliminary injunction hearing, Dr. Koskinen defined software
architecture as “the overall organization of a computer system, how the
different elements of the functionality or infrastructure [are] organized.” (Tr.
99:24‐100:1.) He analogized it to the manner in which “the different systems
of [a] car, braking system versus the drive train, are organized.” (Tr. 100:2‐4.)
According to plaintiff, the architecture of AutoPricer v.3 corresponds to the
software component “Dynamic Automatic Ticket Pricing System” (SC001),
which Dr. Koskinen describes somewhat amorphously as the “platform” and
“system” for AutoPricer v.3 in his expert report. (Pl.’s Post‐Hearing Mem. 4;
Koskinen Expert Report, PX‐62, Ex. C at 1.1.) Although there is substantial
overlap between the architecture of the AutoPricer v.3 software and its user
interface, the architecture also apparently encompasses the underlying
structure of the pricing application and the manner in which it is integrated
with brokers’ POS ticket inventory systems and ticket exchanges. (PX‐62, Ex.
C at 1.1.)
Broker Genius claims that the trade secrets of AutoPricer v.3 are not
limited to its backend structures, but also include the software’s user‐facing
UX/UI (SC003). At the preliminary injunction hearing, Dr. Koskinen
explained that UX/UI encompasses three general concepts: the design of the
“cosmetic” “graphical elements” of a software program, the sequence of
workflows and the processes by which users interact with that software, and
the impressions and “attitudes” that a user has when interacting with that
software. (Tr. 101:19‐102:13.) The UX/UI of AutoPricer v.3 contains a
collection of “widgets” – interactive elements that accept various forms of
inputs from users, perform calculations, and present the results back to the
users. (Tr. 100:19‐101:5.) Broker Genius contends that it made deliberate
design choices to ensure that these widgets appear and interact with each
other in a way that the ticket brokers who use AutoPricer would find
intuitive and helpful to achieving their objectives in reviewing inventory and
pricing tickets.
The specific widgets identified as common to both AutoPricer v.3 and
defendants’ TickPricer product are an “events list widget” (SC004), which
compiles the event listings pulled from the POS of ticket inventory systems
(e.g., SkyBox) and allows users to filter and search for specific events; an
“inventory list widget” (SC005), which permits users to interact with their
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ticket inventories for various events; a “pricing widget” (SC006), which
allows users to set rules for pricing tickets based on the prices of competing
tickets (“comps”) and incorporates sub‐widgets for identifying those
“comps” by the zones, sections, and rows of any given venue (e.g., Barclays
Center) (SC007, SC008, and SC009), creating profiles to save pricing rules that
the users intend to re‐use (SC010), and setting prices for season tickets
(SC011); and a “groups widget” (SC012), which enables users to create
pricing rules for multiple listings at once. AutoPricer v.3’s UX/UI organizes
and coordinates these various widgets to provide the full functionality of the
software.
The last type of trade secret claimed by Broker Genius is comprised of
AutoPricer v.3’s solutions to scalability problems that arise in any dynamic
automatic ticket pricing software. Scalability refers to the manner in which
an automatic pricing software can accommodate a growing number of users
by processing an increasing frequency of inputs and calculations. (See Tr.
156:5‐18.) Dr. Koskinen explained both at the hearing and in his expert report
that Broker Genius was able to address this challenge by designing an
“architecture for scalability” (SC002) comprised of “algorithms and
implementations” to ensure that the price changes for events are published at
a frequency that varies based on the imminence of the event itself. (Koskinen
Expert Report, PX‐62, Ex. C at 1.2; Tr. 156:23‐157:7.)
By ensuring that AutoPricer v.3 uses different “cycling speeds” for
different tiers of events, Broker Genius is able to prioritize urgent price
changes and thereby accommodate an increased number of users despite the
bandwidth limitations of the ticket exchange servers with which it is
integrated. AutoPricer v.3 also ensures that it can process a growing user
base by using “concurrent” price calculations while also controlling the
number of simultaneous calculations to prevent simultaneous edits of the
same data. (Koskinen Expert Report, PX‐62, Ex. C at 1.13 (describing the
“Multi Threaded Pricer” software component (SC013)).)
C. Broker Genius’s Protection of its Trade Secrets
Broker Genius’s witnesses testified that the company takes measures to
protect the confidentiality of its purported trade secrets. Broker Genius
obligates its employees to sign and abide by an Employee Handbook, which
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contains a confidentiality provision broadly identifying “information
regarding the Company’s intellectual property, including its technology and
products” as proprietary and/or confidential information. (Broker Genius
Employee Handbook, PX‐53 at 9; Tr. 207:23‐25, 209:3‐17, 211:10‐17.) Broker
Genius also requires its employees to sign employment agreements that
contain nondisclosure clauses. (Tr. 207:25‐208:2, 209:17‐23, 213:7‐15, 216:11‐
217:7.) Furthermore, Broker Genius also ensures that any terminated
employees immediately “lose access to any confidential information that they
may have.” (Tr. 221:22‐222:4.) In addition, Broker Genius retained an
independent auditor, Codete, to examine, among other issues, whether
Broker Genius was adequately “protecting its intellectual property.” (Tr.
158:21‐159:13; see also Tr. 208:7‐13.) The Codete report found that there were
no major security flaws in Broker Genius’s backend architecture. (Codete
Audit Report, PX‐57 at 18‐19.)
Although Broker Genius promoted previous iterations of its AutoPricer
product to potential customers by widely publishing screenshots of the
software,2 it has not made the user interface of AutoPricer v.3 available to the
general public. Sherman testified that the company “do[es] whatever [it] can,
from a sales and marketing perspective, to be able to give a taste of what the
Broker Genius and AutoPricer product is without disclosing [its] trade
secrets.” (Tr. 222:9‐12.) For example, instead of publishing a “step‐by‐step”
demonstration on its website, the company promotes AutoPricer by using a
cartoon video that speaks in only broad terms about the software’s
capabilities. (Tr. 222:13‐23.) Similarly, Broker Genius’s Vice President of
Sales, Zachary Ellman, testified that when he gives three‐ to eight‐minute
product demonstrations to potential customers, he discloses only “the general
concept” of AutoPricer v.3, which does not permit viewers to understand the
Specifically, Broker Genius published screenshots of Price Genius – a predecessor
software product with similar functionality to AutoPricer v.3 (Tr. 62:3‐63:5) – on Broker
Genius’s own website (Screenshot of Archived Copy of Broker Genius Website, Defs.’
Pre‐Hearing Mem., Ex. F), on a website used to solicit investments from angel investors
(Screenshot of Images from Broker Genius’s Angel List Profile, Defs.’ Pre‐Hearing Mem.,
Ex. H), and on a large, annotated banner that Broker Genius used as the backdrop for its
booth at a trade show in Las Vegas (Price Genius Trade Show Banner, DX‐27; Tr. 59:20‐
61:10).
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organization of its architecture or the intricacies of its UX/UI. (Tr. 33:17‐
34:11.)
Despite the precautions Broker Genius takes in its marketing of
AutoPricer v.3, the record shows that Broker Genius nevertheless discloses
each of its alleged trade secrets to its customers. AutoPricer v.3’s users have
constant access to its UX/UI by virtue of their interaction with the software.
Additionally, Broker Genius has a team of dedicated trainers who “spend
hours and hours and hours” training their customers on how to use each of
the features and widgets of AutoPricer v.3. (Tr. 80:21‐22.) This training
occurs over the course of a 30‐day trial period and follow‐up training is
generally held once a customer signs up for a full license. (Tr. 36:24‐37:1.)
Broker Genius also provides both its trial and fully licensed customers with
user guides (BG User Training Manual, DX‐20), tutorial videos (see Email
from Ellman to Zalta, May 13, 2015, DX‐56), and emails explaining how to use
new features that are periodically added to the AutoPricer v.3 software (New
Features Memo, DX‐18; Email from Broker Genius to Elliott Shamah, March
8, 2017, PX‐20). (See also Tr. 234:4‐20, 237:4‐12, 238:25‐240:8.) In addition,
Broker Genius discloses to its customers information about its “cycle”
durations – the frequency with which prices are updated for various events
based on how soon the event will take place – which is the basis of Broker
Genius’s scalability solution. (See Email from Broker Genius to NRZ, Nov. 18,
2016, PX‐26; see also Email from Broker Genius to Abe Harary, Feb. 23, 2017,
Defs.’ Post‐Hearing Mem., Ex. A.)
Broker Genius’s witnesses also testified that the company only grants
this extensive access to its trade secrets to customers who have agreed to
restrictions on their use of the software. Anyone who wishes to sign up for a
license to use Broker Genius must first create a password‐protected account
and click on a box to assent to Broker Genius’s “terms of use” – a phrase that
appears as a hyperlink and links to a copy of the Terms of Use document.
(Tr. 122:6‐12.) These Terms of Use govern all users who use AutoPricer v.3
for a 30‐day trial period. (Tr. 222:5‐7.) Sherman explained that once a
customer agrees to the Terms of Use, “that means they’ve signed up and we
would give them as many training sessions as they want at that point.” (Tr.
463:16‐18.)
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The written Terms of Use require users to agree not to “[m]odify, adapt,
sub‐license, translate, sell, reverse engineer, decompile or disassemble any
portion of the Site or Apps or otherwise attempt to derive any source code or
underlying ideas or algorithms of any part of the Site or Apps.” (Terms of
Use, updated June 12, 2014, PX‐56 at 3.) In addition, users must agree not to
“[r]eproduce, modify, display, publicly perform, distribute or create
derivative works of the Site or Apps or Content.” (Id. at 4.)
Broker Genius users who wish to subscribe to longer term contracts have
the opportunity to sign the Broker Genius Service Agreement (“Service
Agreement”). (Tr. 222:7‐9, 460:19‐24.) But because the Service Agreement is
not used by those Broker Genius customers who license the AutoPricer
software on a month‐to‐month basis, the majority of Broker Genius customers
– approximately sixty percent – are covered solely by the Terms of Use. (Tr.
460:19‐462:20.)
Pursuant to the Service Agreement executed by customers who have a
license to use AutoPricer for a term longer than one month, users agree not to
“reverse engineer, decompile, clone, copy or otherwise obtain a record or
index of the source, object or compiled code of the Software” (Service
Agreement, PX‐8 at § 6.2) or to “distribute, disseminate, sublicense, copy,
modify, reverse engineer, decompile, translate, dissemble or create a source
code equivalent of or derivative of the Software or allow others to do so” (id.
at § 6.4). In addition, users must “acknowledge that the source code and
underlying structure and algorithms of the Software are the property and
proprietary trade secrets” of Broker Genius. (id. at § 6.4.) The Service
Agreement’s merger clause specifies that the agreement “supersedes” any
other communications regarding its subject matter (id. at § 12), and another
clause stipulates that the licensee’s contractual obligations survive its
termination (id. at § 7).
