KCG Holdings, Inc. et al v. Khandekar
Filing
175
OPINION AND ORDER: The Court grants and denies summary judgment in part to each party. KCG is entitled to summary judgment on its breach-of-contract, DTSA, and New York common-law claim. KCG is also entitled to summary judgment on Khandekar' s breach-of-contract and bad-faith counterclaims. Khandekar is entitled to summary judgment on KCG's CFAA claim. This resolves Dkt. Nos. 114 and 129. Khandekar is ORDERED to pay KCG's attorney's fees, costs, and expenses, including i ts investigation costs. Khandekar is further ENJOINED from using or disseminating, in any way, the trade secrets he reviewed without authorization at KCG between November 2016 and May 2017. SO ORDERED. (Signed by Judge Alison J. Nathan on 3/12/2020) (jca)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
USDC SDNY
DOCUME:\T
ELECTRONICALLY FILED
DOC#: _ _ _ _ _~~
DATE FILED: MAR 1 2 2020
KCG Holdings, Inc., et al.,
Plaintiffs,
17-CV-3533 (AJN)
-v-
OPINION & ORDER
Rohit Khandekar,
Defendant.
ALISON J. NATHAN, District Judge:
KCG, a financial-services firm, brings this action against a former employee, Rohit
Khandekar. KCG alleges that Khandekar improperly acquired and used several of its trade
secrets between November 2016 and May 2017. The parties have cross moved for summary
judgment.
The Court grants and denies summary judgment in part to each party. KCG is entitled to
summary judgment on its breach-of-contract, Defend Trade Secrets Act, and New York
common-law claims. KCG is also entitled to summary judgment on Khandekar's breach-ofcontract and bad-faith counterclaims. Khandekar is entitled to summary judgment on KCG's
claim under the Computer Fraud and Abuse Act. Khandekar is ORDERED to pay KCG's
attorney's fees, costs, and expenses, including its investigation costs. Khandekar is further
ENJOINED from using or disseminating, in any way, the trade secrets he reviewed without
authorization at KCG between November 2016 and May 2017.
1
I.
BACKGROUND
A. KCG Hires Khandekar to Work on Predictors
KCG is a financial-services firm. Chung Deel. ,i 8. It "engages in propriety algorithmic
trading and electronic market trading through exchanges and other computer-based platforms
through the internet, in the United States and around the world." Defendant's Rule 56.1
Counterstatement (Def. 56.1 Ctr.), Dkt. No. 140, ,i 1. In making its trading decisions, KCG
relies on "predictive models that are designed to forecast price movements in securities markets."
Id. These models are called Predictors, and they are developed and refined by Quantitative
Strategists, who are colloquially referred to as Quants. Id. ,i 3. "Quants research various events,
such as news, social media or trading volumes, to identify 'signals' that correlate to changes in
market pricing, and they write source code that computes a predictive-market-based reaction to
that signal." Id. ,i 4.
KCG's predecessor firm hired Rohit Khandekar as a Quant in March 2012. Id. He was
hired as part of the "signal team," "a group of five or six Quants responsible for developing
Predictors used in KCG's customer market-making business." PL Ex. 1, Khandekar Dep., 45:1222; Def. Ctr. ,i 5. Khandekar's team included fellow Quant Evan Wright, and it was led by Steve
Liu. Def. Ctr. ,i 5. Liu in tum reported to Vladamir Neyman, co-head of KCG's customer
market-making business. Id. ,i,i 6, 7. There were other teams of Quants at KCG. Def. Ctr. ,i 8.
Khandekar eventually became a "senior quant," meaning he was "expected to come up with
ideas for [his] projects on [his] own" and mentor junior team members. Khandekar Dep. 46:1225.
Quants developed Predictors through coding. Codes for predictors consisted of two
parts: The first part was "plumbing," which dealt with nitty-gritty details like "injecting data,
reading offline data, outputting certain things." Id. 57:18-24. Khandekar described plumbing as
2
"the part of the source code that does all the peripheral things that a predictor has to do in order
to work." Id. 192:8-18. The second part was "the most valuable, and thus the most secret, part
of the code" and was known as the Predictor's "secret sauce." Def. Ctr. ,r 16. The secret sauce
"contains the types of information, the combinations of information and the mathematical
formulas that forecast future prices." Id. Khandekar explained that the secret sauce "implements
the core idea of the predictor" and governs "how [the Predictor] compute[s] those values, what
values are computed and where they are stored, and how they are combined to compute an
output value." Khandekar Dep. 192:8-18. In other words, the secret sauce contains formulas
that forecast future market prices, and thus permit KCG to make profitable trades.
B. KCG's Efforts at Secrecy
Predictors are "some of KCG's most-closely guarded confidential and proprietary trade
secrets." Plaintiffs Rule 56.1 Counterstatement (Pl. 56.1 Ctr.), Dkt. No. 149, ,r 43. KCG
therefore took various efforts to maintain the secrecy of Predictors. First, there was a policy at
KCG prohibiting Quants from sharing, with other Quants or employees, any details regarding the
secret sauce of their Predictors. Khandekar stated that Quants "worked in silos to the extent that
they cannot discuss the very details of the predictors that they are working on or the details of the
projects they are working on." Khandekar Dep. 94:8-11. He further stated that while he worked
at KCG, he could not share "[t]he finer details" of the predictors he worked on. Id. 94: 16-21.
Quants thus could not discuss the secret sauce of predictors with one another. Id. 95:2-8. But
KCG drew a line between secret sauce and plumbing. Khandekar made clear that Quants could
"share tools, data, template predictors, for example, with other quants so as to -- so as to
minimize the duplication of work." Id. 94:12-15.
Wright explained that this policy operated like a sliding scale. The secret sauce could not
be shared: "there is a general rule ... that details specific to a predictor, exactly what the
3
calculation is are totally off limits." Wright Dep. 97 :5-10. But general concepts could: "Some
aspects that are not specific to a single predictor are okay [to share] as concepts, if not as
implementation." Id. 97:11-13. And "in the gray area between that, you should ask [Neyman] or
[Liu]." Id. 97:14-15. Khandekar's manager, Liu, confirmed that discussions between Quants
"regarding the work they were doing" were "only limited to high level ideas." Liu Dep. 65:2366:11; see also id 67:14-19 ("we encourage collaboration, sharing, and brainstorming high-level
research ideas.").
Second, Quants used access restrictions to protect certain codes. KCG uses the
Unix/Linux operating system to run its servers and computers. Def. Ctr. ,r 24. In that system,
"every file and every directory has 'permissions' that govern who can read, write or execute a
file ... Unix permissions can be set for the user, group (a collection of users) or everyone with
Unix credentials (the 'world.')". Id. Access permissions thus "enable a user to specifically
authorize another user or group of users to access a directory or read or otherwise use a file." Pl.
Ctr. ,r 51; see also id
,r 52.
KCG instructs Quants "to create a default setting ensuring that no
new directors and files have any group or other access permissions," meaning that they should be
accessible only to their creator. Id.
,r 53.
Third, Quants use encryption to protect codes. See Pl. Ctr. ,r 46 ("KCG Quants use two
primary ways to restrict other KCG employees from electronically accessing confidential
Predictor files: 'encryption' and 'access permissions."'). To understand how encryption works,
some background is helpful: Quants develop and work on Predictors "in their personal directors
within KCG's servers." Def. Ctr.
,r 24; see also Pl. Ctr. ,r 66 ("KCG also allocates every Quant
specific space on the Linux system, to store his or her work-related directories and files."). In
order to access the secure servers containing Predictors, "an individual must have a valid Unix
4
login and password credentials;'' Def. Ctr.
,r 22.
After a Quant completes a Predictor, she must
encrypt its source code and check it into a source-code repository on the KCG servers.
"Encryption renders a file unreadable and un-editable unless someone has the required deencryption 'key' which will enable them to unencrypt the file, and only in [its] unencrypted form
[can they] read it or edit it." PL Ctr. ,r 47. When encrypting a Predictor, the Quant can input a
list of authorized users, who will be "given the technical ability to decrypt the file." Def. Ctr.
,r 23.
These other users are called "Additional PGP Recipients." Id. The list of users on this list
appears "in text at the top of the file." Id. In other words, once a file is encrypted, only the
individuals on this list are capable of decrypting and viewing its contents.
