Mutual Minds, LLC v. Shelly et al
MEMORANDUM (Order to follow as separate docket entry) re 46 MOTION to Bifurcate Discovery filed by iDrive Interactive, LLC, Parents for Cheaper Living, LLC Signed by Magistrate Judge Joseph F. Saporito, Jr on 3/8/17. (ms)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
MUTUAL MINDS, LLC, a
California limited liability
TRON SHELLY, an individual; :
RICK MILLER, an individual; :
iDRIVE INTERACTIVE, LLC, :
a Pennsylvania limited liability :
company; PARENTS FOR
CHEAPER LIVING, LLC, a
Virginia limited liability
company; and DOES 1 through :
This matter is before us on the motion to bifurcate discovery (Doc.
46) filed by the defendants, iDrive Interactive, LLC and Parents for
Cheaper Living, LLC (collectively, the “defendants”). The plaintiff, Mutual
Minds, LLC, in its first amended complaint (Doc. 25), alleges that the
defendants misappropriated its trade secrets in violation of the
Pennsylvania Uniform Trade Secrets Act, 12 Pa. Cons. Stat. § 5301
(“PUTSA”) by using information disclosed to the defendants in connection
with their advertising relationship to establish competing websites. The
motion has been fully briefed and is ripe for disposition. For the reasons
set forth below, the motion will be denied.
As we write exclusively for the parties, the facts of this litigation are
known to them. We will recite only those facts necessary for a resolution
of the motion. In its first amended complaint (Doc. 25), the plaintiff has
alleged that it “creates and develops online communities for people that
have common interests and provides those individuals with content
targeted to their demographic.” (Doc. 25 ¶¶ 3,15). Further, the plaintiff
generates revenue from designated websites by partnering with
advertising networks to place advertisements on plaintiff’s websites. (Id.)
From 2011 to 2014, the plaintiff and defendant, iDrive, entered into a
business relationship whereby plaintiff would post iDrive advertisements
on its websites. The plaintiff would receive a portion of the revenue
generated through users clicking on iDrive advertisements from the
plaintiff’s websites and taking action such as purchasing the advertised
products. (Id. ¶18). The process is called “conversion.” (Id. ¶1b). The
conversion rates of advertisements reveal which advertisements generate
the most revenue.
(Id. ¶1c). Conversion rates are used to determine
which attributes of plaintiff’s websites are most attractive to users.
Incident to its business relationship with the plaintiff, iDrive was
given access to “a detailed description of the plaintiff’s target
demographics, information regarding Mutual Minds members, such as
members’ unique IP addresses, and detailed information regarding
member preferences and the type of advertisements most likely to lead to
sales as reflected in conversion rates, earnings-per-click data, complete
questionnaire information for each member that converted into a sale, and
back-end enrollment statistics” (the “trade secrets”). (Id. ¶ 20). This
information comprises the trade secrets that plaintiff alleges defendants
The plaintiff asserts that it generated these trade secrets “through
its own testing, know-how, and efforts related to website design, content
placement, advertisement placement, and other things.” (Id. ¶ 21). Much
of the information was not submitted to iDrive by end-user customers, and
plaintiff disclosed this information to iDrive only for the purposes of
iDrive’s advertisement delivery. (Id. ¶ 21, 23). The plaintiff stored the
trade secrets “on secure, password protected servers, implement[ed]
policies preventing unauthorized disclosure to third parties, and
restrict[ed] access to the trade secrets to only those with a need to know.”
(Id. ¶ 24). Further, plaintiff asserts that “the trade secrets were developed
through plaintiff’s expenditure of significant time, effort, money, and
resources” and that the use of this information generated hundreds of
thousands of dollars for the Defendants. (Id. ¶¶ 24, 22).
During the summer of 2014, Rick Miller, co-founder and president
of iDrive, “suggested that iDrive copy” the plaintiff’s websites. (Id. ¶ 25).
While still in an advertising relationship with the plaintiff, and
unbeknownst to it, defendants established competing websites that
“target[s] the very demographics [plaintiff] targets, communicate[s] with
members the same way as [plaintiff], and cop[ies] in wholesale fashion the
source code of the Websites and the timing, type, and placement of
content.” (Id. ¶ 26). One example of defendants’ websites is Parents for
Cheaper Living, which targets single parents in the same manner of
plaintiff’s website, www.spaoa.org. (Id. ¶ 26). The plaintiff confronted
Tron Shelly, co-founder and Executive Vice President of iDrive, who
“admitted that iDrive had always wanted to own [its] own site, that iDrive
had copied [plaintiff’s] website” and “that there was nothing that
[plaintiff] could do about it.” (Id. ¶ 29).