D. Defendants’ Relationship with Broker Genius
Defendant NRZ Entertainment, LLC, is a company involved in the ticket
broker business and is presently owned by defendants Nathan Zalta and
Michael Shamah.
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NRZ’s employees first heard about Broker Genius in May 2015 and
reached out to Broker Genius to learn more about automatic ticket pricing
and to receive a demonstration of AutoPricer v.3. (Tr. 487:7‐15, 488:21‐25.)
Shamah promptly signed NRZ up for a 30‐day trial of Broker Genius’s “full‐
service” subscription model. (Tr. 492:19‐22.) In the process of creating an
account, he or another NRZ representative assented to Broker Genius’s Terms
of Use.3 (Broker Genius Client Account Creation Dates, PX‐92 at 9.)
By using the “full‐service” subscription model, NRZ authorized a
designated pricing representative from Broker Genius to price NRZ’s ticket
inventory using Broker Genius’s technology. (Tr. 494:7‐24.) Although
Shamah testified that he was initially dissatisfied with the service, he agreed
to undertake a second 30‐day trial of the “full‐service” offering several
months later, in November 2015. (Tr. 495:8‐496:11.)
Upon the expiration of its second trial period, NRZ did not become a
“full service” customer. Instead, at the end of December 2015, NRZ entered
into a trial subscription for Broker Genius’s alternative “self‐service” offering,
under which – instead of relying on a Broker Genius representative to price
its tickets – NRZ would use the AutoPricer v.3 technology to price its own
inventory. (Tr. 505:21‐506:4.) After the conclusion of this 30‐day trial period,
NRZ agreed to enter into a full license to use the AutoPricer v.3 product for a
one‐year term commencing on February 3, 2016. Shamah signed the Service
Agreement on behalf of NRZ on February 22, 2016. (See PX‐8.)
Throughout the course of NRZ’s relationship with Broker Genius, Broker
Genius representatives conducted multiple training sessions and fully
explained the AutoPricer software’s functionalities and capabilities.
Promptly after NRZ signed up for its first 30‐day trial service, Zachary
Ellman, Broker Genius’s Vice President of Sales, conducted a six‐hour
training session at Zalta’s house to train him on the use of AutoPricer v.3.
Although Shamah and Zalta both testified that they could not recall clicking on or
otherwise assenting to the Terms of Use (Tr. 492:23‐25, 534:6‐12, 536:16‐24, 537:4‐5
(Shamah), 631:18‐22 (Zalta)), Broker Genius’s records show that an account was created
in Shamah’s name on May 12, 2015 (PX‐92 at 9), and defendants have not disputed
plaintiff’s assertion that a user cannot create a Broker Genius account without first
clicking on a box to assent to the Terms of Use.
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(Tr. 37:3‐15; Tr. 508:4‐13.) Ellman then continuously discussed the service
with Shamah during the course of NRZ’s trial and license subscriptions. (Tr.
35:8‐24.) According to Ellman, it was standard practice for Broker Genius to
provide continuous training support, but the training he provided to NRZ
was “definitely on the more excessive end” of what is typical for Broker
Genius customers. (Tr. 36:15‐22.)
E.
Defendants’ Simultaneous Development of TickPricer
At the same time that NRZ was using AutoPricer v.3 and receiving
Broker Genius’s support and training in using its software, NRZ began to
develop its own automatic ticket pricing product: TickPricer. Although there
is no evidence that NRZ accessed Broker Genius’s source code, it is also
abundantly clear from the documentary evidence and witness testimony that
defendants closely modeled TickPricer on AutoPricer v.3 and relied heavily
on their knowledge of Broker Genius’s product to build their own software.
Shamah testified that the reason that NRZ decided to create TickPricer in
the first place was that he and Zalta wanted to improve on a concept that
they believed had great potential but was being “poorly executed” by Broker
Genius. (Tr. 520:22‐23.) Shamah testified that by June 2016, NRZ was losing
money using AutoPricer v.3 as a result of bugs that led NRZ’s tickets to be
priced against “comps” that improperly included NRZ’s own inventory.
According to Shamah, this created a situation in which NRZ was essentially
competing against itself in a race to the bottom. (Tr. 514:13‐516:11, 518:2‐9;
Email from Shamah to Ellman, June 20, 2016, DX‐57; accord Tr. 577:25‐579:3
(Zalta testifying that he was also familiar with bugs in the Broker Genius
software).)
In order to build NRZ’s own pricing software, Zalta reached out to a
developer named Saqib in June 2016. (Tr. 579:21‐580:1; see also Deposition of
Nathan Zalta, May 18, 2017, Pl.’s Pre‐Hearing Mem., PX‐80 at 113:10‐11.)
Zalta sent Saqib a three‐page PDF document containing heavily annotated
screenshots of the AutoPricer v.3 user interface – specifically identified in the
PDF as “Brokergenius Pricer.” (Annotated Screenshots Sent to Saqib, Pl.’s
Pre‐Hearing Mem., PX‐31; Tr. 580:12‐17.) The annotations contain notes
explaining the purposes of various elements of AutoPricer’s interface (e.g.,
“Groups,” “Section,” “Broadcast Status,” and “# of tickets to compete
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against”) and also appear to provide instructions to the software developer
(e.g., “Not Needed”). (Ex‐31.) At the hearing, Zalta testified that the reason
he sent this PDF to Saqib was that Saqib “had no knowledge of the ticket
broker industry” and Zalta “needed to show him that all the information
could be pulled directly from StubHub or Sky Box.” (Tr. 580:18‐21.)
Although NRZ did not hire Saqib to create its software based on Broker
Genius’s product in June (Tr. 580:22‐581:5), two months later, Zalta went to
UpWork.com – a platform linking freelancers to software development
projects – and posted a job seeking a developer to build an automatic ticket
pricing software (UpWork Posting, DX‐41). Defendant Joseph Bassil, a
developer who builds automation software through his company Gontham
LLC, responded to Zalta on August 11, 2016. (UpWork Correspondence
between Zalta and Bassil, DX‐40 at NRZ_000047.) As soon as Bassil
responded to Zalta’s posting of the job, Zalta sent Bassil a nine‐page PDF
document entitled “Pricing Tool Directions,” to detail the requirements for
the software he wanted developed and to confirm that Bassil would be able
to “100% complete this project perfectly according to specifications.” (DX‐40
at NRZ_000047; Pricing Tool Directions, DX‐70.) Like the PDF document that
Zalta had sent to Saqib several months earlier, this document included
detailed annotated screenshots taken directly from plaintiff’s AutoPricer v.3.
Specifically, the 9‐page document that Zalta sent to Bassil contained four
pages of screenshots of the AutoPricer v.3 user interface, with annotations
identifying various features and functionalities that were “[n]eeded in [the]
[p]ricing [s]oftware” that Bassil was being asked to develop. (DX‐70 at
NRZ_000106; see also id. at NRZ_000105‐08.) It also contained two pages of
annotated screenshots of the SkyBox POS – the publicly available application
programming interface (“API”) from which a broker would pull their
inventory – as well as two pages of annotated screenshots of a sample
StubHub event page. (Id. at NRZ_000101‐104.) Notably, the PDF did not
contain any explicit references to Broker Genius or its proprietary products.
Zalta merely identified the screenshots of AutoPricer v.3 as having been
taken from an unnamed “sample pricing software.” (Id. at NRZ_000108.) In
addition, before Zalta sent the screenshots to Bassil, he went to the trouble of
redacting Broker Genius’s client support telephone number from the last
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screenshot in the PDF, thereby hiding the screenshot’s source. (See Letter
from Jason Cooper to the Court, July 11, 2017, ECF No. 90 at 1.)
Zalta testified that the reason he sent this PDF to Bassil was to show
Bassil – who had no experience in the ticket broker industry – “that all the
information that needed to be pulled for this software was to come from two
places”: SkyBox and StubHub. (Tr. 587:11‐16; see also Tr. 634:24‐635:5.) The
Court does not credit that testimony; rather, Zalta sent Bassil the AutoPricer
v.3 screenshots in order to have Bassil copy AutoPricer’s functionalities.
NRZ hired Bassil for the development job on August 16, 2016, five days
after he had responded to Zalta’s job posting. (DX‐40 at NRZ00047‐48.)
Bassil went on to build TickPricer in merely four months, even though he was
working on this project only part‐time. (Tr. 297:3‐12.) He provided a
functioning version to NRZ by “middle or late December” of 2016. (Tr. 298:6‐
8, 598:5‐6.) NRZ paid Bassil $6,000 for his initial development work and –
because the product was still a “prototype” software that was not “100
percent complete” – NRZ has continued to pay him $500 to $1,000 per week
for maintenance and bug fixes. (Tr. 345:5‐346:2, 598:10‐17.)
Bassil, Zalta, and Shamah all vigorously denied on the stand that they
had relied on NRZ’s detailed knowledge of AutoPricer v.3’s product when
building TickPricer. According to Bassil, he was able to construct TickPricer
relatively quickly and cheaply because he was building off of a pre‐made
application “framework” that he recycled from his prior development
projects (Tr. 303:24‐304:16), because he used a generic user interface (Tr.
304:17‐22), and because he already had experience with designing a “similar”
product – an “Amazon price matching tool” (Tr. 281:19‐282:10). Bassil
testified that, while developing TickPricer, he “did not really pay too much
attention” to the nine‐page PDF that Zalta had sent him (Tr. 357:1‐2) because
he simply had “no need to” refer to the screenshots of the “sample pricing
software,” which we know was AutoPricer v.3 (Tr. 308:13). According to
Bassil, he only referred back to the PDF’s images of the SkyBox POS to
understand “what data points [he] need[ed] to pull from the point of sale.”
(Tr. 308:16‐20.)
Both Zalta and Bassil further denied that Bassil was ever able to use
AutoPricer v.3 or even that Zalta ever showed Bassil how AutoPricer v.3
13
functioned. (Tr. 303:2‐4, 308:21‐24 (Bassil), 592:23‐593:8, 640:5‐7 (Zalta).) This
is not credible given the fact that Zalta sent Bassil screenshots of AutoPricer
v.3 that were annotated to describe the software’s functionality. In addition,
the evidence shows that Bassil and Zalta spoke at length and frequently
through Skype (see Skype Correspondence between Zalta and Bassil, PX‐34)
and shared computer screens with one another throughout the course of
developing TickPricer (Tr. 349:5‐7). And their written communications
reveal multiple occasions on which they alluded to the prospect of Zalta
(i) granting Bassil access to AutoPricer v.3, (ii) showing Bassil how the
software looked and functioned, or – at the very least – (iii) explaining in
detail how it functioned.