Another KCG employee, Philip Chung, testified that "predictors ... were meant for only
certain eyes only. And it was very explicit, because they all contained a line of text, which is
additional PGP recipients, that lists those users that that file was meant for." Chung Dep. 37:3-8;
see also id. 114:9-12 ("There was very explicit intent for those files to be only accessible by the
people listed on the additional PGP recipients line."), 148:8-14. So long as the code is
encrypted, "[i]ndividuals who are not listed as Additional PGP recipients cannot decrypt or view
the secret code." Def. Ctr.
,r 23.
"To work on a Predictor after the source code has been
encrypted and committed to the [source-code repository,] a Quant with PGP credentials must
download a copy of the encrypted code from the [repository] to his or her personal directory, and
unencrypt the source code." Def. Ctr.
,r 24.
However, if an authorized user unencrypts the
source code and removes any access restrictions, then even users who are not listed on the
authorized list can access and view its contents. Def. Ctr.
Recipients List still appears on the file. PL Ctr.
,r 23.
Even after decryption, the
,r 50.
5
Fourth, KCG instructed its Quants on how to protect sensitive information. For example,
KCG promulgated instructions on "how to use secret servers ... [and] how to typically put secret
code into production" to all new Quants, and employees often referred back to these materials.
Liu Dep. 80: 14-81: 19. Liu stated that "from time-to-time" he would "remind quants ... to either
use encryption or access restrictions to protect secret code that they were working on." See id
78:6-15; Def. Ctr., 26. KCG also "developed a number of informational pages for employees
on how to set up their environment, protect source code with Unix permissions, and encrypt
secret source code files in accordance with Company policy." Def. Ctr., 26. Chung agreed that
"it [was] KCG's policy to require quants to restrict their directories" and testified that this policy
was stated "various places on loop pages, on wiki pages, and certainly it [was] part of training
for new quants." Chung Dep. 75:4-12.
Fifth, Khandekar's managers stopped Quants from sharing details regarding their
Predictors. Khandekar stated that at several meetings "where quants went a little too far talking
about specifics with their predictors," "either [Neyman] or [Liu] stopped that quant from
describing their predictor in more detail." Khandekar Dep. 94:16-95:25. He explained that "in
those other meetings, [Neyman] or [Liu] would say to the quant, 'Hold off, we can talk about
that outside of meeting."' Id. Khandekar gave a specific example: at a "Friday weekly
meeting," various Quants were "together giving short updates on what they [had] done in the
week or two weeks. And I believe it was [Wright] who was describing some of his work and
was stopped by [Neyman.]" Khandekar Dep. 96:5-20. KCG admits to these facts without
objection. Def. Ctr. , 20.
Sixth, KCG required employees to sign employment agreements with confidentiality
provisions. For example, Khandekar agreed in his employment agreement to "[h]old all
6
Confidential Information as a fiduciary in trust and use it only for the benefit of KCG in properly
performing [his] employment duties for KCG" and to "[c]omply with KCG's procedures on
dealing with Confidential Information." Pl. Ex. 12 (Employment Agreement),§§ 9(b), 1 l(b).
These provisions are discussed at length below.
In sum, "KCG maintain[ed] a strong culture emphasizing the need to protect KCG' s
confidential information, even against disclosure to other KCG Quants." Pl. Ctr. ,r 42. And it
employed various tactics, ranging from policies against disclosure to contractual provisions, to
effectuate that policy.
C. Khandekar Interviews with Two Sigma, and Reviews Other Quants'
Secret Sauce
In October 2016, Two Sigma Securities, "one of KCG's main competitors in signal
research for market making, contacted Khandekar about an employment opportunity." Def. Ctr.
,r 32.
Khandekar spoke with a friend at Two Sigma about the role. Id. A few weeks later,
Khandekar submitted his resume to Two Sigma. Id.
,r 35; Khandekar Dep. 131:21-24.
On
November 15, 2016, Khandekar's friend shared his resume with Simon Yates, Two Sigma's
CEO. Yates was "super excited" by Khandekar's application and viewed his candidacy as a
"high priority." Yates Dep. 25:14-26:7; Def. Ctr.
,r 39.
Khandekar was then asked to meet with
Yates for breakfast in two weeks to discuss the opportunity. Khandekar Dep. 146:12-14, 19-21;
Def. Ctr.
,r 40.
In the time between learning of the breakfast meeting and the meeting itself, Khandekar
accessed three of Evan Wright's Predictors and reviewed them. Def. Ctr. ,r 41. Wright had not
access-restricted or otherwise encrypted these files, so they were available for other KCG
employees, like Khandekar, to view. Id.
7
The breakfast meeting occurred as scheduled, and that same day Two Sigma invited
Khandekar for an in-person interview. On December 15, 2016, Khandekar interviewed with
various Two Sigma employees. Def. Ctr.
,r 44.
Following the interview, Yates and Two Sigma
began formulating how to negotiate an offer for Khandekar. Def. Ctr.
,r 45.
Between December 28 and 30, 2016, "Khandekar ran seven custom 'scripts' to search
and filter other Quants' directories for unencrypted source code files." Def. Ctr. ,r 46. In other
words, Khandekar designed a code to search other Quants' storage for unencrypted files,
including Predictors. Id Indeed, he admitted that he was "specifically searching for
unencrypted predictors." Khandekar Dep. 182:6-8. Within his own personal directory,
Khandekar then created multiple folders named after other Quants. Def. Ctr.
,r 48 ("Khandekar
created ... multiple subdirectories named after other Quants, based on their usemames" such as
"Evan Wright (ewright)"). These folders included the names of Quants who were and were not
on Khandekar' s team. Id. Khandekar then copied "at least 160 source code files from these
Quants' directories into the corresponding" folders he had created. Id.
,r 49.
Khandekar stated
that these files were "very close to the ones in production [at KCG] in terms of functionality"
and that "the secret sauce from these files also was very similar to the ones in production."
Khandekar Dep. 185:13-188:17. Khandekar was not listed as an Additional PGP Recipient for
any of these source-code files. Def. Ctr.
,r 50.
On January 6, 2017, Yates and Khandekar had a "long call" about his candidacy. Def.
Ctr. ,r 54. Khandekar then left for a vacation. Id.
,r 55.
While on that vacation and for a time
after, Khandekar reviewed the Predictors he had copied, some on multiple occasions. Def. Ctr.
,r 56.
Id.
And he began "methodically sorting Predictors as he reviewed them" in his own directory.
,r 57.
He created additional folders, including ones titled "done" and "good." Id. For
8
example, Khandekar opened and read three of a fellow Quant' s Predictors, and then moved them
into a "done" subfolder in his folder for that Quant. Id
the two 'good' folders." Id
,r 57.
He also "moved at least six files to
,r 59.
On February 16, 2017, Two Sigma offered Khandekar a Quant position. Id
the next weeks, Khandekar negotiated the terms of his offer. Id
,r 65.
,r 63.
Over
And at the same time, he
continued to review other Quants' source code files, including two developed by Evan Wright.
Id
,r,r 63, 70.
Two Sigma eventually increased the compensation in the offer. Id
,r 66.
On
March 6, 2017, Khandekar removed and deleted all 160 source-code files he had copied from
other users' directories. Id
,r 68.
letter, and he soon left KCG. Id
On March 14, 2017, he signed Two Sigma's revised offer
,r,r 69, 77.
In April 2017, KCG was investigating the theft of trade secrets by another employee. In
connection with that investigation, KCG discovered that Khandekar had copied other Quants'
Predictors into his personal directory. Id
,r 78.
It soon initiated this lawsuit. Id
,r 79. In June
2017, Two Sigma withdrew its offer of employment. PL Ctr. ,r 28.
D. Procedural History
On May 11, 2017, KCG filed suit against K.handekar alleging misappropriation of trade
secrets in violation of federal and state law and breach of contract. It sought a temporary
restraining order, which the Court denied. See Dkt. No. 26, Ex. 1; Dkt. No. 9 at 8:19-20. On
June 22, 2017, KCG filed a motion for a preliminary injunction to, among other things, enjoin
K.handekar from using or accessing its confidential information. See Dkt. No. 24. The parties
resolved that motion by entering a joint stipulation on July 5, 2017. See Dkt. No. 39. On
January 18, 2018, the Court stayed this action pending resolution of an arbitration. Dkt. No. 141.
That arbitration was dismissed and the stay was vacated on February 20, 2018. Dkt. No. 144.
The parties then cross-moved for summary judgment. That motion is now before the Court.
9
II.
