IP Law Daily Digital marketing company’s trade secret misappropriation claims against competitor survive dismissal
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Wednesday, April 29, 2020

Digital marketing company’s trade secret misappropriation claims against competitor survive dismissal

By John W. Scanlan, J.D.

The plaintiffs had no standing to assert a cause of action for misappropriation of trade secrets prior to the execution of their asset purchase agreement because they had no interest in the trade secrets until that date.

A digital marketing company and related companies could maintain federal and state trade secret misappropriation claims against a former executive of another company from which they purchased certain assets and the competing company that he founded because they sufficiently alleged that the executive took trade secret information with him to use at his new company, the federal district court in Fort Meyers, Florida, ruled in largely denying motions to dismiss filed by the executive and his new company. The court also turned back challenges to personal jurisdiction and venue (Spigot, Inc. v. Hoggatt, April 23, 2020, Steele, J.).

Adknowledge, Inc., which is not a party to this case, is a large digital advertising network and software development company. It operates interconnected business channels to share proprietary information, including "the Apps Channel," which concentrates on the development of software and browser applications and extensions for desktop computers and mobile phones, and the "Email Channel," which concentrates on monetizing emails and management of email. The Apps Channel developed a number of trade secrets, including a Life Time Model (LTV) and LTV power curve, proprietary desktop extension products, business strategies and methods, and advertising and marketing strategies. Jeremy Matthew Hoggatt, an Adknowledge executive, had access to Acknowledge trade secrets through his receipt of emails and attendance at meetings.

On September 21, 2016, Spigot, Inc., Polarity Technologies, Inc., and Eightpoint Technologies, Inc. (the plaintiffs) executed an asset purchase agreement in which they purchased the App Channel trade secrets and other Acknowledge assets. This agreement contained a non-competition clause prohibiting use of the trade secrets that the plaintiffs acquired. After the purchase, all of the App Channel employees joined Spigot to continue to work on the acquired assets; Hoggatt did not leave at that time. However, in October 2017, Hoggart left Adknowledge to form Mediavo, Inc., a competing digital marketing firm. According to the plaintiffs, Hoggart "aggregated" and "improperly collected" Adknowledge trade secrets, confidential strategies, and customer lists, and used them at Mediavo.

The plaintiffs filed suit against Mediavo and Hoggatt, alleging that they violated the Florida Uniform Trade Secrets Act (FUTSA) and the federal Defend Trade Secrets Act (DTSA). The defendants moved to dismiss, arguing that the court lacked personal jurisdiction over them, venue was improper, and the complaint failed to state a claim against them. According to the defendants, they could not be held liable for any alleged misappropriation that occurred before the May 11, 2016, effective date for DTSA; the alleged trade secret information did not qualify as trade secrets under either the FUTSA or DTSA, and the complaint alleged only access to trade secrets rather than misappropriation.

Post-DTSA misappropriation of trade secrets. The court found that the plaintiffs sufficiently alleged misappropriation of trade secrets that occurred after the enactment of the DTSA and their acquisition of the trade secrets. The court dismissed the federal count to the extent that it alleged a cause of action based on conduct occurring prior to the DTSA effective date because the Act applies only to acts that occur on or after that date. Based upon Hoggatt’s deposition testimony, the defendants argued that the plaintiff’s complaint relied upon Hoggatt’s acquisition of the relevant information during meetings in Florida that took place in October 2015 and April 2016, both of which pre-dated the DTSA. While the court found that it could not consider evidence beyond the complaint, it observed that there was no federal cause of action before May 11, 2016, and that the plaintiffs had no interest in the trade secrets under either federal or state law until the execution of the asset purchase agreement on September 21, 2016. It disagreed with the plaintiffs’ contention that they could recover under DTSA for the defendants’ pre-DTSA wrongful acts, although it noted that evidence of those acts could be relevant.

The court went on to find that plaintiffs made various allegations in their complaint that Hoggart "unlawfully absconded" with their trade secrets when he left Adknowledge in 2017 and formed Mediavo to use these secrets to further his new business. These allegations were sufficient to allege misappropriation of trade secrets under both state and federal law.

Trade secrets. The plaintiffs sufficiently alleged that the information at issue was secret and that reasonable efforts had been taken to protect their secrecy. Although the defendants disagreed with the plaintiffs’ allegations that the information was not generally known and not readily ascertainable by proper means, the court would not resolve questions of fact when deciding a motion to dismiss. The complaint also alleged that both the plaintiffs and Adknowledge had taken a number of steps to protect the secrecy of the information. Adknowledge had required employees to sign confidentiality agreements, developed policies and guidelines to protect confidentiality, and used technical means to limit access. The asset purchase agreement provided that all App Channel employees left Adknowledge to work for Spigot on the purchased assets and contained a non-compete clause to prevent "seller restricted parties" from using the trade secrets. The plaintiffs also specifically alleged that they also had used all reasonable steps to safeguard the secrecy of this information, including non-disclosure agreements and passwords. Whether these allegations were accurate would not be proper for the court to address on a motion to dismiss, it said, noting that at this stage it was to view the allegations in favor of the plaintiffs.

Wrongfully acquired. The complaint sufficiently alleged that the trade secrets had been acquired by improper means. The state and federal statutes defined "improper means" as including theft and breach of duty to maintain confidentiality. The court observed that the defendants were correct in asserting that the complaint did not specifically use the word "theft," but it was a reasonable inference from the allegations that Hoggatt "aggregated" and took the trade secrets with him after the plaintiffs had purchased them and used them at Mediavo to compete with the plaintiffs. Furthermore, the statutes also defined misappropriation as including disclosures or uses of trade secret by a qualifying person, and the complaint alleged that Hoggart was bound by the asset purchase agreement’s non-compete clause because he was a qualifying person, and he had breached a duty created by this clause.

Personal jurisdiction/venue. Finally, the court determined that it had personal jurisdiction over the defendants and that venue was proper in Florida. The plaintiffs satisfied the requirements of the Florida long-arm statute because they had plausibly asserted causes of action under FUTSA and DTSA that arose from the business conducted in Florida post-DTSA. The defendants conceded that they solicited business in Florida and the plaintiffs alleged that they used the strategies and other trade secrets as part of these solicitations. Exercising jurisdiction over them in Florida would not violate due process because they had more than slight contacts with the state and the defendants were alleged to have used the plaintiffs’ trade secrets to compete with them in Florida. The defendants did not show that it would be unfair to them to litigate the claims in Florida rather than in Missouri, which they preferred. The court concluded that venue was proper in the Middle District of Florida because a substantial part of the events giving rise the claims took place there; the defendants had argued that a substantial part of the alleged events took place outside of Florida, but whether more of the events took place in Florida or Missouri was not at issue.

This case is No. 2:18-cv-00764-JES-NPM.

Attorneys: Christopher W. Healy (Reed Smith LLP) for Spigot, Inc., Polarity Technologies Ltd., and Eightpoint Technologies Ltd. Joshua Saltz (Peretz, Chesal & Herrmann, PL) for Jeremy Matthew Hoggatt and Mediavo, Inc.

Companies: Spigot, Inc.; Polarity Technologies Ltd.; Eightpoint Technologies Ltd.; Mediavo, Inc.

MainStory: TopStory TradeSecrets GCNNews FloridaNews

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