For instance, on August 16, 2016 – the day Zalta awarded the bid to
Bassil – he asked Bassil, “What would be the next steps? Do you need me to
create a list of every single small aspect that the software should have? I can
walk you through our current software now. Let me know.” (DX‐40 at
NRZ_000048.) NRZ’s “current software,” of course, was AutoPricer v.3. The
next day Zalta asked, “Would you like to speak on skype so I can share my
screen[?]” and Bassil replied, “yes, let’s do that.” (Id.)
At the hearing, Bassil and Zalta could not recall if in fact they shared
screens at this time, but testified that if they had done so, Zalta would have
only walked Bassil through the POS software from which NRZ’s inventory
would be pulled – not AutoPricer v.3. Bassil said: “I honestly don’t
remember what we did on that conversation, but, again, based on how I
work, what I would have been interested in is where is your inventory and
how do I get to it.” (Tr. 301:13‐16.) When Zalta was cross‐examined on the
same topic, after a substantial hesitation, he gave an answer similar to that
offered by Bassil: “At that point the most relevant information [Bassil] would
need to get started was the POS API information. . . . So that’s the software I
would have shown him at that time.” (Tr. 638:19‐639:7.)
One month later, on September 14, 2016, Bassil asked Zalta: “Is it
possible to give me access to the current repricing tool you’re using?” (DX‐40
at NRZ_000050.) Again, that “tool” was AutoPricer v.3. Bassil explained that
he sought access to NRZ’s current software because he wanted to “produce a
software that is familiar to [Zalta].” (Tr. 303:12‐21.) However, both Bassil
14
and Zalta claimed that Zalta never responded to Bassil’s request. (Tr. 303:9‐
11 (Bassil), Tr. 591:17‐20, 592:9‐17 (Zalta).) According to Zalta, he ignored
Bassil’s request because he “wanted [Bassil] to build a totally unique pricing
tool” and he “didn’t want [Bassil] using the Auto Pricer as a basis.” (Tr.
592:14‐17.) Zalta added that he “did not think it was a good idea” to give
Bassil access to AutoPricer v.3 (Tr. 594:2); Zalta explained that, while he was
not certain whether his agreements with Broker Genius prohibited him from
granting access to a third party, he preferred to be “extra careful.” (Tr. 594:1‐
595:16.)
Because NRZ was still a Broker Genius client while it was building
TickPricer, Zalta was able to compare his new tool to AutoPricer v.3’s
interface and technology. For instance, in October 2016, after Bassil gave
Zalta access to a non‐functioning “proof of concept” version of TickPricer,
Zalta “took an image of the proof of concept,” “modified it” by adding new
elements, and sent it back to Bassil. (Tr. 372:2‐21.) The modified proof of
concept that Zalta sent Bassil includes screenshots of AutoPricer’s widgets
that Zalta had pasted from Broker Genius’s user interface. (See Screenshot of
Modified Proof of Concept, PX‐41; Screenshot of Modified Proof of Concept,
PX‐61; Tr. 380:8‐22.)
In another instance, on December 8, 2016, someone at NRZ forwarded
Zalta a copy of an earlier email that Broker Genius had sent to NRZ, in which
Broker Genius disclosed the durations between each of AutoPricer v.3’s
pricing cycles. (Email from NRZ to Zalta, Nov. 18, 2016, PX‐26; Tr. 651:4‐
652:15.) The very same day, Zalta sent that information to Bassil. (Skype
Correspondence between Zalta and Bassil, PX‐34 at GONTH_000220; Tr.
653:3‐20.)
Once TickPricer became operational in December 2016, Shamah cancelled
NRZ’s AutoPricer v.3 license, one month early. (Email from Shamah to
Ellman, Dec. 20, 2016, DX‐29.) However, even after NRZ cancelled its
subscription to AutoPricer v.3, it continued to receive updates about Broker
Genius’s software through its utilization of a beard: At the same time that
Bassil was finalizing his TickPricer product for NRZ, Elliott Shamah – a part‐
time ticket broker and defendant Michael Shamah’s brother – signed up to
become a Broker Genius client. (Tr. 564:17‐24 (suggesting that Elliott signed
15
up in mid‐December 2016); but see Broker Genius Client Account Creation
Dates, PX‐92 (showing that Elliott created his Broker Genius account on
November 15, 2016).) On January 19, 2017, Elliott requested a pricing sheet
from Broker Genius and immediately forwarded it to NRZ. (Email from
Elliott Shamah to Nathan Zalta, Jan. 19, 2017, PX‐17.) Similarly, in March
2017, Elliott forwarded his brother at NRZ an email from Broker Genius to its
customers announcing feature updates. (Email from Elliott Shamah to
Michael Shamah, Mar. 12, 2017, PX‐20.) And on March 21, 2017, Elliott sent
his brother an email describing one of Broker Genius’s marketing initiatives,
noting that Broker Genius was “def starting to feel the pressure lol.” (Email
from Elliott Shamah to Michael Shamah, Mar. 21, 2017, PX‐21.) Michael
Shamah denied that his brother ever worked for NRZ or that NRZ ever asked
him to pass along information from Broker Genius, but in a delightful bit of
understatement, acknowledged that Elliott “could have thought he was
helping” NRZ by forwarding this information. (Tr. 564:7‐8; see also Tr. 561:18‐
19, 562:23‐563:1.) This Court is aware of absolutely no other reason he would
have done so.
F.
Instantiation of AutoPricer v.3’s Software Components in
TickPricer
The TickPricer software that Bassil built for NRZ replicates many of
AutoPricer’s essential features and functions. According to Dr. Koskinen, the
two products share a “substantial overlap” in their software architecture,
UX/UI, and solutions to scalability problems. (Koskinen Expert Report, PX‐62
at § 1.5; see also Tr. 97:17‐18.)
Although defendants’ expert, Mr. Stephen Gray, opined that “[t]he Auto
Pricer and TickPricer architectures are very different” and that “[t]he
architecture of the TickPricer application is much simpler” (Gray Expert
Report, DX‐61 at ¶ 71), he based this opinion largely on an inspection of the
source code for each application (id. at ¶¶ 50, 60, 69, 74). As Dr. Koskinen
testified, differences in the source code are not dispositive because there are
multiple ways to implement the same software components through different
coding instructions. (Tr. 119:5‐120:11). Notably, Mr. Gray never relied on the
actual experience of using the TickPricer and AutoPricer v.3 software
programs in developing his expert report (Tr. 419:16‐18) and he did not
16
express an opinion on the vital question of whether each of the software
components identified by Broker Genius as its AutoPricer trade secrets were
instantiated in TickPricer (Tr. 431:5‐13). In fact, Mr. Gray’s own rebuttal
expert report shows that each of the interoperating widgets that appears in
AutoPricer v.3’s UX/UI (e.g., the inventory list widget, the groups widget) has
at least some analog in TickPricer. (Gray Rebuttal Expert Report, DX‐62 ¶ 19
& fig. 2.)
The parties’ demonstrations of AutoPricer v.3 and TickPricer for the
Court during the preliminary injunction hearing confirmed that, despite
minor differences in the way in which the two programs organize and
display certain information,4 there are significant similarities in the way in
which the programs allow users to pull their inventories from external
sources, review the contents of those inventories, set pricing rules for
individual events, seasons, and groups of tickets, and then interact with ticket
exchanges in a manner that enables the programs to accommodate growing
numbers of users. And while AutoPricer v.3 and TickPricer use different
“cycling” speeds to publish pricing information onto ticket exchanges
(Koskinen Expert Report, PX‐62, Ex. C at 1.2; Gray Rebuttal Expert Report,
DX‐62 ¶ 45), the two programs both adopt the same method of publishing
pricing updates by grouping events into tiers on the basis of how soon the
event is going to take place.
G. Defendants’ Marketing of TickPricer and Its Impact on Broker
Genius
NRZ did not just develop TickPricer to assist its own ticket brokering
business; it also marketed this software to other brokers, in competition with
Broker Genius’s AutoPricer product.
Among these minor differences are: different color schemes (Tr. 344:6‐345:4);
AutoPricer v.3 uses separate sub‐widgets to enable users to select zones, rows, and
sections, while TickPricer builds a similar functionality into a single pricing calculator
widget (Tr. 340:2‐341:7, 342:19‐343:21); and TickPricer shows the average price of a pair of
tickets in a particular zone, while AutoPricer v.3 shows the lowest price (Tr. 341:22‐
342:1).
4
17
Although defendants’ witnesses gave contradictory testimony regarding
whether or not TickPricer is currently being used by brokers outside of NRZ
itself (compare Tr. 350:15‐17 (Bassil) with 598:22‐599:2 (Zalta)), the evidence
unequivocally shows that NRZ began marketing its new software product in
March of 2017. At that time, NRZ sent an e‐mail blast to potential users from
a ticket broker directory (Tr. 599:3‐14) and signed up twelve to thirteen users
– many of whom were former Broker Genius customers (Tr. 600:1‐5, 619:4‐21;
see also Compilation of Emails from Zalta and Eddie Nissim to Potential
Clients, Mar. 14 – Apr. 3, 2017, PX‐79). To attract these customers, NRZ
offered a “guarantee to cut [their] current B[roker] G[enius] rate by 5%”
(Email from Eddie Nissim to John Andrews, Mar. 16, 2017, PX‐4 at
NRZ_003002; see also, e.g., PX‐79 at NRZ_0003011, NRZ_002923) and even
falsely represented that TickPricer was “a branch off from” Broker Genius
(PX‐79 at NRZ_002753, NRZ_003029).
Zalta testified that, as a result of this lawsuit, NRZ has decided not to
charge fees to any of its current users and not to accept any new users for the
duration of the litigation. (Tr. 601:18‐25.) However, he also testified that if
NRZ were to begin accepting users, its software would be able to
accommodate a total of approximately thirty users within one or two months,
which would yield approximately $250,000 in revenue. (Tr. 602:6‐603:13.)
Although Broker Genius has been “growing well” (Tr. 201:23) – it
expanded from 13 to 170 users over the course of the last two years (Tr.
201:14‐20) – its witnesses testified that this growth has been jeopardized by
the introduction of TickPricer into the market. According to Broker Genius’s
Vice President of Sales, Zachary Ellman, the company has lost customers to
NRZ and has had to lower rates by up to 25% for some to induce them not to
switch to TickPricer. (Tr. 48:13‐25.) In addition, Dr. Koskinen testified that
NRZ has distributed a video demonstrating the TickPricer product and that
this video discloses multiple software components that originally appeared in
AutoPricer v.3 without binding any viewers to secrecy. (Tr. 165:25‐168:13; see
also TickPricer Tutorial Video, PX‐7; PX‐79 at NRZ_002749, NRZ_002750
(NRZ staff attaching link to the TickPricer Tutorial Video to emails sent to
potential customers).) Sam Sherman, Broker Genius’s CEO, testified that he
is especially concerned about the risk of additional customers either moving
to TickPricer or building their own competitive pricing tools once they have
18
access to AutoPricer v.3’s claimed trade secrets. He said that “there is a very
real possibility” that the company will be “out of business” within a “period
of months” if defendants are not enjoined. (Tr. 203:9‐14.)
