230 F. Supp.2d 492 (2002) | Cited 0 times | S.D. New York | October 29, 2002


Fujitsu has moved for a judgment as a matter of law ("JMOL") at theclose of LinkCo's case, arguing that LinkCo failed to present sufficientevidence for a jury to find in its favor on any of the remaining threecauses of action: (1) tortious interference with contract, (2)misappropriation of trade secret, and (3) unfair competition.1 Theparties have fully briefed the issue and this Court has heard oralargument.2

Fujitsu submits that a JMOL is required because LinkCo has failed tooffer sufficient proof on at least one element of each claim. See Def.Outline at 1. Fujitsu further argues that LinkCo has presentedinsufficient proof of damages, which is a necessary element of each ofits claims. See Id. at 2. LinkCo contends that there are numerous groundsupon which a reasonable jury could find Fujitsu liable on each of itsclaims. See Pl. Mem. at 1. For the reasons set forth below, the tortiousinterference with contract and misappropriation of trade secret claimsare dismissed. The unfair competition claim, however, must be decided bythe jury.


After a party presents its case, judgment as a matter of law isappropriate when "there is no legally sufficient evidentiary basis for areasonable jury to find for that party on that issue . . . ."Fed.R.Civ.P. 50(a)(1). Such motions "should be granted cautiously andsparingly." Meloff v. New York Life Ins. Co., 240 F.3d 138, 145 (2d Cir.2001) (citing 9A Charles Alan Wright & Arthur R. Miller, FederalPractice and Procedure § 2524, at 252 (2d ed. 1995)). The evidencemust be viewed "in the light most favorable to the opposing party" and"the court must give deference to all credibility determinations andreasonable inferences of the jury . . . ." Galdieri-Ambrosini v. NationalRealty & Dev. Corp., 136 F.3d 276, 289 (2d Cir. 1998). The courtitself may not weigh the credibility of witnesses or consider the weightof the evidence. See Reeves v. Sanderson Plumbing Prods., Inc.,530 U.S. 133, 150 (2000).


In 1995, LinkCo began developing an architecture for computer softwareto beused by Japanese companies for purposes of corporate financialdisclosure and data management. See LinkCo, Inc. v. Fujitsu Ltd., No. 00Civ. 7242, 2002 WL 237838, at *1 (S.D.N.Y. Feb. 19, 2002). Computersystem architecture is a critical element of a software program. SeeTestimony of Bruce Webster, LinkCo's expert witness ("WebsterTestimony"), Tr. at 1181. Program designers rely on system architectureto determine the objectives and purposes of the end product. See id. at1180.

According to Webster, LinkCo's system architecture was comprised of 26elements. See id. at 1193. The system was divided into three parts:"investor relations, corporate financial disclosure, and public relations. . . within the context of database management." Id. at 1194. The goalof the end product was to create a database of information in the publicand commercial domain and assist companies with their regulatoryfilings. LinkCo then intended to market this program to the businesscommunity. See id. Ultimately, LinkCo never commercialized any productrelated to its designs and the company ceased operations in December1997. See LinkCo, 2002 WL 237838 at *2.

LinkCo took substantial steps to keep its development efforts secret.It required all employees and consultants to sign confidentiality andnondisclosure agreements. See Testimony of David Israel-Rosen("Israel-Rosen Testimony"), Tr. at 724. It also required prospectivecustomers and corporate partners to sign confidentiality agreementsbefore giving them access to its confidential information. See Testimonyof Oded Maimon ("Maimon Testimony"), Tr. at 370, 492.

In May 1996, LinkCo hired Kyoto Kanda. LinkCo alleges that it enteredinto an Employment, Noncompetition, Nondisclosure and NonsolicitationAgreement ("Employment Agreement") with Kanda. See Complaint ("Compl.")¶ 21. Kanda was the Chief Executive Officer of LinkCo Japan andremained with LinkCo until December 31, 1997. See LinkCo, 2002 WL237838, at *1.

In June 1997, Professor Ajit Kambil, a Management Information Systemsexpert at the Stern Business School of New York University ("NYU"),entered into a Mutual Confidential Nondisclosure Agreement("Nondisclosure Agreement") with LinkCo, in which he agreed not todisclose "confidential information" to any third party. See 11/20/02Letter from Irving B. Levinson, plaintiff's attorney, Plaintiff's Exhibit("Pl. Ex.") 9 at L00744-45.

