Opinion
00 Civ. 7242 (SAS)
February 15, 2002
Attorney(s) for Plaintiff, Irving B. Levinson, Esq., Piper Marbury Rudnick Wolfe L.L.P., Chicago, Illinois. Joseph G. Finnerty, Jr., Esq. Michael R. Hepworth, Esq. Piper Marbury Rudnick Wolfe L.L.P., New York, New York.
Attorney(s) for Defendant, Steven M. Bierman, Esq. Sidley Austin Brown Wood, New York, New York. Richard J. O'Brien, Esq., Paul E. Veith, Esq. Sidley Austin Brown Wood, Chicago, Illinois.
OPINION AND ORDER
On September 25, 2000, LinkCo, Inc. sued Fujitsu Ltd. for 1) misappropriation of trade secrets, 2) conversion, 3) unfair competition, 4) intentional interference with contractual relations with two of its employees, and 5) violation of Massachusetts General Laws ch. 93, §§ 12 and 42. Fujitsu now moves for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure on LinkCo's claim for misappropriation of trade secrets. For the reasons stated below, defendant's motion is denied.
I. FACTUAL BACKGROUND
In 1995, Messrs. David Israel-Rosen and Oded Maimon founded LinkCo in response to an announcement by the Japanese Ministry of Finance that it sought to adopt an electronic filing and reporting system similar to the EDGAR system used by the U.S. Securities and Exchange Commission ("SEC"). See Defendant's Rule 56.1 Statement ("Def. 56.1") ¶¶ 1, 3; Plaintiff's Rule 56.1 Statement ("Pl. 56.1") ¶ 1.
EDGAR stands for Electronic Data Gathering, Analysis, and Retrieval. It is an electronic filing system containing registration statements, periodic financial reports, and other financial information. All publicly held companies in the United States are required to report this information to the SEC. The information is then made available to the public, for no charge, at http://www.sec.gov/edgar.shtml.
From 1995-1997, LinkCo designed a number of software products, including YuhoStation (a data collation and processing program), JapanInfoBase (a system to convert paper filings into a readable electronic format), an Organizational Chart System (a database of organizational charts of Japanese businesses), and TanshinStation (a "three-tier system for entry, storage, update, and analysis" or corporate reports). See Complaint ("Compl.") ¶¶ 4-6; Pl. 56.1 ¶ 7; Def. 56.1 ¶ 14.
In May 1996, LinkCo hired Kyoto Kanda. See Compl. ¶ 21. LinkCo and Kanda immediately executed non-competition and nondisclosure agreements.See id.; Pl. 56.1 ¶ 103. That same month, LinkCo formed a wholly owned subsidiary, LinkCo Japan, of which Kanda was made president in early 1997. Kanda also became a Vice President of LinkCo and had full access to all of LinkCo's technology, research, marketing plans, and financial information. See Pl. 56.1 ¶ 104. Kanda remained with LinkCo until December 31, 1997. See 12/2/01 Affidavit of David Israel-Rosen, President of LinkCo ("Israel-Rosen Aff.") ¶ 12.
See Pl. 56.1 ¶ 102. At the time of its September 1997 meeting with LinkCo, Fujitsu was aware that Kanda was President of LinkCo Japan.See 6/8/01 Deposition of Masayasu Tamura, Fujitsu employee ("Tamura Dep."), Ex. K to 12/4/01 Affidavit of Mindy J. Nam, Fujitsu's attorney ("Nam Aff."), at 58.
Fujitsu is a Japanese company that also began investigating "business opportunities in the corporate disclosure field." Def. 56.1 ¶ 33. LinkCo and Fujitsu began discussing a possible collaboration, and the two parties met on September 10, 1997. See Pl. 56.1 ¶ 97; 10/30/01 Deposition of Fujitsu's Expert Witness Randall Davis ("Davis Dep."), Ex. C to Nam Aff., at 94. In an internal memorandum relating to the meeting, Fujitsu expressed interest in LinkCo's technology. See Undated Fujitsu Memorandum Concerning 9/10/97 Visit by LinkCo to Fujitsu, Ex. 0 to Nam Aff.
Shortly after the September meeting, however, Fujitsu informed LinkCo that it had no further interest in LinkCo's software or business plans, and stopped returning LinkCo's phone calls. See Pl. 56.1 ¶ 101. Fujitsu, however, "had an interest in Mr. Kanda." 5/12/00 Deposition of Takeshi Ito, Fujitsu manager ("Ito Dep."), Ex. E to Nam Aff., at 47. Beginning in December 1997, Fujitsu met secretly with Kanda and Professor Ajit Kambil in New York. See Pl. 56.1 ¶¶ 29, 118; Davis Dep., Ex. C to Nam Aff., at 94; Ito Dep., Ex. E to Nam Aff., at 227-229.