III. STANDARD FOR A PRELIMINARY INJUNCTION
A preliminary injunction is “one of the most drastic tools in the arsenal of
judicial remedies” and courts have cautioned that it should be “used with
great care.” Hanson Tr. PLC v. SCM Corp., 774 F.2d 47, 60 (2d Cir. 1985)
(citation omitted). Injunctions “should not be granted unless the movant, by
a clear showing, carries the burden of persuasion.” Moore v. Consolidated
Edison Co. of N.Y., Inc., 409 F.3d 506, 510 (2d Cir. 2005) (quoting Mazurek v.
Armstrong, 520 U.S. 968, 972 (1997)).
In the Second Circuit, “[a] party seeking a preliminary injunction must
demonstrate: (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 plaintiffʹs favor; (2) a
likelihood of irreparable injury in the absence of an injunction; (3) that the
balance of hardships tips in the plaintiffʹs favor; and (4) that the public
interest would not be disserved by the issuance of an injunction.” Benihana,
Inc. v. Benihana of Tokyo, LLC, 784 F.3d 887, 895 (2d Cir. 2015) (internal
alterations and citation omitted); see also Am. Civil Liberties Union v. Clapper,
785 F.3d 787, 825 (2d Cir. 2015); Citigroup Glob. Mkts., Inc. v. VCG Special
Opportunities Master Fund Ltd., 598 F.3d 30, 35 (2d Cir. 2010).
IV. LIKELIHOOD OF SUCCESS ON THE MERITS
To establish a likelihood of success on the merits, a plaintiff “need not
show that success is an absolute certainty. He need only make a showing that
the probability of his prevailing is better than fifty percent.” Eng v. Smith, 849
F.2d 80, 82 (2d Cir. 1988) (quoting Abdul Wali v. Coughlin, 754 F.2d 1015, 1025
(2d Cir. 1985)).
Because Broker Genius does not seek a preliminary injunction on the
basis of its claims for copyright infringement, breach of contract, tortious
interference with a business relationship and unjust enrichment (see Pl.’s Pre‐
Hearing Mem. 17 n.25), the Court is limited to considering whether Broker
19
Genius has a likelihood of success on the merits of its claims for
misappropriation of trade secrets pursuant to New York law and the Defend
Trade Secrets Act of 2016 (“DTSA”).
To prevail on a misappropriation of trade secrets claim pursuant to New
York law, the movant bears the burden of establishing: “(1) that it possessed
a trade secret, and (2) that the defendants used that trade secret in breach of
an agreement, confidential relationship or duty, or as a result of discovery by
improper means.” N. Atl. Instruments, Inc. v. Haber, 188 F.3d 38, 43‐44 (2d Cir.
1999) (citations omitted).
The DTSA (codified in 18 U.S.C. § 1831, et seq.), which created a federal
cause of action for the misappropriation of trade secrets used in interstate
commerce, requires that the plaintiff establish “an unconsented disclosure or
use of a trade secret by one who (i) used improper means to acquire the
secret, or (ii) at the time of disclosure, knew or had reason to know that the
trade secret was acquired through improper means, under circumstances
giving rise to a duty to maintain the secrecy of the trade secret, or derived
from or through a person who owed such a duty.” Free Country Ltd v.
Drennen, 235 F. Supp. 3d 559, 565 (S.D.N.Y. 2016); see also 18 U.S.C. § 1839(5).
The DTSA’s definition of “improper means” includes “misrepresentation,
[and] breach or inducement of a breach of a duty to maintain secrecy,” but
expressly excludes “reverse engineering” and “independent derivation.” 18
U.S.C. § 1839(6)(A)‐(B).
In this case, and based on the evidence adduced to date, Broker Genius is
likely to be able to show that defendants improperly made use of the
information that Broker Genius alleges to be its trade secrets in breach of the
agreement between the parties. However, Broker Genius is not likely to
succeed in its trade secret misappropriation claims because it is not likely that
it will be able to show that the relevant information qualifies as trade secrets.
A. Misappropriation
One of the ways in which a plaintiff may establish that trade secrets were
misappropriated under New York law is by showing that a defendant “used
the trade secrets in breach of an agreement” between the parties. Schroeder v.
Pinterest, Inc., 133 A.D.3d 12, 28 (2d Dep’t 2015); see also N. Atl. Instruments,
20
Inc. v. Haber, 188 F.3d 38, 44 (2d Cir. 1999) (applying New York law).5 On the
basis of the evidence presented at the preliminary injunction hearing, Broker
Genius is very likely to be able to show that NRZ and its principals made use
of the information that plaintiff claims to be its trade secrets – the fourteen
software components which comprise the software architecture, UX/UI, and
scalability architecture of AutoPricer v.3 – in a manner that breached NRZ’s
contractual obligations not to “distribute,” “disseminate,” “copy,” “reverse
engineer,” or “create a source code equivalent of” the AutoPricer v.3
software.6
According to the plain terms of the Service Agreement, which governed
NRZ’s license to use AutoPricer v.3 during the time that NRZ developed its
TickPricer product, NRZ was not permitted to “distribute, disseminate,
sublicense, copy, modify, reverse engineer, decompile, translate, dissemble or
create a source code equivalent of or derivative of the Software or allow
others to do so.” (Service Agreement, PX‐8 § 6.4.) Furthermore, the Service
Agreement defined the word “Software” to encompass “any form” of the
AutoPricer v.3 software itself, as well as any “related documentation
delivered to or downloaded by [the licensee].” (Id. at § 1.2.)
At the preliminary injunction hearing, defendant Zalta admitted that he
distributed screenshots of the AutoPricer v.3 user interface – along with his
annotations that explained how the software and its various widgets
functioned – to at least two software developers (Saqib and Bassil) while the
By contrast, the DTSA’s definition of “misappropriation” prohibits the disclosure or use
of a trade secret only if that secret was “acquired” improperly, including through a
breach of a contractual “duty to maintain secrecy.” 18 U.S.C. § 1839(5)(b)(i) (emphasis
added), § 1839(6)(A). Broker Genius cannot establish a likelihood of success in its DTSA
claim for all the reasons that it cannot establish success on its state law claim, but also
because the evidence in this record does not show that defendants improperly acquired
the purported trade secrets; NRZ and the individual defendants were Broker Genius
customers when they first acquired the relevant information.
5
Although this discussion necessarily implicates the likelihood of plaintiff’s success on
its breach of contract claim, the Court does not now definitively decide the merits of that
claim, as it has not yet been fully briefed by the parties and, as noted above, Broker
Genius is not seeking an injunction on the basis of that claim.
6
21
Service Agreement was in effect. Zalta also admitted that he forwarded
Bassil information from Broker Genius about the frequency with which
AutoPricer v.3 updates its prices for events depending on their imminence.
On the basis of this evidence, plaintiff is likely to succeed in showing that
Zalta made use of the alleged trade secrets of AutoPricer v.3’s UX/UI and
scalability architecture by disclosing them to a third party and that he did so
in breach of NRZ’s agreement not to “distribute” or “disseminate” either the
AutoPricer v.3 software (in any form) or documentation related to that
software.7
Broker Genius is also likely to be able to show that NRZ breached the
Service Agreement by “copy[ing],” “reverse engineer[ing],” and “creat[ing] a
source code equivalent of” the Software or “allow[ing] others to do so.”8 (PX‐
8 § 6.4.) In the context of trade secret misappropriation cases – where it is
“well recognized” that “misuse can rarely be proved by convincing direct
evidence” and that defendants’ witnesses will often “directly deny
everything,” Q‐Co Indus., Inc. v. Hoffman, 625 F. Supp. 608, 618 (S.D.N.Y. 1985)
(citation omitted) – copying can be established by showing that a defendant
had “access” to the alleged trade secrets and that there is a “substantial
similarity” between the original product which embodied those trade secrets
and the alleged copy created by the defendant, Fabkom, Inc. v. R.W. Smith &
Defendants contend that they did not misappropriate any alleged trade secrets because
they gained access to them while they were “good faith” clients of Broker Genius. (Defs.’
Pre‐Hearing Mem. 13.) The Court has ample reason to doubt defendants’
characterization of themselves as “good faith” clients given the evidence that they were
actively developing a competing product while continuing to use Broker Genius’s
software; that they obtained additional information about Broker Genius’s products
through Shamah’s brother even after terminating their license; and that, as soon as their
own software was functional, they began to aggressively compete with Broker Genius.
In any event, defendants’ argument is misguided; the relevant issue in this case is
improper use, not improper acquisition, of trade secrets.
7
Although “trade secret law does not forbid the discovery of the trade secret by . . .
reverse engineering, that is by starting with the known product and working backward
to divine the process which aided its development or manufacture,” Kewanee Oil Co. v.
Bicron Corp., 416 U.S. 470, 476 (1974), “[t]here is general agreement that . . . a contractual
provision against reverse engineering is enforceable,” 1‐1 Roger M. Milgrim, Milgrim on
Trade Secrets § 1.05 (2017).
8
22
Assocs., Inc., No. 95 CIV. 4552, 1996 WL 531873, at *9 (S.D.N.Y. Sept. 19, 1996)
(citation omitted).
There is no question but that, as regular and well‐trained users of the
AutoPricer software, NRZ’s principals had access to AutoPricer v.3’s UX/UI
and understood the way in which the software was organized, as well as the
methods by which Broker Genius addressed scalability problems. Moreover,
the similarities between the software architectures, UX/UI, and scalability
solutions of AutoPricer v.3 and TickPricer dwarf the trivial differences that
defendants have highlighted in their submissions. See Vermont Microsystems,
Inc. v. Autodesk, Inc., 88 F.3d 142, 148‐49 (2d Cir. 1996) (“[T]he established law
[is] that trade secrets need not be exactly copied in order to impose liability.”)
(citing Cybertek Comp. Prods., Inc. v. Whitfield, 203 U.S.P.Q. 1020, 1025 (Cal.
Super. Ct. 1977)).
An inference of copying and reverse engineering is especially warranted
here given the substantial evidence showing that defendants did in fact rely
heavily on their familiarity with Broker Genius’s alleged trade secrets when
directing Bassil in his construction of TickPricer. Cf. Fabkom, 1996 WL 531873,
at *11‐*12 (granting preliminary injunction after concluding that “plaintiff
will likely be able to prove some copying” of its software by a defendant who
had formerly licensed the software in part because the directions given by the
defendant to potential software developers were “influenced, if not dictated,
by the structure of [plaintiff’s] program[,] which [defendant] had been using
for years”).