In September 1997, LinkCo met with Fujitsu to discuss a possiblecollaboration, but those negotiations were unsuccessful. See LinkCo, 2002WL 237838, at *1. Although LinkCo and Fujitsu met without aconfidentiality agreement, LinkCo only provided Fujitsu with a generaloverview of its business strategy and objectives. See Pl. Exs. 1, 67.

Several months later, Fujitsu met secretly with Kanda and Kambil in NewYork. See LinkCo, 2002 WL 237838, at *1. LinkCo alleges that Fujitsuobtained trade secrets and confidential information about LinkCo'stechnology, at these meetings, in violation of Kanda and Kambil'scontracts. See id. at *2. In 1998, Fujitsu hired Kanda to conductresearch and provide consulting services. Id. Kambil also eventuallybecame a consultant for Fujitsu. See 10/1/02 Testimony of Takeshi Ito("Ito Testimony"), Tr. at 229-31.


A. Tortious Interference with Contract Claim

Fujitsu submits that judgment as a matter of law is appropriate onLinkCo's claim of tortious interference with the following twocontracts: (1) the Employment Agreementbetween LinkCo and Kanda, and (2)the Nondisclosure Agreement between LinkCo and Kambil.

Under New York law, the elements of a tortious interference withcontract claim are: "[1] that a valid contract exists, [2] that a `thirdparty' had knowledge of that contract, [3] that the third partyintentionally and improperly procured the breach of the contract, and [4]that the breach resulted in damage to the plaintiff." Albert v. Loksen,239 F.3d 256, 274 (2d Cir. 2001) (citing Finley v. Giacobbe, 79 F.3d 1285,1294 (2d Cir. 1996).

"The existence of a valid contract is an essential element of the causeof action, and the courts have consistently rejected claims of tortiousinterferences in its absence." Mobile Data Shred, Inc. v. United Bank ofSwitzerland, No. 99 Civ 10315, 2000 WL 351516, at *7 (S.D.N.Y. Apr. 5,2000). "`Although a defendant need not be aware of all the details of acontract, it must have actual knowledge of the specific contract.'"Sovereign Bus. Forms v. Stenrite Indus. Inc., No. 00 Civ. 3867, 2000 WL1772599, at *9 (S.D.N.Y. Nov. 28, 2000) (quoting International Mineral& Res. Inc. v. Pappas, No. 87 Civ. 3988, 1992 WL 354504, at *3(S.D.N.Y. Nov. 17, 1992)). Defendant's actions must also be the "but for"cause of the alleged breach of contract. See Sharma v. Skaarup ShipMgmt. Corp., 916 F.2d 820, 828 (2d Cir. 1990) ("A plaintiff must allegethat `there would not have been a breach but for the activities of thedefendants.'") (quoting Special Event Entm't v. Rockefeller Center,Inc., 458 F. Supp. 72, 78 (S.D.N.Y. 1978)). See also Michele PommierModels, Inc. v. Men Women N.Y. Model Mgmt., 14 F. Supp.2d 331, 335-36(S.D.N.Y. 1998) (finding that the element of inducement "requires theplaintiff to establish that but for the allegedly tortious conduct of thedefendant, the third party would not have breached her contract"),aff'd, 173 F.3d 845 (2d Cir. 1999).

1. Kanda Contract

a. Is There a Valid Contract?

Fujitsu argues that LinkCo has failed to provide a sufficientevidentiary basis upon which a reasonable jury could: (1) conclude thatKanda was a party to a "valid" contract with LinkCo, and (2) determinethe nature of any such contractual obligations. See Def. Outline at 4.

When a party alleges that a written agreement exists and was breached,it is incumbent upon that party to provide the contract or sufficientevidence from which the essential terms of that written agreement can beascertained. See Sims v. Blancharis, 648 F. Supp. 480, 484-85 (S.D.N.Y.1986) (holding that plaintiff did not meet the burden of proof on breachof contract claim when contract was not produced, testimony regarding itwas inconclusive, essential terms were in doubt, and no satisfactoryevidence of an alleged breach had been adduced).