SUMMARY JUDGMENT STANDARD
"Summary judgment is appropriate when the record taken as a whole could not lead a
rational trier of fact to find for the non-moving party." Smith v. Cty. of Suffolk, 776 F.3d 114,
121 (2d Cir. 2015). Summary judgment may not be granted unless all of the submissions taken
together "show[] that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter oflaw." Fed. R. Civ. P. 56(a). The moving party bears
the burden of demonstrating the absence of a material factual question, and in making this
determination, the Court must view all facts in the light most favorable to the non-moving
party. See Eastman Kodak Co. v. Image Techn. Servs., Inc., 504 U.S. 451,456 (1992); Gemmink
v. Jay Peak Inc., 807 F.3d. 46, 48 (2d Cir. 2015). In evaluating cross-motions for summary
judgment, each motion must be examined "on its own merits," and "all reasonable inferences
must be drawn against the party whose motion is under consideration." Vugo, Inc. v. City ofNew
York, 931 F.3d 42, 48 (2d Cir. 2019).
Once the moving party has asserted facts showing that the non-movant's claims cannot
be sustained, "the party opposing summary judgment may not merely rest on the allegations or
denials of his pleading; rather his response, by affidavits or otherwise as provided in the Rule,
must set forth specific facts demonstrating that there is a genuine issue for trial." Wright v.
Goard, 554 F.3d 255,266 (2d Cir. 2009). "[C]onclusory statements, conjecture, and
inadmissible evidence are insufficient to defeat summary judgment." Ridinger v. Dow Jones &
Co. Inc., 651 F.3d 309,317 (2d Cir. 2011). The same is true for "mere speculation or conjecture
as to the true nature of the facts." Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010). And
"[w]hen opposing parties tell two different stories, one of which is blatantly contradicted by the
record, so that no reasonable jury could believe it, a court should not adopt that version of the
10
facts for purposes of ruling on a motion for summary judgment." Scott v. Harris, 550 U.S. 372,
380 (2007).
Only disputes over material facts will properly preclude the entry of summary judgment.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242,248 (1986). "An issue of fact is genuine and
material if the evidence is such that a reasonable jury could return a verdict for the nonmoving
party." Cross Commerce Media, Inc. v. Collective, Inc., 841 F.3d 155, 162 (2d Cir. 2016). "On
a motion for summary judgment, a fact is material if it might affect the outcome of the suit under
the governing law." Royal Crown Day Care LLC v. Dep't of Health & Mental Hygiene, 746
F.3d 538, 544 (2d Cir. 2014) (internal quotation marks omitted).
III.
KHANDAKAR BREACHED MULTIPLE TERMS OF HIS
EMPLOYMENT AGREEMENT WITH KCG
Khandekar's Employment Agreement states that it "shall be governed by and interpreted
in accordance with New Jersey law (without regard to its conflict oflaw rules)." Employment
Agreement§ 13(e). The parties agree that New Jersey law applies to the breach-of-contract
claims in this case. To state a claim for breach of contract in New Jersey, a plaintiff must show
that (1) the parties entered into a valid contract; (2) the defendant failed to perform his duties
under the contract; and (3) the plaintiff sustained damages as a result of the breach. Lincoln
Harbor Enterprises, LLC v. MY Diplomat, 2008 WL 5046787, at *5 (D.N.J. Nov. 21, 2008)
(citing Murphy v. Implicito, 392 N.J. Super. 245, 920 A.2d 678, 689 (N.J. Super. Ct. App. Div.
2007)). The parties do not dispute the validity of the Employment Agreement. The Court must
therefore determine whether Khandekar failed to perform his contractual duties. The Court
concludes that there is no genuine dispute of material fact that he did, in two ways.
11
A. Khandekar Breached His Employment Agreement By Reviewing the
Secret Sauce of Predictors He Did Not Work On
Khandekar's Employment Agreement contains multiple provisions creating duties
regarding confidential information. Three are relevant here:
•
Section 3(c) obligated Khandekar to "Act in an honest and ethical manner in
compliance with all applicable laws, ordinances, permits, licenses, governmental
rules, regulations, authorizations and requirements, and comply with the policies,
procedures, requirements, rules and regulations in effect at any time by KCG, any
exchange, regulatory agency or self-regulatory body with authority to govern or
regulate [him] or KCG."
•
Section 9(b) obligated Khandekar to "(i) Hold all Confidential Information as a
fiduciary in trust and use in only for the benefit of KCG in properly performing
[his] employment duties for KCG; (ii) Maintain Confidential Information in strict
confidence and secrecy; (iii) Not, except as specifically directed by KCG in
performing [his] employment duties for KCG, communicate or disclose
Confidential Information in any manner to any person within or outside KCG who
is not authorized to know, use or receive such Confidential Information; and (iv)
Comply with KCG' s procedures on dealing with Confidential Information and in
all events use [his] best efforts to prevent the inadvertent disclosure of
Confidential Information."
•
Section 11 (b) obligated Khandekar to "not use [KCG' s] systems and software for
personal purposes contrary to KCG' s interests" and to "not use a code, access a
file or retrieve any stored communication, other than as authorized by KCG to
perform [his] job duties, without prior clearance from KCG."
12
As discussed above, KCG had a policy prohibiting Quants from learning the secret sauce
of Predictors they did not work on. Khandekar himself repeatedly discussed the policy. For
example, he testified that KCG had about 100 predictors during his employment. Khandekar
developed and worked on about 10 of those 100. PL Ctr. ,r 1; Khandekar Dep. 137:2-9.
Khandekar agreed that "[he] should not have had knowledge of the secret sauce for [the
remaining] 90 percent of the predictors ... at KCG." Id 137:6-11. And he said that he
"understood that KCG intentionally walled [him off] from knowing the secret sauce of the
predictors that [he] did not personally develop." Id. 13 7: 13-17. He also explained the converse
of this rule: "[his] fellow quants should not know the secret sauce of the 10 percent or so of
predictors that [he] developed." Id. 137:18-25.
Other Quants testified to this policy as well. To take one example, Wright stated that
"there [was] a general rule ... that details specific to a predictor, exactly what the calculation [in
the predictor] is are totally off limits." Wright Dep. 97:5-10. Even though this rule "was not
written down," it was known to KCG's employees, including Khandekar. Id 97:20. There is no
genuine dispute that KCG prohibited Quants from knowing the secret sauce of Predictors which
they were not responsible for.
The undisputed facts demonstrate that Khandekar violated this policy, over a period of
multiple months, by copying and reviewing entire Predictors developed by other Quants.
Khandekar admits that he accessed entire Predictors of other Quants. Khandekar Deel. ,r,r 35, 39.
Those files contained secret sauce, and Khandekar thus learned sensitive information about
Predictors that he had no role in developing.
Khandekar was also not listed as an Authorized PGP Recipient for those source-code
files, further confirming that he was not authorized to view them. KCG employees agree that the
13
PGP list is "a very explicit authorization mechanism" that lists the only employees who are
permitted to view and access certain code. Chung Dep. 106:3-5. But K.handekar was not listed
as an Additional PGP Recipient on any of the 160 source-code files he copied into his directory.
Def. Ctr.~ 50. Nor did K.handekar's supervisors, Liu and Neyman, give him direct permission to
access these files. Id.
By violating this policy, Khandekar breached all three of the contractual provisions
governing confidentiality. He did not comply with the "rules and regulations in effect at any
time by KCG." Employment Agreement Section 3(c). He did not "[c]omply with KCG's
procedures on dealing with Confidential Information." Id. § 9(b)(iv). And he "access[ed] a file
... other than as authorized by KCG to perform [his] job duties, without prior clearance from
KCG." Id. § 1l(b). He thus breached these three provisions of the Employment Agreement.
Khandekar makes several arguments to excuse this breach, but none succeeds. First,
Khandekar repeatedly argues that the files he copied and viewed did not have access restrictions
and were not encrypted. Def. Br. at 10. Second, Khandekar notes that he accessed the files
using his proper work login. Id.; see also Chung Dep. 97: 11-18 (agreeing that Khandekar
"hadn't logged on [to KCG's computer network] using anything other than his credentials."); PL
Ctr.~ 86 (parties agreeing to this fact). Third, Khandekar points out that this policy was
unwritten. He claims that "KCG did not have any written policy prohibiting Quants from
accessing and viewing decrypted files for which they were not listed on the file's Additional
PGP Recipients" or "from accessing the personal workspace on the Linux System allocated to
other Quants." PL Ctr.
~~
39, 40.