In this case, the most glaringly obvious purpose of the annotated
AutoPricer v.3 screenshots that Zalta sent Bassil in a nine‐page document
entitled “Pricing Tool Directions” was – as the title implies – for them to serve
as a detailed template for the development of NRZ’s own pricing tool. Given
the nature of the document’s annotations – describing “Information Needed
in Pricing Software” (DX‐70 at NRZ_000106) – and the fact that Zalta sent this
PDF to Bassil in order to confirm that Bassil could complete the project
“perfectly according to specifications” (DX‐40 at NRZ_000047), Zalta’s
explanation that he was solely attempting to educate Bassil on the
interactions between ticket pricing software and SkyBox and StubHub is
23
poppycock.9 The Court similarly questions the credibility of Bassil’s
testimony that he built TickPricer without “really pay[ing] too much
attention” to the AutoPricer v.3 screenshots that Zalta had sent him. (Tr.
308:13‐20.) After all, one month later, Bassil was still seeking access to the
pricing tool that Zalta was using. (DX‐40 at NRZ_000050.) And Zalta
admitted that one of his goals in creating TickPricer was to “produce a
software that [was] familiar” for his client. (Tr. 303:12‐21.)
Furthermore, although there is no direct evidence in this record that
Zalta ever shared his screen with Bassil or ever enabled Bassil to log into the
AutoPricer v.3 software, Zalta’s professed insistence that he ignored Bassil’s
request for access to his current pricing software because he “wanted [Bassil]
to build a totally unique pricing tool” (Tr. 592:14‐17) is highly suspect. Other
evidence shows that Zalta was keenly interested in having Bassil replicate –
or improve upon – the AutoPricer software. Zalta sent Bassil a modified
proof‐of‐concept in which he appears to have instructed Bassil to incorporate
elements from AutoPricer v.3’s user interface into the development of
TickPricer (PX‐41; PX‐61) and Zalta also forwarded information to Bassil
about the cycle frequencies used by AutoPricer v.3 (PX‐34 at
GONTH_000220).
Nonetheless, Broker Genius cannot prevail on its misappropriation of
trade secrets claim – the sole claim on which it seeks a preliminary injunction
– unless the information it alleges to be trade secrets actually qualifies as
such. As set forth in the following section, Broker Genius cannot make such a
showing.
Zalta’s credibility is further eroded by his reliance on the same dubious explanation to
describe his motivation for sending a three‐page PDF comprised entirely of annotated
screenshots of AutoPricer v.3 to Saqib, another developer. The vast majority of
annotations in that PDF contain no references to SkyBox or StubHub and are instead
descriptions of AutoPricer’s various widgets and features. (See PX‐31.)
9
24
B. Whether Broker Genius’s Software Components are Trade Secrets
1.
Legal Standard
New York courts define trade secrets with reference to section 757 of the
Restatement of Torts. According to this definition, a trade secret is “any
formula, pattern, device 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.” Ashland Mgmt. Inc. v. Janien, 82
N.Y.2d 395, 407 (1993) (citing Restatement of Torts § 757, cmt. b (1939)); see
also N. Atl. Instruments, Inc. v. Haber, 188 F.3d 38, 44 (2d Cir. 1999) (describing
New York law). Thus, trade secrets are only “a subset of all commercially
valuable information.” IDX Sys. Corp. v. Epic Sys. Corp., 285 F.3d 581, 583 (7th
Cir. 2002).
To determine whether particular information can qualify as a trade
secret, New York courts consider the following six factors:
(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; (6) the ease or difficulty with which the information
could be properly acquired or duplicated by others.
Ashland Mgmt., 82 N.Y.2d at 407 (quoting Restatement of Torts § 757, cmt. b)
(internal quotation marks and brackets omitted); see also N. Atl. Instruments,
Inc., 188 F.3d at 44.
These factors reflect the understanding that the “most important
consideration” in determining whether information is a trade secret is
“whether the information was secret.” Lehman v. Dow Jones & Co., 783 F.2d
285, 298 (2d Cir. 1986); see also Ashland Mgmt., 82 N.Y.2d at 407 (“[A] trade
secret must first of all be secret.”); Liveperson, Inc. v. 24/7 Customer, Inc., 83 F.
Supp. 3d 501, 514 (S.D.N.Y. 2015); Geritrex Corp. v. Dermarite Indus., LLC, 910
F. Supp. 955, 961 (S.D.N.Y. 1996).
25
Courts’ references to secrecy encompass two separate, but related,
concepts: (1) the “substantial exclusivity of knowledge of the formula,
process, device or compilation of information,” and (2) “the employment of
precautionary measures to preserve such exclusive knowledge by limiting
legitimate access by others” so that, “except by the use of improper means,
there would be difficulty in acquiring the information.” Delta Filter Corp. v.
Morin, 108 A.D.2d 991, 992 (3d Dep’t 1985) (citing Restatement of Torts § 757,
cmt. b (1939)). Thus, although absolute secrecy is not required, the
information claimed to be a trade secret must be cloaked with a “substantial
element of secrecy.” A.H. Emery Co. v. Marcan Prods. Corp., 389 F.2d 11, 16 (2d
Cir. 1968). However, “[i]f an individual discloses his trade secret to others
who are under no obligation to protect the confidentiality of the information,
or otherwise publicly discloses the secret, his property right is extinguished.”
Structured Capital Solutions, LLC v. Commerzbank AG, 177 F. Supp. 3d 816, 832
(S.D.N.Y. 2016) (quoting Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002
(1984)).10
2.
Discussion
In this case, it is evident that Broker Genius’s claimed trade secrets –
which encompass the core functionalities and user interface of the AutoPricer
software – are valuable to the company and to its competitors. It is also clear
that Broker Genius expended a substantial amount of resources –
approximately $4 million – in developing those purported trade secrets. (Tr.
49:13‐50:8, 152:3‐6.)
Instead of contesting these two elements, defendants argue that plaintiff
has failed to identify its purported trade secrets with sufficient specificity and
The DTSA adopts a definition of trade secrets that is substantially similar to the
definition adopted by New York courts. That statute describes trade secrets as “all
forms and types of financial, business, scientific, technical, economic, or engineering
information, including patterns, plans, compilations, program devices, formulas, designs,
prototypes, methods, techniques, processes, procedures, programs, or codes, whether
tangible or intangible,” so long as (1) “the owner thereof has taken reasonable measures
to keep such information secret” and (2) “the information derives independent economic
value . . . from not being generally known to, and not being readily ascertainable through
proper means” by others. 18 U.S.C. § 1839(3)(A)‐(B).
10
26
that the software components identified by plaintiff are not protectable as
trade secrets because their elements were known outside of the business and
because plaintiff failed to undertake reasonable measures to maintain their
secrecy.
i.
Adequacy of plaintiff’s identification of its trade secrets
Defendants’ initial contention is that Broker Genius cannot succeed on its
trade secrets claims because it has not identified “its trade secrets with
sufficient specificity to inform the defendants of what they are alleged to
have misappropriated.” PaySys Intʹl, Inc. v. Atos Se, No. 14‐CV‐10105, 2016
WL 7116132, at *3 (S.D.N.Y. Dec. 5, 2016); see also Big Vision Private Ltd. v. E.I.
DuPont De Nemours & Co., 1 F. Supp. 3d 244, 258‐59, 263‐64 (S.D.N.Y. 2014);
Sit‐Up Ltd. v. IAC/InterActiveCorp., No. 05 Civ. 9292, 2008 WL 463884, at *10‐
*11 (S.D.N.Y. Feb. 20, 2008). While neither the New York Court of Appeals
nor the United States Court of Appeals for the Second Circuit has expressly
required trade secrets to be identified with any particular degree of
specificity, it is evident that a “vague and indefinite” piece of information
cannot be protected as a trade secret. Big Vision, 1 F. Supp. 3d at 258 (citing
Sit‐Up, 2008 WL 463884 at *11‐*12); see also Heyman v. AR. Winarick, Inc., 325
F.2d 584, 588‐90 (2d Cir. 1963).
Although defendants are correct that Broker Genius has failed to
describe certain of its fourteen software components with adequate
specificity,11 the Court is satisfied that Broker Genius has identified three
particular types of alleged trade secrets in a manner that enables “the
defendant [to] defend himself” and to “divine the line between secret and
nonsecret information” so that “a jury can render a verdict based on a
discriminating analysis of the evidence of disclosure and misappropriation.”
Sit‐Up, 2008 WL 463884 at *11‐*12. In particular, plaintiff’s fourteen software
For example, plaintiff’s expert, Dr. Koskinen, defines the “domain model” (SC014) as
an “abstract concept” that embraces the “entities that the software manipulates and the
relationships between these entities.” (Koskinen Expert Report, PX‐62 at Ex. C, 1.14.)
Neither Broker Genius nor Dr. Koskinen has ever defined these “entities” or attempted to
explain how this software component is distinct from AutoPricer v.3’s broader software
architecture.
11
27
components generally fit into three categories that may be eligible for
protection: software architecture, UX/UI, and specific solutions to addressing
scalability problems in an automatic ticket pricing software.
There is no question that Broker Genius’s use of tiers and different
cycling speeds to address scalability is described with specificity in plaintiff’s
materials and constitutes a type of know‐how or method that would be
entitled to trade secret protection (if it were indeed kept secret). See, e.g.,
Norbrook Laboratories Ltd. v. G.C. Hanford Mfg. Co., 297 F. Supp. 2d 463, 483‐84
(N.D.N.Y. 2003), aff’d, 126 F. App’x 507 (2d Cir. 2005).
With respect to AutoPricer v.3’s UX/UI, Broker Genius has identified
particular components, i.e., widgets, of the user interface that it considers to
be protectable trade secrets. Although there is a dearth of cases finding that a
software’s user interface is a trade secret,12 the same principles that apply to
other types of information apply here; the elements of a software’s UX/UI can
be a trade secret so long as the only people who can access them are bound
by a duty to keep them confidential. See AirWatch LLC v. Mobile Iron, Inc., No.
1:12‐CV‐3571‐JEC, 2013 WL 4757491, at *3 (N.D. Ga. Sept. 4, 2013) (finding, at
the motion to dismiss stage, that plaintiff could show that the functionality
and appearance of its software could be trade secrets if plaintiff “show[s] that
it worked to preserve th[eir] secrecy” by, inter alia, including “confidentiality
provisions” in user license agreements); cf. R.C. Olmstead, Inc. v. CU Interface,
LLC, 606 F.3d 262, 276 (6th Cir. 2010) (finding that a product’s user interface
was not a trade secret because plaintiff failed to take reasonable steps to
maintain its secrecy by failing to bind users to effective confidentiality
agreements).
