UnIntellectual Property (UnIP): Trade Secret for Source Code and Other Deliverables

The United States District Court of the Southern District of New York has granted a defendant’s motion to dismiss a lawsuit involving claims of copyright infringement and trade secret misappropriation.  The lawsuit arose after Plaintiff was hired to create a website for an entity that shared employees and facilities with Defendant.  When Defendant failed to pay, Plaintiff sued.  At issue in the motion to dismiss was whether Plaintiff has properly pled causes of action for copyright infringement and trade secret misappropriation.

The Court first disposed of the copyright claim, despite Plaintiff having filed for a copyright registration.  It is worth noting that Plaintiff’s copyright registration was limited to text, not the claimed code and other Deliverables.  The Plaintiff’s copyright infringement claim, however, relied upon an entire list of Deliverables containing both copyrightable subject matter and non-copyrightable subject matter.  This, the Court held, was not sufficient to provide notice as to which Deliverables are eligible for copyright protection and, of those, which are registered.  Thus, it dismissed the copyright infringement claim.

With respect to the trade secrets, the Court recognized that there was insufficient particularity in the pleadings.  More importantly, the Court recognized Plaintiff’s copyright registration and held that it would necessarily require public disclosure of the alleged secrets.  Thus, no trade secret could exist.  Moreover, the Court also stressed that Plaintiff “does not explain how source code AI wrote for, and delivered to, Adorama would constitute “information which is used in [AI’s] business,” a necessary element of trade secret status, nor does it explain how that information would provide AI with “an opportunity to obtain an advantage over competitors who do not know or use it.””  Put another way, the Court found that since the source code was created for Defendant, and not used by Plaintiff, it was not Plaintiff’s trade secret, especially given the failure to identify the same in the contract between the parties. 

The Court did allow for amendment, which would necessarily require greater specificity with respect to the trade secret claim.  My belief is that the Plaintiff would have to show that whatever it claims was not publicly disclosed to the U.S. Copyright Office, identify what alleged trade secret was owned by Plaintiff as part of its preexisting toolkit that would not be publicly available through Defendants or any previous customers website (especially the source code) and establish proof of its own use for a competitive advantage.  While doing so may get it beyond a motion to dismiss stage, I have a strong belief a motion for summary judgment would be forthcoming on what appears to be a difficult claim to establish, especially given this ruling to date.

Alexander Interactive, Inc. v. Leisure Pro Ltd., 14-CV-2796 PKC, 2014 WL 4651942 (S.D.N.Y. Sept. 16, 2014).


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