All three of Khandekar' s arguments do fail for the same reason: KCG had an unwritten
policy prohibiting Quants from viewing each other's secret sauce. As noted, there is no genuine
14
dispute that KCG had an unwritten policy against Khandekar's behavior. Khandekar, Wright,
and Liu all testified that Quants were prohibited from viewing each other's secret sauce. This is
why, for example, Khandekar' s supervisors cut off Quants in multiple conversations who verged
too close to sharing sensitive details. And Wright made clear that this policy "was not written
down," but nonetheless was in place at KCG and "was [not] just [his] sense" of how things at
KCG worked. Wright Dep. 97:17-25. Khandekar provides no evidence rebutting these
statements from several KCG employees regarding the prohibition on Quants sharing secret
sauce with one another. Once again, his own testimony confirms as much. Khandekar stated
expressly that he "could not discuss the secret sauce and [his] predictors with [his] fellow
quants," and that those Quants "could not discuss the secret sauce of their predictors with [him.]"
Khandekar Dep. 94:16-95:8; Def. Ctr. ,r 18. And Khandekar presents no legal reason why a
policy like this one must be written down to have force. It does not matter, therefore, that the
Quants whose files Khandekar viewed failed to put in place access restrictions on the relevant
files. And it also does not matter that Khandekar was properly logged onto KCG' s servers using
his valid credentials. Restrictions or not, authorized login or not, KCG's policy made clear that
Khandekar had no authority to view these files.
Khandekar last argues that KCG lacks standing to pursue this claim because it cannot
demonstrate damages. But KCG' s injury in fact is the multiple breaches of the Employment
Agreement. And as discussed below, KCG is entitled to damages here.
In short, the undisputed record establishes that Khandekar did not have any authorization
to look at the files he reviewed between November 2016 and February 2017. He therefore
violated the terms of his Employment Agreement by doing so.
15
B. Khandekar Also Breached the Employment Agreement by Deleting Files
Those are not the only provisions of the Employment Agreement that the undisputed
record establishes were breached by Khandekar. Section 1 l(a) of the Agreement states:
Upon termination of my employment (regardless of the rea~on) and at any other
time at KCG's request, I will immediately deliver to KCG, or (if requested by KCG)
destroy or permanently erase, all of KCG's property, including documents,
handwritten notes, computer and physical files, records of developments, keys and
key cards, access codes, credit cards, tapes, disks and other electronic, optical,
magnetic or other media, and all other KCG property in my possession or control
(whether or not it contains, refers to or was derived from Confidential Information).
The parties agree that on Khandekar's last day at KCG, he turned in his work-issued
laptop after he himself "wiped it clean." Khandekar Dep. 240:17-20. He argues that he wiped it
clean because he "didn't know any way of' securely deleting his personal information from the
laptop while leaving KCG's information in place. Id. at 242:3-6; see also Def. Ctr. 177. The
Employment Agreement is clear, however, that Khandekar can "[d]estroy or permanently erase"
KCG's electronic files only "if requested by KCG." § ll(a). In the absence of such a request,
Khandekar was obligated to deliver the electronic property to KCG. Khandekar therefore
violated this provision of the Employment Agreement.
Khandekar argues that other employees had also deleted files in this manner. Def. Br.
29-30. But he provides no authority under New Jersey law for the proposition that the breach of
a similar contract by a non-party provides any defense. The undisputed record thus demonstrates
that Khandekar also violated the Employment Agreement by wiping his work-issued laptop
without KCG' s permission.
C. Pursuant to the Employment Agreement, KCG is Entitled to Attorney's
Fees and Expenses, Including its Investigative Costs
The Employment Agreement also shifts certain fees and costs to Khandekar in the event
of a breach. It states:
16
If [Khandekar] [is] found to be in breach or default in the full or timely performance
of any of [his] covenants, duties or obligations as set forth in this Agreement, [he]
will be liable for, and agree to promptly pay to KCG upon demand, all of the costs
and expenses KCG incurs as a result of or arising from such breach or default,
including, reasonable attorneys' fees and expenses and court costs.
Employment Agreement§ 13(d).
The Court has found Khandekar in breach of multiple contractual duties under the
Agreement. The contract's clear terms therefore mandate that Khandekar pay "all o/the costs
and expenses KCG incurs as a result of or arising from such breach." Id. (emphasis added).
Khandekar must therefore pay KCG's attorney's fees. Moreover, KCG retained a third party to
investigate Khandekar's activities. Def. Ctr. ,i 79. KCG paid $194,382.28 for that investigation.
Id. And that investigation was "incur[ed] as a result of or arising from" Khandekar' s breach of
the Employment Agreement. Indeed, Khandekar admits that KCG retained this third party to
investigate his conduct. Id. Khandekar is therefore obligated to pay for the investigation.
Khandekar argues that this "one-way attorneys' fees provision is ... unconscionable and
therefore unenforceable." Def. Br. at 31. For a claim of contract unconscionability under New
Jersey law, the Court must "determine whether the contract is so oppressive, or inconsistent with
the vindication of public policy, that it would be unconscionable to permit its enforcement."
Rodriguez v. Raymours Furniture Co., 225 N.J. 343,367 (2016) (internal quotation marks
omitted). Unconscionability may be either substantive or procedural. Procedural
unconscionability refers to unfairness in the formation of the contract, and may be shown by "a
variety of inadequacies, such as age, literacy, lack of sophistication, hidden or unduly complex
contract terms, bargaining tactics, and the particular setting existing during the contract
formation process." Muhamm.ad v. Cty. Bank of Rehoboth Beach, Del., 189 N.J. 1, 912 A.2d 88,
96 (2006) (internal quotation marks omitted). A contract term may also be substantively
17
unconscionable if it is '" excessively disproportionate' and involves an"' exchange of obligations
so one-sided as to shock the court's conscience."' Delta Funding Corp. v. Harris, 189 N.J. 28,
912 A.2d 104, 120 (2006) (quoting Sitogum Holdings, Inc. v. Ropes, 352 N.J. Super. 555, 800
A.2d 915, 921 (N.J. Super. Ct. Chane. Div. 2002)).
To start, K.handekar points to no evidence of procedural unconscionability in the
contract's formation. He instead raises a bare assertion that his Employment Agreement is a
contract of adhesion and therefore unenforceable. But equal bargaining power between parties is
not a prerequisite to contractual validity. See Argabright v. Rheem Mfg. Co., 201 F. Supp. 3d
578, 596 (D.N.J. 2016). Nothing suggests that K.handekar had so little bargaining power and
control over the terms of his Employment Agreement that it was one of adhesion. And he
presents no evidence that the contract was "presented in a take-it-or-leave-it basis" or in a
, "standardized printed form." Estate of Ruszala ex rel Mizerak v. Brookdale Living Communities,
Inc., 415 N.J. Super. 272, 294 (N.J. App. Div. 2010). K.handekar does not explain why he could
not have simply refused to accept his original offer of employment. Nor does the Court find this
term so disproportionate as to be substantively unconscionable; although it exposes K.handekar to
significant liability, fee-shifting is a common feature of modem contracts. Indeed, courts have
found such contracts enforceable under New Jersey law. In Allia v. Target Corp., Target
asserted a breach-of-contract counterclaim against the plaintiff for violating a confidentiality
agreement. 2010 WL 1050043, *12 (D.N.J. 2010). The Court found that the plaintiff had
breached the contract. Id. at *14. The contract also provided that "Target Corporation shall be
entitled, in addition to any other remedies available, to injunctive and/or equitable relief to
prevent a breach of this Agreement or any part of it, and reasonable attorney's fees in enforcing
18
this Agreement." Id. The Court thus granted fees to Target, despite the vastly different
bargaining power between the two parties and potential for large liability. Id. at *15.
The same is true here. The Employment Agreement clearly requires Khandekar to pay
any costs and expenses incurred by KCG due to a contractual breach. KCG has incurred
attorney's fees and investigative costs, and Khandekar is obligated to pay them.
IV.
KCG IS ENTITLED TO SUMMARY JUDGMENT ON KHANDEKAR'S
BREACH-OF-CONTRACT CLAIM
Khandekar also asserts a breach-of-contract counterclaim against KCG. The
Employment Agreement requires Khandekar not to compete with KCG for six months after
ending his employment. Employment Agreement§ 6(a). It further provides for KCG to pay
Khandekar non-compete payments during this time, including six months of his annual salary.
Id. § 6(b). Khandekar claims that KCG has breached this obligation by not paying him these
payments for a full six months.
Khandekar's argument fails. The Employment Agreement provides that "[n]on-compete
payments will stop if KCG determines that [Khandekar] [has] violated any provision of this
Agreement." Id. As discussed, Khandekar has breached multiple terms of his employment
contract, and KCG discovered these violations in May 2017. KCG paid Khandekar some noncompete payments, PL Ctr.