Finally, although a software’s architecture is an inherently broad
concept, the United States Court of Appeals for the Second Circuit and
district courts in the Circuit have held that such information can be a trade
secret. See Integrated Cash Mgmt. Serv., Inc. v. Dig. Transactions, Inc., 920 F.2d
See IDX Sys. Corp. v. Epic Sys. Corp., 285 F.3d 581, 584 (7th Cir. 2002) (elements of a user
interface like “the appearance of data‐entry screens” are “exceedingly hard to call trade
secrets” because “things that any user or passer‐by sees at a glance are ‘readily
ascertainable by proper means’”).
12
28
171, 173‐74 (2d Cir. 1990); see also, e.g., Fabkom, Inc. v. R.W. Smith & Assocs.,
Inc., No. 95 Civ. 4552, 1996 WL 531873, at *6 (S.D.N.Y. Sept. 19, 1996) (“The
source code, format, structure, and organization of the software is certainly not
known outside the business.”) (emphasis added).
ii.
The extent to which the information is known outside of
the business
Defendants’ expert, Stephen Gray, opined in his report and at the
preliminary injunction hearing that AutoPricer v.3’s software architecture
and user interface cannot be trade secrets because certain of the software’s
individual widgets perform functions that are either common to all automatic
pricing programs or are obvious automations of pricing practices that are
well known within the ticket broker industry.13 (Gray Rebuttal Expert Report,
DX‐62 ¶¶ 47, 48, 49, 50, 51, 52, 53; Tr. 411:9‐416:17.) He made similar
observations about Broker Genius’s solution to scalability problems. (Gray
Rebuttal Expert Report, DX‐62 ¶¶ 43, 45.)
These opinions about the common and obvious nature of AutoPricer
v.3’s functions and interface are not dispositive. First of all, “novelty – at
least as that term is used in patent law – is not required in a trade secret.”
Softel, Inc. v. Dragon Med. & Sci. Commc’ns, Inc., 118 F.3d 955, 968 (2d Cir.
1997); see also Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974)
(discussing Ohio law). Moreover, even if the functions of each of AutoPricer
v.3’s widgets are well‐known in the ticket broker and automatic pricing
industries, their unique combination in the AutoPricer v.3 architecture is still
protectable as a trade secret. In Integrated Cash Management Services v. Digital
Transactions, Inc. 920 F.2d 171 (2d Cir. 1990), the Court of Appeals for the
Second Circuit affirmed a district court’s decision to grant injunctive relief to
a software developer claiming that the manner in which its non‐secret utility
programs were arranged to interact with one another was a trade secret. The
Second Circuit, applying New York law, held that “a trade secret can exist in
a combination of characteristics and components, each of which, by itself, is
Mr. Gray relies essentially exclusively on conversations with defendants Bassil and
Zalta for his opinions about common practices in the automatic pricing industry and
ticket broker industry, and the Court thus puts little weight on his opinions.
13
29
in the public domain, but the unified process, design and operation of which,
in unique combination, affords a competitive advantage and is a protectable
secret.” Integrated Cash Mgmt., 920 F.2d at 174 (quoting Imperial Chem. Indus.
Ltd. v. Nat’l Distillers & Chem. Corp., 342 F.2d 737, 742 (2d Cir. 1965)).14
In this case, there is no question but that, no matter how generic or
obvious the individual widget components of AutoPricer v.3 may have been,
Broker Genius arranged them all into a unique and synergistic system
architecture. Defendants have conceded that, until they built TickPricer,
AutoPricer was “the only tool on the market” that allowed brokers to manage
their ticket inventory while also automatically pricing them for resale on
exchanges such as StubHub. (Tr. 542:5‐7, 659:17‐19; see also Deposition of
Michael Shamah, May 16, 2017, Defs.’ Pre‐Hearing Mem., Ex. I at 71:9‐24.)
While Mr. Gray’s report does identify several “other ticket pricing
applications,” it does not explain the degree to which those programs share
the functionalities of AutoPricer v.3. (Gray Expert Report, DX‐61 ¶ 47.)
Moreover, plaintiff’s expert, Dr. Koskinen, has identified significant
functional and aesthetic differences between at least one of those allegedly
competitive programs and AutoPricer v.3. (Tr. 160:14‐7; see also Koskinen
Rebuttal Expert Report, PX‐63 at 5.3). Cf. Wellogix, Inc. v. Accenture, LLP, 823
F. Supp. 2d 555, 562‐63 (S.D. Tex. 2011) (“[T]hough the functions of Wellogixʹs
software were known to the industry, other software companies did not have
identical functions in their software.”), aff’d, 716 F.3d 867 (5th Cir. 2013).
See also Softel, Inc. v. Dragon Med. & Sci. Commc’ns, Inc., 118 F.3d 955, 968 (2d Cir. 1997)
(applying New York law); Medtech Prods. Inc. v. Ranir, LLC, 596 F. Supp. 2d 778, 804‐05
(S.D.N.Y. 2008); Anacomp, Inc. v. Shell Knob Servs., Inc., No. 93 CIV. 4003, 1994 WL 9681, at
*8 (S.D.N.Y. Jan. 10, 1994) (applying New York law); Monovis, Inc. v. Aquino, 905 F. Supp.
1205, 1230 (W.D.N.Y. 1994) (applying New York law); Computer Assocs. Int’l, Inc. v. Bryan,
784 F. Supp. 982, 988 (E.D.N.Y. 1992) (applying New York law); accord 1 Roger M.
Milgrim, Milgrim on Trade Secrets ¶ 1.08[5] (2017); Architectronics, Inc. v. Control Sys., Inc.,
935 F. Supp. 425, 437‐38 (S.D.N.Y. 1996) (applying Minnesota law); Harbor Software, Inc. v.
Applied Sys., Inc., 887 F. Supp. 86, 90‐91 (S.D.N.Y. 1995) (applying Illinois law).
14
30
iii. The extent of measures taken by the business to guard
the secrecy of the information
Even if AutoPricer v.3’s software architecture, UX/UI, and scalability
solutions are not matters of public knowledge or general knowledge in the
industry, they can only be trade secrets if Broker Genius employed some
“precautionary measures to preserve [its] exclusive knowledge by limiting
legitimate access by others.” Delta Filter Corp. v. Morin, 108 A.D.2d 991, 992
(3d Dep’t 1985) (citing Restatement of Torts § 757, cmt. b (1939)). Here,
because the UX/UI of AutoPricer v.3 is made readily apparent to every single
user of the software and because Broker Genius freely explains the details of
its software architecture and scalability solutions to those same users, it is
especially important for Broker Genius to demonstrate that it took
“reasonable measures to protect [their] secrecy.” Defiance Button Mach. Co. v.
C & C Metal Prods. Corp., 759 F.2d 1053, 1063 (2d Cir. 1985) (citations omitted).
Based on the evidence adduced to date, Broker Genius has failed to do so and
is therefore not entitled to the protection of trade secret law.
It is clear that Broker Genius has taken some care to limit the public
exposure of its purported trade secrets. The user interface of AutoPricer v.3
is not advertised on the company’s current website or in publicly available
demonstration videos. And users can only access the software with
passwords that they must keep confidential. In addition, the company does
ensure that its employees sign both non‐disclosure agreements and employee
handbooks that broadly identify the company’s “technology and products”
as proprietary and/or confidential information. (PX‐53 at 9.) Moreover, the
individual disclosures highlighted by defendants during the preliminary
injunction hearing – Broker Genius’s ‘918 Patent Application, its publication
of screenshots of a predecessor software, and the brief demonstrations to
customers – did not necessarily extinguish Broker Genius’s property rights in
its trade secrets. Nevertheless, because Broker Genius regularly disclosed its
alleged secrets to each of its customers without notifying them of the
information’s confidential nature or binding them to confidentiality
agreements, Broker Genius is unlikely to be able to show that it undertook
reasonable measures to protect the secrecy of its alleged trade secrets.
31
It is axiomatic that a plaintiff cannot recover for the misappropriation of a
trade secret if he revealed that secret in a published patent or patent
application. Laurie Visual Etudes, Inc. v. Chesebrough‐Pond’s Inc., 83 A.D.2d
505, 505‐06 (1st Dep’t 1981); see also BondPro Corp. v. Siemens Power Generation,
Inc., 463 F.3d 702, 707 (7th Cir. 2006); Big Vision Private Ltd. v. E.I. DuPont De
Nemours & Co., 1 F. Supp. 3d 224, 269 (S.D.N.Y. 2014); 2‐8 Roger M. Milgrim,
Milgrim on Trade Secrets § 8.02[2] (2017). However, a plaintiff can still have
“a viable trade secret claim” if “elements of the trade secret go beyond what
was disclosed” in the patent application. SkinMedica, Inc. v. Histogen Inc., 869
F. Supp. 2d 1176, 1195 (S.D. Cal. 2012); see also Wellogix, Inc. v. Accenture,
L.L.P., 716 F.3d 867, 875 (5th Cir. 2013).15
Although there is no question that the ‘918 Patent Application describes
in some detail the way in which AutoPricer v.3 functions (see DX‐1 ¶¶ 53‐56),
it does not disclose each of the claimed secrets or the unique combination of
features that comprise the software. The figures attached to the ‘918 Patent
Application do not reveal the way in which the AutoPricer software actually
appears to its users and the descriptions in the application are too imprecise
to enable a developer to build a user experience and interface that shares as
many features of AutoPricer as are found in defendants’ TickPricer product.
Broker Genius erroneously suggests that the publication of a patent only extinguishes a
trade secret if the alleged misappropriators actually relied upon that disclosure. The
foundation of this argument is a 1953 decision by the United States Court of Appeals for
the Second Circuit, which states: “It matters not that defendants could have gained their
knowledge from a study of the expired patent and plaintiffs’ publicly marketed product.
The fact is that they did not. Instead, they gained it from plaintiffs via their confidential
relationship.” Franke v. Wiltschek, 209 F.2d 493, 495 (2d Cir. 1953). Franke does not
contradict federal and New York law on the overriding importance of a plaintiff’s efforts
to preserve the secrecy of its trade secret. In Franke, the patent at issue was not held by
the plaintiffs. Nor did it reveal the entirety of the plaintiffs’ alleged trade secret; the
missing elements had to be ascertained by reverse‐engineering the plaintiffs’ product.
See Franke, 209 F.2d at 500 (Frank, J., concurring in part and dissenting in part). Thus,
Franke simply supports the uncontroversial proposition that “it is no defense in an action
[for misappropriation of trade secrets] that the process in question could have been
developed independently, without resort to information gleaned from the confidential
relationship.” Imperial Chem. Indus. Ltd. v. Nat’l Distillers & Chem. Corp., 342 F.2d 737, 743
(2d Cir. 1965) (citing Tabor v. Hoffman, 188 N.Y. 30, 35 (1889)).
