Software Trade Secrets and Sanctions

On February 6, 2014, in Trade Secrets, by Brian A. Hall

UnIntellectual Property (UnIP): Software Trade Secret

The United States District Court for the Northern District of Georgia struck plaintiff software developer’s action against competitor for misappropriation of the software developer’s trade secrets, and in doing so granted Rule 11 sanctions.  As always, these trade secret cases are fact intensive.  “Both develop customer-relationship management software and license it to companies in the home care or hospice industry. Homecare and PlayMaker each have a core software product and an add-on program that allows customers to access even more information. Homecare’s core product is “HomecareCRM,” and its add-on software is called “Harvest.” PlayMaker’s core product is “PlayMaker CRM,” and its add-on software is called “TargetWatch.” The programs, among other things, allow the parties’ respective customers to access and filter medical claims data in order to find potential clients. The parties’ current clash involves Harvest and TargetWatch.”  Plaintiff’s position, as set forth in its Complaint, was that defendant “misappropriate[ed] significant portions of [Homecare’s] proprietary software solutions, including the manner in which [Homecare’s] software analyzes, compiles, presents and displays data on home health care referral sources, and using that information to design and develop competing software solutions.”

The Court applied Rule 11 and analyzed whether the trade secret misappropriation claim “(1) has no reasonable factual basis; (2) is based on a legal theory that has no reasonable chance of success and that cannot be advanced as a reasonable argument to change existing law; and (3) is filed in bad faith for an improper purpose.”  The Court focused on documents within Plaintiff’s own possession, which showed that “Homecare accessed PlayMaker’s software in March 2012, several months before it filed this action, and used its access to put together a matrix that compared the features of HomecareCRM and Harvest with the features of PlayMaker CRM and TargetWatch. The final matrix was completed on April 12, 2012 and contains a section that compares only Harvest and TargetWatch. At the end of this section, there is a paragraph entitled “Intellectual Property Concerns” which concludes that Homecare had “no intellectual property concerns” about TargetWatch. Understandably, PlayMaker is baffled that Homecare then alleged in its complaint two months later that TargetWatch suggests or shows that PlayMaker misappropriated Harvest.”

Put simply, the fact that plaintiff’s own documentation had previously shown their knowledge of, analysis of, and determination that there was no legal issue was sufficient to warrant sanctions.

This decision highlights the risk of bringing a specious trade secret claim out of hate for another party.  Courts will often look at what the party knew or should have known at the time of filing a Complaint.  When documents without the plantiff’s possession are contrary to the position taken in the Complaint, it is hardly surprising that sanctions were awarded.  Software trade secret misappropriation matters are complex enough without allegations of frivolousness.

Homecare CRM, LLC v. Adam Grp., Inc. of Middle Tennessee, 952 F. Supp. 2d 1373, 1375-76 (N.D. Ga. 2013).


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