,r,r 11-12, but it had no further duty to do so once it discovered his
breach. The Court thus rejects Khandekar's contractual counterclaim as a matter oflaw.
V.
KHANDEKAR VIOLATED THE DEFEND TRADE SECRETS ACT
KCG next argues that Khandekar violated the federal trade-secrets statute. The Defend
Trade Secrets Act (DTSA) provides a private cause of action to the "owner of a trade secret that
is misappropriated." 18 U.S.C. § 1836(b)(l). The parties do not dispute that KCG's Predictors
are trade secrets. Def. Ctr.
,r,r 16, 17 (parties agree that "the entire source code of a predictor is
19
considered trade secret information and extremely valuable intellectual property."); see generally
ExpertConnect, L.L.C. v. Fowler, 2019 WL 3004161, at *4 (S.D.N.Y. July 10, 2019) (explaining
requirements for information to constitute a trade secret under the DTSA). The parties also do
not dispute that the Predictors are used in trading around the United States and the world, and
thus satisfy the DTSA's interstate-commerce requirement. See United States v. Agarwal, 726
F.3d 235, 244-51 (2d Cir. 2013) (holding that computer code used for securities trading satisfied
the interstate commerce requirement because "the confidential code was valuable only in relation
to the securities whose interstate trades it facilitated.").
This claim therefore boils down to whether Khandekar misappropriated KCG' s trade
secrets. The DTSA defines "misappropriation" to include "acquisition of a trade secret of
another by a person who knows or has reason to know that the trade secret was acquired by
improper means" or "disclosure or use of a trade secret of another without express or implied
consent" in specified circumstances." 18 U.S.C. § 1839(5). The statute thus "contemplates three
theories of liability: (1) acquisition, (2) disclosure, or (3) use." Opternative, Inc. v. JAND, Inc.,
2019 WL 624853, at *6 (S.D.N.Y. Feb. 13, 2019) (internal quotation marks and citation
omitted). Because the undisputed record establishes that Khandekar both acquired and used
KCG' s trade secrets, he misappropriated them, and KCG is therefore entitled to summary
judgment on its DTSA claim.
A. Khandekar Improperly Acquired KCG's Trade Secrets
KCG argues that Khandekar improperly acquired its trade secrets. Many of the statutory
requirements for misappropriation are met: Khandekar acquired trade secrets by copying
Predictors from other Quants' repositories into his own. Those trade secrets belonged to another
person, KCG. See 18 U.S.C. § 1839(5).
20
The parties dispute whether Khandekar used improper means to acquire the data. See id.
The undisputed facts establish that he did. The DTSA states "the term improper means ...
includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain
secrecy, or espionage through electronic or other means." Id. § 1839(6). Khandekar raises a
now-familiar argument: the files he copied were not access restricted or encrypted, and thus his
actions were not improper. Khandekar's actions however meet one of the enumerated examples
in this list: he breached a duty to maintain secrecy. As discussed, Khandekar breached multiple
confidentiality provisions of his Employment Agreement. For example, he had an obligation
"not use a code, access a file or retrieve any stored communication, other than as authorized by
KCG to perform [his] job duties, without prior clearance from KCG." Employment Agreement
§ 9(b). Because he violated that duty, his acquisition was accomplished using improper means.
Even in the absence of these contractual provisions, Khandekar' s actions constitute
improper means. The DTSA makes clear that its definition of improper means is nonexhaustive, and other facts may suffice. The undisputed record establishes that Khandekar
knowingly violated KCG's policy prohibiting him from accessing Predictors developed by other
Quants. The Court concludes that knowingly procuring confidential data of others, in violation
of an employer's policy, by itself satisfies the improper-means requirement.
Finally, Khandekar had actual knowledge--or at the very least, constructive
knowledge--of the fact that the trade secret was acquired by these improper means. He was
familiar with KCG' s policy; he explained it himself at length in his deposition. See Khandekar
Dep. 137:2-25. And he copied the files himself and organized them into various directories.
This satisfies the knowledge requirement. In short, the undisputed record establishes that
21
Khandekar improperly acquired and therefore misappropriated KCG' s trade secrets, thereby
violating the DTSA.
B. Khandekar Improperly Used KCG's Trade Secrets
KCG also argues that Khandekar misappropriated its trade secrets through use. KCG
must tick three statutory boxes to succeed on this theory. Khandekar must have "used improper
means to acquire knowledge of the trade secret." 18 U.S.C. § 1839(5)(B)(ii)(I). For the same
reasons as above, this requirement is met here as a matter of law. Khandekar must also have
lacked "express or implied consent" from KCG. Id. § 1839(5)(B). Once again, KCG had a
policy clearly prohibiting Khandekar' s actions. That leaves one statutory requirement:
Khandekar must have used the trade secret. The Court concludes that there is no dispute that this
requirement is met, and KCG is thus entitled to summary judgment on this issue.
There is no dispute that Khandekar copied, viewed, and organized Predictors developed
by his fellow Quants. To reiterate, Khandekar admits that he copied 160 source-code files from
other Quants' directories, placed those files into his own personal directory, reviewed most of
them (sometimes several times each), organized them into folders in part based on how "good"
they were, and then deleted the files. He says he had a legitimate reason behind doing so: he
accessed the Predictors to increase his knowledge base and thus create better Predictors for
KCG. For example, he says he "was working on a Predictor for KCG based on 'book data,"' and
thus wanted to learn how other Quants had approached the topic. Def. Br. at 11-12; Def. Ctr.
~
41. Order-book pressure is "the relative balance of limit orders to buy or sell that reside on the
order books of stock exchanges." Def. Ctr.
~
31. In his declaration, Khandekar explained that he
"was unfamiliar with how to inject book data effectively into a Predictor implementation since
this was the first time [he] was developing a Predictor that worked with book data." Khandekar
Deel.~ 34. He then stated that "he needed to find some template or sample Predictors to learn
22
how that implementation was done." Id.
,r 35.
In short, Khandekar "believed the source code
files were potentially useful in the work he was doing for KCG." Def. Ctr.
,r 49; see also id. ,r 51
("In fact, Khandekar had accessed those source code files for his Predictor research and
implementation work at KCG for the benefit ofKCG."). He claims that he "accessed the files
only in furtherance of [his] work for KCG." Khandekar Deel.
,r 39 (emphasis in original).
Khandekar's purported motive, however, is irrelevant. Reviewing another's trade secrets to
develop one's personal knowledge constitutes use, and therefore misappropriation--even if that
review is ostensibly for the trade secret owner's benefit. The Court reaches this conclusion
based on three rationales.
First, the Court begins, as it must, with the statute's text. See Caraco Pharm. Labs., Ltd.
v. Novo NordiskAIS, 566 U.S. 399,412 (2012) ("We begin where all such inquiries must begin:
with the language of the statute itself."). The DTSA defines "misappropriation" as "use of a
trade secret of another without express or implied consent by a person who ... used improper
means to acquire knowledge of the trade secret." 18 U.S.C. § 1839(5). Although the statute
provides several definitions, such as for improper means, it does not provide one for use. The
Court thus turns to dictionary definitions of the term. Black's Law Dictionary defines "use" as
"[t]o employ for the accomplishment of a purpose; to avail oneself of." Black's Law Dictionary,
"Use" (11th ed. 2019). Merriam-Webster defines the verb as "to put into action or service[;]
avail oneself of." Merriam-Webster Dictionary, "Use," available at https://www.merriamwebster.com/dictionary/use. And the Oxford English Dictionary defines "use" as "[t]he act of
putting something to work, or employing or applying a thing, for any (esp. a beneficial or
productive) purpose; the fact, state, or condition of being put to work, employed, or applied in
23
this way; utilization or appropriation, esp. in order to achieve an end or pursue one's purpose."
Oxford English Dictionary, "Use," available at https://www.oed.com/view/Entry /22063 5.
Khandekar's actions tick all these boxes. He admits that he viewed other Quants'
Predictors to increase his knowledge and produce better work product. He thus employed that
information to accomplish a purpose. He availed himself of that information. He put it to work
for a productive purpose. Under any of the above definitions, Khandekar' s actions constitute
"use" of KCG's trade secrets.
Khandekar attempts to evade this plain reading by arguing that his "use" was benevolent:
he was reviewing these files only to produce more profitable Predictors. But that argument does
not allow him to escape the statute's plain meaning. Irrespective of whether his actions were
intended to benefit KCG, he still put the other Quants' trade secrets to work for some purpose.