15
32
(See Tr. at 165:7‐18, 223:6‐14.) See Sylmark Holdings Ltd. v. Silicone Zone Int’l
Ltd., 5 Misc. 3d 285, 298 (N.Y. Cty. 2004) (granting preliminary injunction
where plaintiff’s patent “consist[ed] solely of six line drawings” and did not
disclose “the precise dimensions, specifications, or other proprietary
information with respect to the actual final design and manufacture” of the
product at issue).
Similarly, Broker Genius’s publication of screenshots of Price Genius – a
predecessor software product with nearly identical functionality to
AutoPricer v.3 (Tr. 62:3‐63:5) – did not fully disclose its architecture,
scalability solutions, or even the entirety of its UX/UI. Although these
screenshots obviously exposed particular aspects of the user interface, they
did not reveal the various ways in which the widgets of a complex software
program such as AutoPricer v.3 interact with one another. (See Tr. 103:3‐
103:25, 105:9‐15, see also, e.g., Tr. 132:23‐133:6, 155:13‐19.) Nor did they reveal
the entirety of the software’s architecture or Broker Genius’s solution to the
scalability problem. See Integrated Cash Mgmt. Servs., Inc. v. Dig. Transactions,
Inc., 920 F.2d 171, 174 (2d Cir. 1990) (“The defendants have not shown that
the limited information available in the promotional literature contains
sufficient technical detail to constitute disclosure of the product’s
architecture.”); A.H. Emery Co. v. Marcan Prods. Corp., 389 F.2d 11, 16 (2d Cir.
1968).
Finally, Broker Genius did not disclose the entirety of its trade secrets in
product demonstrations to potential customers despite the fact that Broker
Genius representatives never required members of their audience to assent to
the Terms of Use or sign any non‐disclosure or confidentiality agreements.
(Tr. 84:6‐19, 85:7‐11, 86:1‐5.) The Court credits the testimony of Broker
Genius’s Vice President of Sales, Zachary Ellman, who explained that these
demonstrations were only three‐ to eight‐minutes long and could not have
revealed the full extent of Broker Genius’s trade secrets.16 (Tr. 44:3‐18.) After
Defendants dispute Ellman’s characterizations of these demonstrations as brief high‐
level overviews; two of their witnesses, Ramin Malekian and Michael Shamah, testified
that the first product demonstrations that they received from Ellman featured extensive
discussions of the features and functionalities of Broker Genius’s software. (See Tr.
261:10‐263:20 (Malekian); Tr. 488:21‐490:4 (Shamah)). However, the evidence showed
that both witnesses would have received these more thorough demonstrations only after
16
33
all, the entire purpose of the demonstrations was to entice and encourage
viewers to sign up for a thirty‐day trial, in which they would receive the
training necessary to fully understand and use the software. (Tr. 39:12‐20.)
To protect information as a trade secret, there only needs to be “so much
[secrecy] that ‘except by the use of improper means, there would be difficulty
in acquiring the information.’” A.H. Emery Co. v. Marcan Prods. Corp., 389
F.2d 11, 16 (2d Cir. 1968), cert. denied, 393 U.S. 835 (1968) (quoting
Restatement of Torts § 757, cmt. b).
There is no question that it would be exceedingly difficult for an
audience member accustomed to manually pricing individual tickets to
understand the complexity of the AutoPricer v.3 software and its various
features from a demonstration that lasts only a few minutes. (See Tr. 227:10‐
16.) Cf. A.H. Emery, 389 F.2d at 16 (“Even though parts drawings may on
occasion have been shown to a limited number of outsiders for a particular
purpose, this did not in itself necessarily destroy the secrecy which protected
them before they were so disclosed.”).
It does bear noting, however, that although none of the aforementioned
disclosures extinguished Broker Genius’s property rights to its claimed trade
secrets, 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. The fact that Broker Genius applied for a patent on its automatic
ticket pricing technology indicates that it deliberately elected to use patent
law, as opposed to the law of trade secrets, to protect its property rights in the
architecture of its software. See 2‐9 Roger M. Milgrim, Milgrim on Trade
Secrets § 8.02[1] (2017) (inventors must generally choose between the
alternatives of pursuing patent protection for an invention and maintaining it
as a trade secret). Similarly, the fact that Broker Genius’s sales
representatives demonstrated to potential customers any AutoPricer features
that were relevant for the brokers’ businesses and never followed a specific
they – or an agent of their companies – had already signed up for accounts with Broker
Genius and thereby accepted the Terms of Use. (Tr. 261:3‐4, 268:3‐270:8; Broker Genius
Client Account Creation Dates, PX‐92 at 12 (Malekian); Tr. 531:16‐533:21; Broker Genius
Client Account Creation Dates, PX‐92 at 9 (Shamah).)
34
script that would have kept certain topics off‐limits (Tr. 65:7‐9, 70:7‐18, 72:15‐
24, 80:12‐13), suggests that Broker Genius’s representatives did not treat any
particular user‐facing element of the software as confidential. Cf. Invesco
Institutional (N.A.), Inc. v. Deutsche Inv. Mgmt. Americas, Inc., Index No.
650154/07, 2009 WL 6442871, at *9‐*10 (N.Y. Cty. 29, 2009).
The one disclosure that did destroy Broker Genius’s claim that its
software architecture, UX/UI, and scalability solutions are trade secrets is the
unfettered access to this information that Broker Genius grants to each of its
customers. Every user of Broker Genius’s software is given access to the
software itself, as well as extensive training sessions, user manuals,
explanatory videos, and feature update emails that explain how the software
works and how to take advantage of each of its functionalities. In addition,
Broker Genius’s customer support staff provide answers to user questions
about operations such as the “cycle” speeds that are the focus of Broker
Genius’s scalability architecture trade secret and which may not otherwise be
apparent to the users. (See Email from Broker Genius to NRZ, Nov. 18, 2016,
PX‐26; see also Email from Abe Harary to Zalta, Feb. 23, 2017, Defs.’ Post‐
Hearing Mem., Ex. A (forwarding “Feature Update” sent by Broker Genius to
its customers, notifying them of AutoPricer’s “pricing cycle frequencies” and
explaining that Broker Genius “prioritize[s] pricing cycles by event and
onsale date” to “keep things running smoothly”).) Indeed, the breadth of
Broker Genius’s disclosures explains why defendants were able to duplicate
major portions of AutoPricer v.3’s user interface, software architecture, and
scalability solutions with such speed and for relatively little cost, all despite
the lack of any evidence that defendants obtained access to AutoPricer v.3
that was different in kind from that which Broker Genius granted to its other
customers.17
Although Broker Genius gives each of its users access to its purported
trade secrets, it does not make oral representations to its users that its
software or any of its components are confidential during trainings or
While Zachary Ellman testified that the training defendants received on AutoPricer v.3
was “on the excessive end” of what was normal for Broker Genius clients, he also
acknowledged that other customers who regularly used the software were trained for
similar periods of time. (Tr. 36:15‐22.)
17
35
explanatory videos. Nor does it mark its training materials, emails about the
software’s functionalities, or the software itself with confidentiality legends.18
Accordingly, Broker Genius’s only means of notifying its users that the
software they are using contains trade secrets is the Terms of Use and the
Service Agreement. Because the Terms of Use is the only licensing agreement
that is in place when Broker Genius discloses its purported trade secrets to
most AutoPricer v.3 users, the Court focuses its discussion on this document.
The Terms of Use are contained within a clickwrap agreement, which
requires users to expressly assent and makes its contents viewable following
a hyperlink. As such, the agreement is enforceable so long as it provides
“reasonably conspicuous notice of the existence of contract terms” and
requires an “unambiguous manifestation of assent to those terms.” Meyer v.
Uber Techs., Inc., ___F.3d___, 2017 WL 3526682, at *5 (2d Cir. Aug. 17, 2017)
(alterations omitted) (quoting Specht v. Netscape Commc’ns Corp., 306 F.3d 17,
35 (2d Cir. 2002)). Based on Dr. Koskinen’s demonstration of the sign‐up
process for a Broker Genius account (Tr. 122:6‐13), the Court concludes that
the hyperlink to the Terms of Use was “reasonably conspicuous” and that
users are required to provide an “unambiguous” “manifestation of assent” by
clicking on a box next to the words: “I agree.” See Meyer, 2017 WL 3526682,
at *7‐*9; see also Moore v. Microsoft Corp., 293 A.D.2d 587, 587 (2d Dep’t 2002).
But while a clickwrap agreement such as the Terms of Use is an
enforceable contract, if Broker Genius had wanted to ensure that its users
understood the highly counterintuitive notion that its trade secrets
encompassed information that was readily discernable by – or freely
disclosed to – each and every user, it would have been reasonable to do
something more to notify users of the software’s confidentiality. See
Oral identifications and confidentiality legends on individual documents are potent
indicators of reasonable efforts to maintain secrecy, but they are neither sufficient nor
necessary for trade secret protection. See Warehouse Sols. v. Integrated Logistics, LLC, Civil
Action No. 1:11‐CV‐02061, 2014 WL 12647878, at *7 (N.D. Ga. July 7, 2014) (verbal
instruction that software was “confidential” and “proprietary” was insufficient to protect
its trade secret status where defendants were never required to sign a confidentiality
agreement); Anacomp, Inc. v. Shell Knob Servs., Inc., No. 93 Civ. 4003, 1994 WL 9681, at *2,
*9‐*10 (S.D.N.Y. Jan. 10, 1994).
18
36
Warehouse Sols., Inc. v. Integrated Logistics, LLC, 1:11‐CV‐02061, 2014 WL
12647878, at *7 (N.D. Ga. July 7, 2014) (plaintiff’s efforts to maintain secrecy
were insufficient “in light of the self‐revealing nature of the alleged trade
secret”), aff’d, 610 F. App’x 881 (11th Cir. 2015); cf. A.H. Emery Co. v. Marcan
Prods. Corp., 389 F.2d 11, 16‐17 (2d Cir. 1968) (requirements for protecting
secrecy of “detailed manufacturing drawings” when disclosing them to
experienced employees did not need to be stringent because the drawings’
confidentiality would have been apparent to the employees).