Although the Complaint alleges that Kanda entered into an EmploymentAgreement with LinkCo, in which he agreed not to disclose any of LinkCo'sintellectual property to a third party, LinkCo produced no such writtencontract at trial. See Compl. ¶¶ 21-22; 10/9/02 Israel-Rosen Testimony,Tr. at 730-31 (acknowledging LinkCo's inability to locate Kanda'sEmployment Agreement). LinkCo did, however, offer into evidence: (1)testimony to the effect that Kanda signed one or more written contractsat a meeting that took place in 1996, see Maimon Testimony, Tr. at 339;Israel-Rosen Testimony, Tr. at 725-26; and (2) a written contract betweenLinkCo and Oded Maimon, which LinkCo asserts to be the same form ofcontract as the one signed by Kanda, see Pl. Ex. 10 at L09696-700.

The testimony at trial could not support a finding by a reasonable jurythat Kanda signed a contract identical to the one signed by Maimon. SeeIsrael-Rosen Testimony, Tr. at 724-26 (expressing confusion as to whetherKanda signed an employment agreement with a nondisclosure provision orthree separate documents, the second of which was a nondisclosureagreement); Maimon Testimony, Tr. at 342 (discussing individualizedprovision in Maimon's contract regarding the purchase of a motorcycle) Butsee Maimon Testimony, Tr. at 341 (stating belief that language regardingobligation to protect confidential information was identical in allemployment agreements).

The fact that employment contracts typically contain nondisclosure andnoncompete provisions, as noted by LinkCo, see Pl. Mem. at 1-2, isinsufficient to prove that a party is bound by such provisions. See McKayv. Communispond, Inc., 581 F. Supp. 801, 806 (S.D.N.Y. 1983) (findingform employment contract containing anticompetitive clause insufficientto establish that plaintiff was bound by the contract and its covenantnot to compete where defendant did not produce a signed contract)

Without proof of the written contract, or the terms contained therein,there is minimal evidence from which a jury could conclude that Kanda wasparty to a valid contract. Nevertheless, because a reasonable jury couldinfer from Maimon's testimony that Kanda signed a nondisclosureagreement, although the form of the contract containing such provision isunknown, the jury should be permitted to assess the credibility of thewitnesses and weigh the evidence on this element. However, because LinkCohas failed to offer sufficient evidence on two of the remaining elementsof tortious interference with contract, the claim must nonetheless bedismissed.

b. Knowledge and Inducement

First, the trial record is devoid of any evidence of Fujitsu's directknowledge of the employment contract between LinkCo and Kanda with whichit is alleged to have interfered. See Ito Testimony, Tr. at 188-89(acknowledging that Fujitsu did not ask, prior to hiring Kanda, whetherKanda had an employment agreement with LinkCo).3 LinkCo relies ontestimony that Takeshi Ito, a Fujitsu executive, thought nondisclosureagreements were "a matter of course" and "common practice" inemployment. See Pl. Mem. at 4-5 (citing Ito Testimony, Tr. at 681-82).LinkCo argues that there is an implied contractual obligation in allemployment contracts not to disclose trade secrets, and that Fujitsu istherefore presumed to have knowledge of the two contracts. See Pl. 4. Assuming, arguendo, that Fujitsu had knowledge of this implicitobligation, which is highly unlikely, it did not have actual knowledge ofthe contracts at issue, as required by law. See Sovereign Bus. Forms,2000 WL 1772599, at *9 (rejecting plaintiff's argument that defendantshould have known of existence of non-competition agreement as tenuousand speculative); AA Tube Testing Co. v. Sohne, 246 N.Y.S.2d 247, 248 (2dDep't 1964) (finding allegation that defendants "should have known" ofexistence of contract insufficient allegation of "actual" knowledge).

In support of the proposition that Fujitsu had implied knowledge ofKanda's contract, LinkCo relies on North Atlantic Instruments, Inc. v.Haber, 188 F.3d 38 (2d Cir. 1999). See Pl. Mem. at 2. Such relianceis misplaced. In North Atlantic, the question was whether an employee's useof a trade secret breached an implied duty in his employment contract notto reveal confidential information acquired in the course of employment.188 F.3d at 47. The court did not address whether a third party ispresumed to have knowledge of that employee's implied obligation.Moreover, the court recognized that an employer and employee maycontractually limit this implied duty. Id. at 47-48. However, there is noproof that any Fujitsu employee reviewed the terms of Kanda's allegedcontract to determine whether it limited the nondisclosure obligation.