It is also undisputed that Khandekar's use was not exclusively to KCG's benefit. Even if
it allowed him to develop more profitable Predictors, he was still compensated in part based on
his performance at work. Producing better Predictors thus did not just benefit KCG-it directly
and materially benefited him. Finally, even accepting Khandekar's theory, the Court still rejects
his argument. Assume that there is a direct correlation between review of KCG' s Predictors and
a Quant's performance. On this theory, the more Predictors a Quant reviews, the better she
performs. That does not permit Khandekar--or any Quant-to unilaterally conclude that
violating KCG's policies is in fact in the firm's best interest. Indeed, KCG concedes that "[i]t
may be true that if KCG' s Quants had been provided with permission to view each other's secret
source code, it could conceivably have resulted in better, more profitable Predictors for KCG."
Pl. Br. at 12. But KCG had to weigh that potential benefit against other interests: "However, that
would have put all of KCG' s most valuable trade secrets at risk every time a Quant left the
24
company." Id. The undisputed evidence establishes that KCG struck a balance between these
competing interests by deciding that Quants could review only their own Predictors and only
discuss high-level concepts with one another. Khandekar cannot violate that policy and then
escape the consequences by claiming that he did so for KCG's benefit, when KCG itself has
foregone any such benefit.
Second, the Court turns to the Restatement (Third) of Unfair Competition. The
Restatement provides: "There are no technical limitations on the nature of the conduct that
constitutes 'use' of a trade secret ... As a general matter, any exploitation of the trade secret that
is likely to result in injury to the trade secret owner or enrichment to the defendant is a 'use."'
Restatement (Third) of Unfair Competition § 40 cmt. c (Am. Law. Inst. 1995). The Restatement
then provides a non-exhaustive list of examples constituting use: "marketing goods that embody
the trade secret, employing the trade secret in manufacturing or production, relying on the trade
secret to assist or accelerate research or development, or soliciting customers through the use of
information that is a trade secret." Id. The Reporters' Note further elaborates that use in tradesecrets law "is not limited to the sale of goods embodying or produced by means of the trade
secret." Id. Reporters Notes cmt. c.
Courts in this District have repeatedly looked to the Third Restatement, and this comment
in particular, for guidance in interpreting the DTSA and its state-law equivalents. See, e.g., Next
Commc'ns, Inc. v. Viber Media, Inc., 2016 WL 1275659, at *4 (S.D.N.Y. 20l6);Advanced
Analytics, Inc. v. Citigroup Glob. Mkts, Inc., 2009 WL 7133660, at *17 (S.D.N.Y. 2009)
(adopting Restatement definition of"use"), report and recommendation adopted in part, rejected
in part, 2010 WL 4780772 (S.D.N.Y. 2010); Saniteq, LLC v. GE Infrastructure Sensing, Inc.,
2018 WL 4522107, at *1 (E.D.N.Y. 2018), report and recommendation adopted, 2018 WL
25
4357475 (E.D.N.Y. 2018). Courts of Appeals around the country have done the same. See
Wellogix, Inc. v. Accenture, L.L.P., 716 F.3d 867, 877 (5th Cir. 2013); JustMed, Inc. v. Byce, 600
F.3d 1118, 1130 (9th Cir. 2010); Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d
714, 728 (7th Cir. 2003).
Once again, there is no dispute that Khandekar' s conduct meets the bill. He exploited
KCG's trade secrets--other Quants' Predictors, including their secret sauce-for his own
enrichment. He admits that he used the trade secrets to increase his own knowledge and skills.
And his enrichment also included potential financial benefits; as discussed above, his
compensation was tied to the profitability of his work for the firm. He thus used KCG' s trade
secrets within the meaning of the Restatement.
Third, Khandekar cites inapt caselaw and advances unavailing arguments in response to
KCG's position. Khandekar points to Jasmine Networks, Inc. v. Marvell Semiconductor, Inc.,
where the alleged appropriator merely "engaged in a conversation ... about a hypothetical
situation about the potential legal implications of using [the plaintiffs] trade secrets." 2013 WL
3776188, at *13 (Cal. Ct. App. July 17, 2013). The Court held that "[a] discussion, in generic
terms, of a company possessing a trade secret" does not constitute use. Id. *40. Here,
Khandekar did not merely discuss possession of a trade secret. Instead, he relied on that trade
secret to develop his knowledge and expertise. The defendant in Jasmine did not engage in any
such conduct. Khandekar also argues that the Court's holding will "effectively impose a gag
order on employees discussing their relevant work experience during a search for employment."
Def. Br. at 23. He goes on to claim that "KCG's claim of improper use applies equally to any
discussion about the Predictors that Khandekar personally developed." Id The Court rejects this
argument. Khandekar did not violate the DTSA by gaining knowledge about trade secrets he
26
worked on, because he did not acquire them through improper means. And the Court does not
rely on Khandekar' s representations to Two Sigma in his resume or in his interviews to find a
DTSA violation.
To be sure, Khandekar is correct that this case touches on "the outer reaches of the
definition of 'use' under the DTSA." Def Br. at 22. The Court has found no case directly
applying "use" under the DTSA, or its state-law equivalents, to this sort of theory. But courts
around the country have recognized that "use" in the Restatement and in trade-secrets law
generally is a "very broad concept." Cognis Corp. v. CHEMCENTRAL Corp., 430 F. Supp. 2d
806,812 (N.D. Ill. 2006); accordBladeRoom Grp. Ltd. v. Emerson Elec. Co., 331 F. Supp. 3d
977, 986-87 (N.D. Cal. 2018). This would be a different case ifKhandekar had merely copied
the Predictors into his personal directory and done nothing more. Yet Khandekar admitsrepeatedly-to using the Predictors to increase his personal knowledge. He thus improperly used
KCG's trade secrets, and therefore misappropriated them under the DTSA. 1 Khandekar thus
violated the DTSA both by improper acquisition and improper use.
C. The Court Need Not Decide Whether KCG is Entitled to Fees
The DTSA provides that "if ... the trade secret was willfully and maliciously
misappropriated" a court may award "reasonable attorney's fees to the prevailing party." 18
U.S.C. § 1836. Because the Court has already awarded KCG attorney's fees under the
Employment Agreement, it need not decide whether KCG is also entitled to them under the
DTSA.
1
Because the Court concludes that Khandekar used KCG's trade secrets by learning from them, it does not
address KCG's alternative argument that Khandekar used its trade secrets by misrepresenting to Two Sigma that he
had experience working on Predictors based on order-book pressure.
27
D. Khandekar Is Not Entitled to Fees
Khandekar also seeks "reasonable attorneys' fees in connection with defending this
action under 18 USC 1836(b)(3)(D) and/or Federal Rule of Civil Procedure 11." Defendant's
Amended Answer, Dkt. No. 90, 1169. The DTSA provides that a court may award fees "if a
claim of the misappropriation is made in bad faith, which may be established by circumstantial
evidence." 18 U.S.C. § 1836(b)(3)(D). Khandekarpresents no evidence, circumstantial or
otherwise, that KCG brought this claim in bad faith. To the contrary, KCG has prevailed in
showing two independent violations of the DTSA. Similarly, Khandekar presents no argument
or evidence warranting Rule 11 sanctions here. The Court therefore denies his counterclaim for
fees.
VI.
KHANDEKAR ALSO VIOLATED NEW YORK STATE TRADE
SECRETS LAW
KCG next argues that Khandekar violated New York's common law governing trade
secrets. To succeed on a misappropriation of trade secrets claim under New York law, a party
must demonstrate "(l) 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 the result of discovery
by improper means." E.J Brooks Co. v. Cambridge Sec. Seals, 31 N.Y.3d 441,452, 105 N.E.3d
301, 310 (2018) (internal quotation marks and citation omitted); accord Faiveley Transp. Malmo
AB v. Wabtec Corp., 559 F.3d 110, 117 (2d Cir. 2009); Elsevier Inc. v. Doctor Evidence, LLC,
2018 WL 557906, at *2-3, (S.D.N.Y. 2018).
The parties do not dispute that Khandekar copied and viewed Predictors containing trade
secrets. And as discussed, Khandekar breached the Employment Agreement and therefore used
improper means to access those trade secrets. Unlike the DTSA, however, New York tradesecrets law does not create liability for mere acquisition. The question comes down, once again,
28
to whether Khandekar used KCG' s trade secrets. And he did-for the same reasons as under the
federal statute. Khandekar analyzed KCG' s trade secrets to increase his personal knowledge and
skillset, thereby using them.