Even if it were reasonable to rely exclusively on a clickwrap agreement to
protect user‐facing trade secrets, Broker Genius could at least have reminded
users of the Terms of Use each time they accessed the AutoPricer v.3
software. Cf. Centrifugal Force, Inc. v. Softnet Commc’n, Inc., No. 08‐cv‐5463,
2011 WL 744732, at *7 (S.D.N.Y. Mar. 1, 2011) (describing software that
required users to acknowledge the terms of use, which included a
confidentiality clause, “each time the user attempts to launch the software”)
(emphasis added). In fact, Broker Genius does not even make the Terms of
Use accessible through the AutoPricer v.3 application itself; users must go to
Broker Genius’s website for a reminder of the existence of the Terms of Use
and for the opportunity to actually review their contents. (Tr. 464:3‐6, 467:1‐
8.) Moreover, Broker Genius licenses its software to its customers on a per‐
company basis. Because these customers include companies with as many as
120 employees (Tr. 202:11‐13), only the person who initially sets up the
corporate account on behalf of her organization is required to assent to the
Terms of Use (Tr. 471:6‐13); other employees who may be more involved in
everyday use of the software would not have the opportunity to individually
assent and would not know what the Terms of Use were unless they were to
proactively look for them in Broker Genius’s website.
Regardless of whether a clickwrap license that is acknowledged only by a
single individual at the time of creating a corporate account is in fact a
reasonable way to protect the secrecy of AutoPricer v.3’s architecture, UX/UI,
and scalability solutions, it is clear that Broker Genius’s Terms of Use
agreement is not suitable for that task because it simply does not contain a
confidentiality provision. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002
(1984) (“[I]f an individual discloses his trade secret to others who are under
no obligation to protect the confidentiality of the information . . . , his
37
property right is extinguished.”); Fabkom, Inc. v. R.W. Smith & Assocs., Inc.,
No. 95 Civ. 4552, 1996 WL 531873, at *7 (S.D.N.Y. Sept. 19, 1996)
(“Distribution to clients of a computer program through a licensing agreement
requiring confidentiality does not destroy secrecy of a trade secret, but rather
reinforces it.”) (emphasis added); see also Nova Chems., Inc. v. Sekisui Plastics
Co., Ltd., 579 F.3d 319, 327‐28 (3d Cir. 2009) (information disclosed to
defendant distributor pursuant to a license “lost its trade secret status”
because the license did not require defendant to “maintain the secrecy of any
information it had acquired from [plaintiff]”); Structured Capital Sols., LLC v.
Commerzbank AG, 177 F. Supp. 3d 816, 832 (S.D.N.Y. 2016) (granting summary
judgment to defendant on trade secret misappropriation claim because the
agreement that plaintiff characterized as a confidentiality agreement did not
actually place defendant “under an obligation to maintain [the]
confidentiality” of plaintiff’s alleged trade secrets).
Broker Genius contends that the Terms of Use provision providing that
users of AutoPricer v.3 may not “[r]eproduce, modify, display, publicly
perform, distribute or create derivative works of the Site or Apps or the
Content” is in fact a “provision providing for confidentiality.” (Pl.’s Post‐
Hearing Mem. 19 (quoting Terms of Use, updated June 12, 2014, PX‐56 at 4).)
However, plaintiff offers no support whatsoever for its conclusory
interpretation. While the user restrictions of the Terms of Use do expressly
bar users from showing others the AutoPricer v.3 user interface – including,
one would infer, through a series of screenshots – they do not amount to a
confidentiality or non‐disclosure clause that notifies users of the secrecy of
any aspect of AutoPricer v.3 or precludes them from describing to others the
software’s functions, structure, and appearance.
In fact, as defendants point out, this provision of the Terms of Use
“essentially tracks the language of the Copyright Act [of 1976]” (Defs.’ Post‐
Hearing Mem. 7), in which the same words – “reproduce,” “display,”
“perform . . . publicly,” “distribute,” and “prepare derivative works” – are
used to merely describe the exclusive rights of a copyright owner, not to
ascribe confidentiality to a copyrighted work. 17 U.S.C. § 106. There is a
difference between restrictions on the reproduction or the display of a work,
such as the provision in the Terms of Use, and restrictions on disclosure –
“trade secrets require a status of secrecy not required for copyright.” 1
38
Nimmer on Copyright § 1.01[B][1][h] (2017). This is not a trivial difference; it
is essential to the unanimous conclusion that federal copyright law does not
preempt state law regarding misappropriation of trade secrets. See id.; see also
Comput. Assocs. Int’l, Inc. v. Altai, Inc., 982 F.2d 693, 717 (2d Cir. 1992) (noting
that Congress drafted the Copyright Act of 1976 with an understanding that
trade secret claims “contain elements, such as . . . breach of trust or
confidentiality, that are different in kind from copyright infringement”
(quoting H.R. Rep. No. 1476, 94th Cong. 54, reprinted in 1976 U.S.C.C.A.N.
5659, 5748)).
A comparison of the restrictions found in the Terms of Use with those in
licensing agreements that did protect trade secrets lays bare the inadequacy of
the Terms of Use’s purported confidentiality provision. Unlike the Terms of
Use, the other agreements all contain express references to duties of non‐
disclosure or confidentiality. For instance, in Fabkom – a case upon which
Broker Genius relies heavily – the court granted a preliminary injunction to a
plaintiff software developer that had licensed its software through
agreements which not only prohibited customers from “demonstrat[ing]”
and “duplicat[ing]” the software, but also expressly required the customers to
“agree[ ] and warrant[ ] to keep such materials confidential” and “not [to]
authorize disclosure” by any of their employees or agents. 1996 WL 531873,
at *2‐3.
Similarly, in Computer Associates International, Inc. v. Bryan, 784 F. Supp.
982, 1000 (E.D.N.Y. 1992), the court granted a preliminary injunction to a
software developer after finding that it had taken “assiduous and appropriate
measures” to protect the confidentiality of its software architecture. The
court noted that the plaintiff’s software licensing agreements contained a
section entitled “confidential quality and restrictions,” which required the
“[l]icensee and its employees [to] keep the licensed program strictly
confidential” and not to “disclose or otherwise distribute” it to “anyone other
tha[n] the licensee’s authorized employees.” Id. at 999.19 There are no
comparable provisions in the Terms of Use.
See also LivePerson, Inc. v. 24/7 Customer, Inc., 83 F. Supp. 3d 501, 515 (S.D.N.Y. 2015)
(finding that plaintiff software developer adequately pled claim for trade secret
misappropriation against a former co‐marketer where plaintiff licensed its software to
19
39
In this regard, the Terms of Use differ substantially from plaintiff’s
Service Agreement – the contract that is signed by those Broker Genius users
such as NRZ that agree to longer‐term licenses. The Service Agreement
specifically includes a provision that references secrecy: the section entitled
“No Right to Source Code” provides that the user “acknowledge[s] that the
source code and underlying structure and algorithms of the Software are the
property and proprietary trade secrets of BROKER GENIUS or its licensors”
and further prevents users from “distribut[ing]” and “disseminat[ing]” the
“Software.” (Service Agreement, PX‐8 § 6.4.) Notably, this provision implies
that Broker Genius considered only underlying elements of AutoPricer v.3 to
be its trade secrets.
Because the information that Broker Genius alleges defendants to have
misappropriated cannot qualify as trade secrets, Broker Genius has failed to
demonstrate that it is likely to succeed on the merits of its trade secrets
misappropriation claims.
V. SUFFICIENTLY SERIOUS QUESTIONS GOING TO THE MERITS AND
BALANCE OF THE HARDSHIPS TIPPING TOWARD MOVANT
In the Second Circuit, a movant who cannot show a likelihood of success
on the merits of their claims may alternatively receive an injunction upon a
showing that there are “sufficiently serious questions going to the merits to
make them a fair ground for litigation,” and that the “balance of hardships
both its clients and the defendant through agreements that “included confidentiality
provisions”); Mobius Med. Sys., LP v. Sun Nuclear Corp., No. 4:13‐CV‐3182, 2013 WL
6498981, at *13 (S.D. Tex. Dec. 10, 2013) (granting preliminary injunction to plaintiff
software developer where defendant distributor and licensee end users were bound by
confidentiality provisions in both the Distribution Agreement and the End User License
Agreements); i‐Systems, Inc. v. Softwares, Inc., No. Civ. 02‐1951, 2004 WL 742082, at *2 (D.
Minn. Mar. 29, 2004) (denying defendant software distributor’s motion for summary
judgment on trade secret claim where plaintiff software developer’s click‐through
software licenses with its end users provided that they could not “disclose any
confidential information related to the software”); Monovis, Inc. v. Aquino, 905 F. Supp.
1205, 1228 (W.D.N.Y. 1994) (granting permanent injunction to plaintiff that licensed its
single‐screw compressor technology through an agreement requiring licensees “not [to]
disclose to third parties” the tolerances or dimensions of plaintiff’s screws).
40
tip[s] decidedly toward the party requesting the preliminary relief.”
Citigroup Glob. Mkts., Inc. v. VCG Special Opportunities Master Fund Ltd., 598
F.3d 30, 35 (2d Cir. 2010). The United States Court of Appeals for the Second
Circuit has explained that this alternative approach empowers district courts
to grant injunctions even in situations where they “cannot determine with
certainty” at the preliminary injunction phase that the moving party is “more
likely than not to prevail on the merits.” Id.; see also Jacobson & Co., Inc. v.
Armstrong Cork Co., 548 F.2d 438, 443‐44 (2d Cir. 1977).
In the case sub judice, Broker Genius cannot establish serious questions
going to the merits of its trade secret misappropriation claims for the same
reasons that it is not likely to succeed in proving those claims at trial.
Discovery on Broker Genius’s trade secrets claim has already revealed that
Broker Genius divulges the same information that it alleges to have been
misappropriated by defendants to each of its users as a matter of course and
that it does so pursuant to a Terms of Use agreement that does not provide
for the confidentiality of that information.
Because plaintiff’s widespread and comprehensive disclosures
extinguished the trade secret status of the information that Broker Genius
claims was misappropriated by defendants, there is neither a likelihood of
success nor a “sufficiently serious question” going to the merits of Broker
Genius’s trade secret misappropriation claims. As a result, the Court declines
to issue an injunction in this case. See Gen. Patent Corp. v. Wi-Lan Inc., No. 11
Civ. 6585, 2011 WL 5865194, at *5 (S.D.N.Y. Nov. 22, 2011); see also DS
Parent, Inc. v. Teich, No. 5:13‐CV‐1489, 2014 WL 546358, at *12 (N.D.N.Y. Feb.
10, 2014).
VI. CONCLUSION
Plaintiff elected to seek an injunction only with respect to its claims of
trade secret misappropriation. But the law of trade secrets is not so flexible as
to allow elements of a software program that are necessarily disclosed to all
of its users – without accompanying confidentiality obligations – to be
41
claE?sified as protectable trade secrets. Accordingly, the Court denies
plaintiff's motion for a preliminary injunction.
Dated: New York, New York
December 4, 2017
Sidney H. Stein, U.S.D.J.
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