LinkCo alleges that at these meetings, Fujitsu obtained trade secrets and confidential information about LinkCo's technology in violation of Kanda's and Kambil's nondisclosure agreements. See Pl. 56.1 ¶¶ 20-34, 102-113. LinkCo ceased operations in December 1997. See Def. 56.1 ¶¶ 4, 24; Plaintiff's Response to Defendant's Statement of Material Facts Pursuant to Local Rule 56.1 ¶¶ 4, 24. Fujitsu eventually hired Kanda to perform research and act as a consultant from 1998 to 2000. See 4/23/01 Deposition of Toru Shibata, Fujitsu supervisor ("Shibata Dep."), Ex. J to Nam Aff., at 112-113; see also Pl. 56.1 ¶¶ 114-115; Defendant's Response to Plaintiff's First Set of Requests for Admissions, Ex. B to 12/5/01 Affidavit of Irving B. Levinson, ¶ 199.
On March 31, 1999, Fujitsu announced that it had developed DisclosureVision, a software package that performed much the same functions as LinkCo's software programs. See Compl. ¶ 12; Def. 56.1 ¶ 34. LinkCo alleges that certain elements of DisclosureVision are copies of its technology, "virtually identical in design and substance." Compl. ¶ 46; see also Pl. 56.1 ¶¶ 20-34; Def. 56.1 ¶ 48. Indeed, LinkCo claims that "virtually every significant element of Fujitsu's DisclosureVision was stolen from LinkCo's Technology." Compl. ¶ 48; see also Pl. 56.1 ¶¶ 20-34.
II. LEGAL STANDARD
Rule 56 provides for summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). "An issue of fact is 'material' for these purposes if it might affect the outcome of the suit under the governing law [while] an issue of fact is "genuine' if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Shade v. Hous. Auth. of City of New Haven, 251 F.3d 307, 314 (2d Cir. 2001) (internal quotations and citations omitted). "In determining whether a genuine issue of material fact exists, a court must resolve all ambiguities and draw all reasonable inferences against the moving party."Flanigan v. General Elec. Co., 242 F.3d 78, 83 (2d Cir. 2001).
III. DISCUSSION
To succeed on a claim for misappropriation of trade secrets under New York law LinkCo must demonstrate: "(1) 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 a result of discovery by improper means." North Atl. Instruments, Inc. v. Haber, 188 F.3d 38, 43-44 (2d Cir. 1999).
Both parties agree that New York law applies in this case. See Memorandum in Support of Defendant's Motion for Partial Summary Judgment ("Def. Mem.") at 9 n. 8; Plaintiff's Memorandum of Law in Opposition to Motion for Partial Summary Judgment ("Pl. Opp.") at 13-18, 21-22, 24.
A. Whether LinkCo Possesses a Trade Secret
A "trade secret is 'any formula, pattern, device or compilation of information which is used in one's business, and which gives [the owner] an opportunity to obtain an advantage over competitors who do not know or use it.'" Softel, Inc. v. Dragon Med. Scientific Communications, Inc., 118 F.3d 955, 968 (2d Cir. 1997) (quoting Restatement of Torts § 757 cmt. b (1939)). Computer programs can be trade secrets under New York law. See id. at 968. A trade secret can consist of a "combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design and operation of which, in unique combination, affords a competitive advantage and is a protectible secret." Integrated Cash Mgmt. Serv., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 174 (2d Cir. 1990). By agreement of the parties, the Court will consider LinkCo's claimed trade secret to be its combination, pattern and design of 26 defining elements and architecture." Pl. Opp. at 1.
"In determining whether information constitutes a trade secret, New York courts have considered the following factors: '(1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the business to guard the secrecy of the information; (4) the value of the information to the business and its competitors; (5) the amount of effort or money expended by the business in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.'"North Atl. Instruments, 188 F.3d at 44 (quoting Restatement of Torts § 757 cmt. b).