The cases Khandekar cites to the contrary are all inapt, because they involve only
acquisition and no use. For example, in Lewin v. Richard Avedon Foundation, the plaintiff
alleged that the defendant misappropriated a trade secret by stealing a notebook "detailing how
to create certain ... prints," access to which "could [have] provide[d] [the defendant] with the
ability to reproduce impermissibly [plaintiff's] photography." 2015 WL 3948824, *30
(S.D.N.Y. 2015). The Court denied the New York trade-secrets claim because the plaintiff had
not put forward any evidence that the defendant had actually taken photographs of the trade
secrets in the notebook, shared those photographs, or utilized them in any way. Id. at n.25. As
with the federal claim, this would be a different case if Khandekar had merely copied the files
into his directory. But he did far more than copying-he reviewed them, organized them based
on their utility, and extracted useful information from them to develop his expertise.
Khandekar' s claim about staleness fails for the same reason. He argues that because the trade
secrets "are aged," they "have likely grown stale" and thus they are less likely to be used. Def.
Br. at 15. But he provides no facts to support this staleness theory. See Ridinger, 651 F.3d at
317 ("[C]onclusory statements, conjecture, and inadmissible evidence are insufficient to
defeat summary judgment."). And besides, even if the trade secrets are now stale, the undisputed
record demonstrates that Khandekar used them when they were still ripe-and liability attached
at that time. The Court thus concludes that KCG is also entitled to summary judgment on its
state-law trade-secrets claim.
29
VII.
KHANDEKAR DID NOT VIOLATE THE COMPUTER FRAUD AND
ABUSE ACT
KCG next argues that Khandekar violated the Computer Fraud and Abuse Act (CF AA),
and both parties have cross-moved for summary judgment on this issue. Because there is no
genuine dispute that Khandekar did not exceed his authorized access to KCG' s systems, one of
the statute's requirements for liability is not met, and Khandekar is entitled to summary
judgment on this claim.
The CFAA was enacted in 1986 solely as a criminal statute, designed to address the
"then-novel problem of [computer] hacking." Hancock v. Cty. of Rensselaer, 882 F.3d 58, 63
(2d Cir. 2018). Ten years later, Congress added a limited civil cause of action. Fischkoff v.
Iovance Biotherapeutics, Inc., 339 F. Supp. 3d 408, 417-18 (S.D.N.Y. 2018). As relevant here,
the statute provides a cause of action against "Whoever ... intentionally accesses a computer
without authorization or exceeds authorized access, and thereby obtains ... information from
any protected computer." 18 U.S.C. § 1030(a)(2)(C). The CFAA creates many requirements for
civil liability. The Court focuses on one: whether Khandekar accessed KCG's computers
"without authorization or exceed[ed] authorized access" in doing so. Id. The statute defines
"exceeds authorized access" as follows: "The term 'exceeds authorized access' means to access a
computer with authorization and to use such access to obtain or alter information in the computer
that the accesser is not entitled to so obtain or alter." Id § 1030(e)(6).
The meaning of this requirement has been heavily debated and divided the Courts of
Appeals. In 2015, the Second Circuit formulated the standard that governs here. See United
States v. Valle, 807 F.3d 508 (2d Cir. 2015). In Valle, a police officer searched a police database
for an individual's personal information, acting with no law-enforcement purpose. The Court
concluded that the officer did not exceed his authorized access to the Police Department's
30
database. This statutory requirement is met "only when [the defendant] obtains or alters
information that he does not have authorization to access for any purpose which is located on a
computer that he is otherwise authorized to access." Id. at 511. Although Valle was a criminal
case, the Supreme Court has instructed that courts analyzing statutes having "both criminal and
noncriminal applications ... must interpret the statute consistently, whether we encounter its
application in a criminal or noncriminal context." Leocal v. Ashcroft, 543 U.S. 1, 11 n.8 (2004);
see Fischkoff v. Iovance Biotherapeutics, Inc., 339 F. Supp. 3d 408,418 (S.D.N.Y. 2018)
(following the Valle standard in a civil case); cf Leocal v. Ashcroft, 543 U.S. 1, 11 n.8 (2004)
(noting that the rule oflenity applies in both contexts).
Courts have observed that "where an employee has certain access to a computer or
system associated with her job, that access will be construed as unauthorized within the meaning
of the CF AA only where it occurs after the employee is terminated or resigns." Poller v.
BioScrip, Inc., 974 F. Supp. 2d 204,233 (S.D.N.Y. 2013); accord Amphenol Corp. v. Paul, 993
F. Supp. 2d 100, 110 (D. Conn. 2014), affd, 591 Fed. Appx. 34 (2d Cir. 2015). For example, in
Apple Mortgage Corp. v. Barenblatt, the defendants, after resigning, continued to receive emails
on their cell phones because the plaintiff "had not changed the codes on its computer system in
the days following the defendants' resignation." 162 F. Supp. 3d 270,277 (S.D.N.Y. 2016). The
Court denied the defendants' motion for summary judgment on the CFAA claim because there
was "evidence that after the employees resigned[,] they accessed emails from the [employer's]
system on their phones and read, forwarded, or deleted emails," meaning that there was "a triable
issue of fact as to whether they acted 'without authorization' when they accessed, deleted, or
forwarded these emails." Id. The Court in BioScrip succinctly explained this rule as follows:
"No language in the CFAA supports the argument that authorization to use a computer ceases
31
when an employee resolves to use the computer contrary to the employer's interest, so long as
that individual still technically possesses the right of computer access pursuant to his employ. In
other words, exploitative or disloyal access to an employer's computer will not render otherwise
permissible access unauthorized within the CFAA's meaning." BioScrip, Inc., 974 F.Supp.2d at
232 (emphasis added); see also Univ. Sports Pub. Co., 725 F.Supp.2d at 383 ("[A]n employee
with authority to access his employer's computer system does not violate the CFAA by using his
access privileges to misappropriate information.") (citing cases).
Khandekar thus argues that he did not "exceed authorized access" within the statute's
meaning. Def. Br. 34-35. He is correct. The parties do not dispute that Khandekar had
"technical access" to the files at issue. They were no access restrictions in place that he skirted.
There was no decrypting to be done. He used his regular work login to access and copy the files
at issue. To be sure, copying the files was against KCG policy. In that sense, it was
unauthorized. But it was not unauthorized access, nor did it exceed Khandekar's authorized
access, because Khandekar clearly had the ability to copy and view these files. KCG's claim
under the Computer Fraud and Abuse Act thus fails as a matter of law, and Khandekar is entitled
to summary judgment on this issue.
VIII. KCG IS ENTITLED TO A NARROW INJUNCTION
To summarize, Khandekar has breached his Employment Agreement, violated the Defend
Trade Secrets Act, and violated New York trade-secrets law. The Court has awarded KCG
attorney's fees and expenses, including the cost of KCG's investigation into Khandekar's
conduct. The remaining issues are whether KCG is entitled to injunctive relief and, if so, that
relief's scope. The Court concludes that the appropriate relief is to prohibit Khandekar from
using or disseminating the information he obtained from his unauthorized review of trade secrets
while at KCG between November 2016 and May 2017.
32
A. The Requirements for Injunctive Relief Are Met
"To obtain a permanent injunction, a plaintiff must succeed on the merits and show the
absence of an adequate remedy at law and irreparable harm if the relief is not granted." Roach v.
Morse, 440 F.3d 53, 56 (2d Cir. 2006) (internal quotation marks and citation omitted). These
requirements are met here.
To start, KCG has succeeded on the merits: the Court has awarded it summary judgment
on its breach-of-contract claim, its DTSA claim, and its New York common-law claim. It has
also shown that it will be irreparably harmed absent injunctive relief. The Second Circuit has
explained that it is not appropriate to presume irreparable injury "[w]here a misappropriator
seeks only to use [trade] secrets-without further impairment or irreparable impairment in
value-in pursuit of profit." Faiveley Transp. Malmo AB v. Wabtec Corp., 559 F.3d 110, 11819 (2d Cir. 2009). Applying this standard, courts have found a lack of irreparable harm where
"defendants have no incentive to disseminate any trade secrets they may have misappropriated
from plaintiffs, as defendants would want to use that information and maintain its confidentiality
for their own pecuniary benefit." Golden Krust Patties, Inc. v. Bullock, 957 F. Supp. 2d 186, 197
(E.D.N.Y. 2013). However, the Second Circuit has made clear that a "rebuttable presumption of
irreparable harm might be warranted in cases where there is a danger that, unless enjoined, a
misappropriator of trade secrets will disseminate those secrets to a wider audience or otherwise
irreparably impair the value of those secrets." Faiveley, 559 F.3d at 118-19. As one Court
explained, "misappropriation of trade secrets by a competitor is not necessarily irreparable harm,
because that entity is likely motivated to protect the secret to serve its own purposes, and ...
injunctive relief is inappropriate absent incentive to further disseminate or impair the value of the
information." Genworth Fin. Wealth Mgmt., Inc. v. McMullan, 721 F. Supp. 2d 122, 128-29 (D.