During the time that defendants established competing websites,
defendants required that plaintiff consent to new business terms for the
advertising arrangement, and refused plaintiff access to iDrive’s online
portal unless plaintiff assented to new terms. (Id. ¶ 27).
Further, the plaintiff alleged that conversion rates and consumer
information were given to defendant, iDrive, pursuant to a business
relationship that the plaintiff regarded as confidential. (Doc. ¶¶25, 20, 23).
The plaintiff alleged that the defendants used the plaintiff’s trade secrets
to develop a competing website without the plaintiff’s consent. (Id. ¶26).
The plaintiff further alleged that the defendants’ use of the trade secrets
caused website traffic to be diverted from plaintiff’s websites and to the
defendants’ websites, resulting in lost revenue. (Id. ¶32).
The defendants filed the instant motion on January 24, 2017,
requesting bifurcated discovery. They believe that discovery should be
bifurcated into two phases: (1) the existence and scope of plaintiff’s trade
secrets, and (2) whether there was misappropriation by defendants and
resulting damage to the plaintiff. (Doc. 47, at 2). Further, the defendants
claim that there is good cause for bifurcation because (1) the plaintiff has
not identified its trade secrets; (2) bifurcation will allow for an expedient
and efficient resolution of the case; (3) it will avoid prejudice to the
defendants by avoiding unnecessary disclosure of the defendants’ sensitive
and trade secret information; and (4) the plaintiff will not be prejudiced
as the proposed phases involve distinct facts.
The plaintiff opposes the defendants’ motion for bifurcation
contending that (1) it has adequately described its trade secrets; (2) it will
be prejudiced by needlessly duplicating legal fees; (3) granting the motion
will invite unnecessary discovery disputes; (4) it will potentially delay
trial on the merits; and bifurcation of discovery would not secure the just,
speedy, and inexpensive determination of this action under Fed. R. Civ.
P. 1. (Doc. 48, at 1-2).
We are guided by Fed. R. Civ. P. 26(b) which is set out as follows:
Parties may obtain discovery regarding any
nonprivileged matter that is relevant to any party's
claim or defense and proportional to the needs of
the case, considering the importance of the issues
at stake in the action, the amount in controversy,
the parties' relative access to relevant information,
the parties' resources, the importance of the
discovery in resolving the issues, and whether the
burden or expense of the proposed discovery
outweighs its likely benefit.
In addition, Fed. R. Civ. P. 26(c)(1)(G) permits a party from whom
discovery is sought to move for a protective order upon good cause shown
to protect a party from requiring that a trade secret or other confidential
research, development, or commercial information not be revealed or be
revealed only in a specified way. A decision to bifurcate discovery is a
matter that falls within the discretion of the court and is to be decided on
a case by case basis. Barr Laboratories v. Abbot Laboratories, 978 F. 2d 98,
115 (3d Cir. 1992).
We begin our analysis with the necessary elements to establish a
plausible claim for relief under the PUTSA. The plaintiff must allege: “(1)
the existence of a trade secret; (2) communication of the trade secret
pursuant to a confidential relationship; (3) use of the trade secret, in
violation of that confidence; and (4) harm to the plaintiff.” Moore v.
Kulicke & Soffa Indus., 318 F.3d 561, 566 (3d Cir. 2003) (summary
judgment decision reciting elements of PUTSA).
As the defendants urge us to grant bifurcation of discovery because
they claim that the plaintiff has failed to adequately identify the existence
of a trade secret, we look to the district court’s decision denying the
defendants’ motion to dismiss. (Doc. 35). In ruling upon the defendants’
motion to dismiss the first amended complaint (Doc. 31), the district court
denied the motion as to the plaintiff’s misappropriation of its trade secrets
count under the PUTSA. (Doc. 35). There, the court held that the plaintiff
pled a sufficiently detailed description of the trade secrets, including
conversion rates and consumer information. (Doc. 25 ¶20; Doc. 3, at 10).
The plaintiff described the trade secrets as follows:
The Trade Secrets include, but are not limited to, a
detailed description of Mutual Minds’ target
demographics information regarding Mutual Minds
members, such as members’ unique IP addresses and
detailed information regarding member preferences and
the types of advertisements most likely to lead to sales
as reflected in conversion rates, earnings-per-click data,
complete questionnaire information for each member
that converted into a sale, and back-end enrollment
(Doc. 25 ¶20).