LinkCo has produced several affidavits and an Initial Expert Report and Disclosure of Bruce F. Webster ("Webster Report"), Ex. A to Affidavit of Bruce F. Webster ("Webster Aff."), to demonstrate that "the combination, pattern, and design" of its elements were not generally known in the Fall of 1997 (Pl. 56.1 ¶ 35, Webster Aff. ¶ 13), that at that time no corporate disclosure system" similar to the one at issue here existed (Pl. 56.1 ¶ 36, Webster Aff. ¶ 13), and that the specified elements were not generally known outside of LinkCo or used anywhere (Pl. 56.1 ¶¶ 39, 43-49, 51). Work on LinkCo's systems was conducted "with considerable attention to keeping its efforts . . . secret." Pl. 56.1 ¶ 11. Indeed, LinkCo required all employees to sign confidentiality and nondisclosure agreements. LinkCo also required more than twenty outside parties to sign confidentiality and nondisclosure agreements before giving them access to LinkCo's confidential information. See id 12/2/01 Affidavit of Oded Maimon, Chief Technology Officer of LinkCo ("Maimon Aff.") ¶ 13.
LinkCo determined that the market for business information on Japanese corporations is very large, see 10/24/01 Deposition of Bruce F. Webster ("Webster Dep."), Ex. 9 to 11/14/01 Declaration of Elizabeth W. Milnikel, LinkCo's attorney ("Milnikel Dec."), at 185-86; Webster Report, Ex. A to Webster Aff., at 17. 24, and estimated the earning potential of its software to be more than $2 billion, see Def. 56.1 ¶ 98; see also LinkCo Executive Summary, Ex. 14 to Milnikel Dec., at 2. LinkCo had more than twenty professionals working for over two years on its system, at a cost of over $2 million. See Pl. 56.1 ¶¶ 1, 3-5.
The "existence of a trade secret is a question of fact." Integrated Cash Mgmt., 920 F.2d at 174 (quoting 1 Milgrim on Trade Secrets § 2.03, at 2-32 to 2-33 (1984)). LinkCo has produced sufficient evidence to establish that a genuine issue of material fact exists as to whether it had a trade secret, especially when all ambiguities are resolved and all reasonable inferences are made in LinkCo's favor.
B. Whether Fujitsu Misappropriated that Trade Secret
To succeed on its claim, LinkCo must also show that Fujitsu "used the trade secret . . . as a result of discovery by improper means." North Atl. Instruments, 188 F.3d at 43-44. Again, the only question is whether LinkCo has produced sufficient evidence to demonstrate a genuine issue of material fact, keeping in mind that "[i]t is well recognized with respect to trade secrets that . . . "[i]n most cases, plaintiffs must construct a web of perhaps ambiguous circumstantial evidence from which the trier of fact may draw inferences which convince [him or her] that it is more probable than not what plaintiffs allege happened did in fact take place.'" Q-CO Indus., Inc. v. Hoffman, 625 F. Supp. 608, 618 (S.D.N.Y. 1985) (quoting Greenberg v. Croydon Plastics Co., Inc., 378 F. Supp. 806, 814 (E.D. Pa. 1974)).
With respect to the element of use of the trade secret, the Webster Report concludes that Fujitsu used "elements" of LinkCo's computer programs in its DisclosureVision system. Webster Report at 5-6; see also Pl. 56.1 ¶¶ 20-33, 50. Fujitsu's records pertaining to the development of DisclosureVision before Fujitsu met with LinkCo are spotty, nonexistent, or have been destroyed. See Pl. 56.1 ¶¶ 158-164. DisclosureVision also uses some of LinkCo's trade names. See Webster Report at 18; Pl. 56.1 ¶ 38; see also Def. Mem. at 22 (admitting Fujitsu adopted some of LinkCo's names).
As for the second element, discovery by improper means, Fujitsu considered Kanda an "expert" in the field, Pl. 56.1 ¶ 105; Tamura Dep., Ex. K to Nam Aff., at 26, and met with Kanda on several occasions while he was still an officer of LinkCo, see Webster Report at 6-7, 40-45; Pl. 56.1 ¶¶ 102-112. Fujitsu admits that these meetings took place. See, e.g., Answer ¶ 39; Davis Dep., Ex. C to Nam Aff., at 94. The Webster Report concludes that Fujitsu relied upon LinkCo's confidential information to create DisclosureVision, that Kanda was the conduit for this information, and that it was "unlikely" that the similarities between LinkCo's technology and DisclosureVision "occurred randomly." Webster Report at 46-47. LinkCo has presented sufficient evidence to establish the existence of a genuine issue of material fact on the issue of misappropriation.
IV. CONCLUSION
Fujitsu has failed to prove that no genuine issue of material fact exists as to LinkCo's claim for misappropriation of trade secrets. Accordingly, Fujitsu's motion for summary judgment on Count I is denied. A conference is scheduled for March 11, 2002, at 4:30 p.m.