Conn. 2010).
33
"Even where a trade secret has not yet been disclosed, irreparable harm may be found
based upon a finding that trade secrets will inevitably be disclosed where, as here, 'the movant
competes directly with the prospective employer and the transient employee possesses highly
confidential or technical knowledge concerning marketing strategies, or the like.'" Estee Lauder
Companies Inc. v. Batra, 430 F.Supp.2d 158, 174 (S.D.N.Y. 2006) (quoting EarthWeb, Inc. v.
Schlack, 71 F.Supp.2d 299,309 (S.D.N.Y. 1999)). The presumption of irreparable harm
afforded trade secrets is particularly appropriate when information at risk of disclosure is highly
technical or can be used only by a few specialized businesses. See, e.g., International Business
Machines Corp. v. Johnson, 629 F.Supp.2d 321, 335 (S.D.N.Y. 2009); International Business
Machines Corp. v. Papermaster, 2008 WL 4974508, at *8 (S.D.N.Y. 2008).
Here, KCG faces irreparable harm because Khandekar does not merely seek to use its
trade secrets or keep them to himself. Instead, if Khandekar resumes producing Predictors for
another financial-services firm, he could disseminate the trade secrets he improperly acquired to
a wider audience-namely, members of his new firm. And this dissemination would also impair
the value of KCG's secrets. Predictors are valuable only because they are proprietary; if other
firms can deduce the same market information from the same set of variables, KCG' s Predictors
would lose their competitive edge. In short, if Khandekar is employed at a financial-services
firm that develops Predictors, he could rely on the knowledge he gleaned from his improper
acquisition and use to develop Predictors predicated on those trade secrets. See Roach v. Morse,
440 F.3d 53, 56 (2d Cir. 2006) ("the question is not whether the plaintiff has suffered irreparable
harm, but whether it will be irreparably harmed in the absence of an injunction. In other words,
the injunction must prevent or remedy the harm."). The Court therefore finds that the irreparableharm requirement is met.
34
Moreover, monetary relief alone would be insufficient to remedy this harm. The Second
Circuit has explained that "an award of damages [may not] provide a complete remedy" ifthere
is "a danger that, unless enjoined, a misappropriator of trade secrets will disseminate those
secrets to a wider audience or otherwise irreparably impair the value of those secrets." Faiveley,
559 F.3d at 118. That is the case here. As noted, if Khandekar uses the Predictors at one of
KCG' s competitors, those secrets would be shared with other employees of that firm. And once
again, this use would also impair the trade secrets' value. Predictors are valuable to KCG
because they allow the firm to execute trades that other players on the market are not. If other
firms begin making the same trades, KCG' s Predictors will lose their competitive advantage and
become less valuable. See Def. Ctr.
,r 2.
The requirements for injunctive relief are thus met.
B. KCG's Requested Injunction is Overbroad, and Narrower Relief is
Appropriate
The Second Circuit has explained that "[i]n all cases, the [injunctive] relief should be
'narrowly tailored to fit specific legal violations' and avoid 'unnecessary burdens on lawful
commercial activity."' Faiveley, 559 F.3d at 119 (quoting Waldman Pub. Corp. v. Landoll, Inc.,
43 F.3d 775, 785 (2d Cir. 1994)). The DTSA provides a similar rule: "In a civil action brought
under this subsection with respect to the misappropriation of a trade secret, a court may ... grant
an injunction ... to prevent any actual or threatened misappropriation described in paragraph (1)
on such terms as the court deems reasonable, provided the order does not- (I) prevent a person
from entering into an employment relationship, and that conditions placed on such employment
shall be based on evidence of threatened misappropriation and not merely on the information the
person knows; or (II) otherwise conflict with an applicable State law prohibiting restraints on the
practice of a lawful profession, trade, or business." 18 U.S.C. § 1836(b)(3)(A). New York law,
in turn, requires that restraints on competition like the proposed injunction here be "no greater
35
than is required for the protection of the legitimate interest of the employer," not impose an
undue hardship on the employee, and not be injurious to the public. BDO Seidman v.
Hirschberg, 93 N.Y.2D 382, 388-89 (N.Y. 1999).
The parties dispute the scope of injunctive relief here. KCG seeks to enjoin Khandekar
from developing Predictors "for his own use or use by any competitors ofKCG for marketmaking." PL Reply Br. at 23. Khandekar argues that this restriction is overbroad, as "it would
enjoin him from developing any kind of Predictor, as opposed to a narrower restriction tailored
to Predictors of the same types as those he worked on or improperly viewed." Id Khandekar
claims that KCG's requested relief would ban him-for life-from working in his desired career.
PL Ctr. ,i 31. KCG minimizes the scope of its requested relief, claiming that the "injunction only
restricts Khandekar from performing one very specific task in a very specific business area-i. e.,
developing Predictors for use in market making activities." PL Ctr. ,i 31. To the contrary, says
KCG, Khandekar is well-qualified for other types of employment in the financial-services
industry, in which he could utilize his skills like quantitative methods and statistical analysis. Id.
i!i\31,32.
The Court agrees that KCG' s requested relief is overbroad. It would prohibit Khandekar
from working on Predictors in any capacity, in perpetuity. Yet the parties agree that this was
Khandekar's primary role at KCG, and would have been his role at Two Sigma. Such an
injunction would foreclose him from this chosen career path. KCG is correct that he could seek
other types of employment in the same industry, but that misstates the level of generality of this
inquiry. For example, prohibiting a trial attorney from practicing litigation is no less intrusive
because she could in theory also practice transactional law. The same is true here, and KCG's
requested relief would thus impose substantial hardship on Khandekar. KCG bears the burden to
36
show why this restriction is needed, as opposed to the narrower restriction of prohibiting
Khandekar from using the knowledge he improperly gained from other Quants' Predictors.
KCG provides two reasons why the Court should enjoin Khandekar from developing any
Predictors, as opposed to this narrower restriction. First, it claims that "Khandekar has
demonstrated his willingness to misappropriate KCG's information; therefore, he cannot be
trusted to develop only new Predictors that are entirely unrelated to the ones he improperly
acquired from KCG." Second, it argues that the injunction "cannot be restricted by Predictor
type because KCG would no way of monitoring Khandekar's compliance with such a
restriction." Id Neither argument is persuasive. To start, previous misappropriation by a
defendant-and his "untrustworthiness" as a result--cannot justify the breadth of an injunction.
In any case in which the Court is considering injunctive relief, the plaintiff will have prevailed
on the merits and have shown misappropriation. KCG bears the burden to show why the specific
relief it requests is appropriately tailored and does not impose an undue hardship, and this
argument fails to move the ball. KCG' s compliance argument is similarly without merit. It has
introduced no facts into the record proving this monitoring problem. It also provides no
authority for the proposition that a purported inability to monitor compliance by itself justifies
such overbreadth. And this is a slippery slope-many trade-secret cases involve industries with
potential monitoring difficulties, yet every injunction in such cases cannot be industry-wide. The
narrower injunction is all that is warranted to "to prevent any actual or threatened
misappropriation" ofKCG's trade secrets. 18 U.S.C. § 1836(b)(3)(A). The Court thus
concludes that the appropriate relief is to prohibit Khandekar from using or disseminating the
information he obtained from his unauthorized review of trade secrets while at KCG.
37
IX.
CONCLUSION
The Court grants and denies summary judgment in part to each party. KCG is entitled to
summary judgment on its breach-of-contract, DTSA, and New York common-law claim. KCG
is also entitled to summary judgment on Khandekar' s breach-of-contract and bad-faith
counterclaims. Khandekar is entitled to summary judgment on KCG' s CFAA claim. This
resolves Dkt. Nos. 114 and 129.
Khandekar is ORDERED to pay KCG's attorney's fees, costs, and expenses, including its
investigation costs. Khandekar is further ENJOINED from using or disseminating, in any way,
the trade secrets he reviewed without authorization at KCG between November 2016 and May
2017.
SO ORDERED.
Dated: March~-- 2020
New York, New York
ALISON J. NATHAN
United States District Judge
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