Under the PUTSA, a trade secret is defined as follows: “Information,
including a formula, drawing, pattern, compilation including a customer
list, program, device, method, technique or process that (1) Derives
independent economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other
persons who can obtain economic value from its disclosure or use; (2) Is
the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.” 12 Pa. Cons. Stat. Ann. § 5302. Where the state
of the record failed to establish whether the information purportedly
taken does, in fact, constitute trade secrets, courts are disinclined to make
such a determination without the benefit of a fully developed record. See
Cunningham Lindsey v. Bonnani, No. 13-cv-2528, 2014 WL 1612632 (M.D.
Pa. Apr. 22, 2014); Alpha Pro Tech, Inc. v. VWR Int’l LLC, 984 F. Supp. 2d
425, 447 (E.D. Pa. 2013). To prevail under the PUTSA, it is the plaintiff’s
burden to demonstrate the existence of a trade secret, and that
determination requires discovery. Hecht v. Baby Age.com, No. 10-cv-724,
2010 WL 3940882, at *13 (M.D. Pa. Oct. 6, 2010); Advanced Fluid
Systems, Inc. v. Huber, 28 F. Supp. 3d 306, 325 (2014).
The thrust of the defendants’ argument is that bifurcation of
discovery is the best means for a just, speedy, and efficient resolution of
this action as limited discovery in the proposed first phase (i.e. the
identity of plaintiff’s trade secrets) will confirm whether the plaintiff can
meet the threshold issue of having trade secrets. (Doc. 47, at 9). At the
conclusion of the proposed first phase of discovery, the defendants intend
to file a motion for summary judgment. (Id. at 11). If we grant bifurcation
of discovery as proposed by the defendants, and if the plaintiff later
defeats a defense motion for summary judgment, the parties and counsel
would be required to conduct discovery a second time, and in many
instances with the same witnesses. The defendants could possibly file
another motion for summary judgment at the conclusion of the proposed
second phase of discovery thereby increasing litigation costs. We find that
bifurcation may increase the expenses of this litigation as well as prolong
an otherwise potentially protracted litigation.
Further, the defendants contend that without bifurcation, they will
be unduly prejudiced because their trade secrets and sensitive information
will be unnecessarily disclosed. We do not agree. Discovery is usually
conducted by the parties in private, outside of the public’s view. See
Seattle Times Co. v. Rhinehart, 467 U.S. 20, 33 (1984); cf. Leucadia, Inc.
v. Applied Extrusions Techs., Inc., 998 F.2d 157, 165 (3d Cir. 1993)
(“[T]here is a presumptive [common law] right to public access to all
material filed in connection with non discovery pretrial matters, . . . . but
no such right as to discovery motions and their supporting documents.”).
A party seeking a protective order over discovery materials must
demonstrate that “good cause” exists for the protection of that material.
Fed. R. Civ. P. 26(c); Pansy v. Borough of Stroudsburg, 23 F.3d 772, 786
(3d Cir. 1994); Glenmede Trust Co. v. Thompson, 56 F.3d 476, 483 (3d Cir.
1995). “Good cause” is established when it is specifically demonstrated
that disclosure will cause a clearly defined and serious injury. Pansy, 23
F.3d at 786; Glenmede Trust Co., 56 F.3d at 483.
On June 29, 2016, the court, having found good cause, approved a
confidentiality stipulation and protective order (the “protective order”)
signed by counsel for the parties. (Doc. 30). The protective order permits
the parties to designate certain information as either “Confidential” or
“Highly Confidential-Attorneys’ eyes only.” (Doc. 30 ¶3). Excluded from
these restrictions is information or tangible items which are or were
within public knowledge through lawful means. (Id.).
Information may be designated “Confidential” upon the good faith
belief that the information contains trade secrets, know-how, proprietary
data, other technical, commercial, business, or financial information.
Other sensitive information may be designated as “Highly ConfidentialAttorneys’ Eyes Only” if it contains information that meets the
requirements for the designation as “Confidential” and is extremely
sensitive in nature. Information in that category includes trade secrets of
either party, consumer information (including members’ unique IP
addresses, conversion rates, and underlying data comprising those
conversion rates). (Id. ¶5). All information marked “Confidential,” and
“Highly Confidential-Attorneys’ Eyes Only” shall be used solely in this
action, including all appeals, and shall not be used in any business or
competitive purpose, or in any other litigation or legal proceeding. (Id. at
¶14). Thus we find that, the protective order contains many safe-guards
and provisions designed to protect the confidentiality and integrity of the
marked information. If the parties contend that a violation of the
protective order occurred, they are free to bring the matter before the
court if they are unable to resolve the dispute. Therefore, we will deny the
motion to bifurcate discovery.
An appropriate order follows.
s/ Joseph F. Saporito, Jr.
JOSEPH F. SAPORITO, JR.
United States Magistrate Judge
Dated: March 8, 2017
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