Second, there is no evidence in the record from which a reasonable jurycould conclude that Fujitsu induced Kanda to breach his contract withLinkCo. LinkCo points to two pieces of evidence in the record as proof ofinducement: (1) the transmission of documents by Kanda to Fujitsu in theFall of 1997, and (2) the payments Kanda received from Fujitsu in 1998.See Pl. Mem. at 5-6. The fact that Kanda transmitted one or moredocuments to Fujitsu is irrelevant, unless LinkCo can show that Fujitsucaused the transmission to happen, which it has not done. Likewise, thefact that Fujitsu made payments to Kanda on consulting agreements in June1998, many months after the transmission of the November 20, 1997memorandum, see Pl. Ex. 2, the alleged breaching act, is meaningless inthe absence of evidence that the payments were in exchange for theinformation contained in that document. See Pl. Mem. at 6 (citing MaimonTestimony, Tr. at 399-403, 463). If the jury were to conclude from eitherof these two pieces of evidence, without further proof, that Fujitsuinduced Kanda to breach his contract, such a conclusion would be merespeculation, which is impermissible. See D'Amico v. City of New York,132 F.3d 145, 149 (2d Cir. 1988) (citations omitted) ("The non-movingparty [to a JMOL motion] may not rely on mere conclusory allegations norspeculation, but instead must offer some hard evidence showing that itsversion of the events is not wholly fanciful.")

Without evidence of Fujitsu's actual knowledge of Kanda's employmentagreement or proof of inducement, this Court is compelled to grantjudgment as a matter of law on LinkCo's tortious interference withcontract claim.4

2. Kambil Contract

LinkCo has produced the Nondisclosure Agreement it had with Kambil.See Pl. Ex. 9 at L00744-45. However, there is no evidence of Fujitsu'sdirect knowledge of Kambil's contract or of Fujitsu's inducement ofKambil to breach that contract. In addition, there is no evidence as towhat "confidential" information Kambil allegedly disclosed to Fujitsu,without which a breach cannot be established. See Def. Outline at 5.Fujitsu's motion for a JMOL with respect to tortious interference withKambil's contract is also granted.

B. Misappropriation of Trade Secret Claim

To succeed on a claim for trade secret misappropriation under New Yorklaw, a plaintiff must establish "(1) that it possessed a trade secret,and (2) that the defendants used that trade secret inbreach of anagreement, confidential relationship or duty, or as a result of discoveryby improper means." North Atlantic, 188 F.3d at 43-44.

1. What Is a Trade Secret?

New York courts have adopted the general definition of a trade secretset forth in the Restatement of Torts § 757, comment b (1939), whichstates as follows: "A trade secret may consist of any formula, pattern,device or compilation of information which is used in one's business, andwhich gives [the owner] the opportunity to obtain an advantage overcompetitors who do not know or use it." See Softel, Inc. v. Dragon Med.& Scientific Communications, Inc., 118 F.3d 955, 968 (2d Cir. 1997)(quoting Restatement of Torts § 757 cmt. b (1939) (emphasis added)).

There are two types of trade secrets: customer lists and specialknowledge or information that relates to manufacturing or businessoperations. See 2 N.Y. PJI3d 407 (2001). New York courts have recognizedthat computer software, or programs, can be a trade secret. See BusinessIntelligence Servs. Inc. v. Hudson, 580 F. Supp. 1068, 1072 (S.D.N.Y.1984) (citing Matter of Belth v. Insurance Dep't of New York,406 N.Y.S.2d 649 (1977) (finding description of computer program anddetails of mathematical models, procedures, and statistical assumptionsdeveloped by an insurance company constitute trade secrets)). LinkCo'sclaim does not concern customer lists, a manufacturing process orformula, or a software program. Rather, the alleged trade secret is thearchitecture or design of a business system for managing the disclosureof the financial information of Japanese companies for the benefit ofboth the companies and their investors. Thus, the first question iswhether this information constitutes a trade secret under New York law.5

2. Is "Software Architecture" a Trade Secret?

"In determining whether information constitutes a trade secret, NewYork courts have considered the following factors: (1) the extent towhich the information is known outside of the business; (2) the extent towhich 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 theinformation; (4) the value of the information to the business and itscompetitors; (5) the amount of effort or money expended by the businessin developing the information; and (6) the ease or difficulty with whichthe information could be properly acquired or duplicated by others."North Atlantic, 188 F.3d at 44 (internal quotation marks and citationsomitted).

a. Secrecy

"[T]he most important consideration [is] whether the information wassecret."6 See Lehman v. Dow Jones, & Co., Inc., 783 F.2d 285, 298(2d Cir. 1986). Although "secrecy is a question of fact," see id., courtshave held that there can be no trade secret protection, as a matter oflaw, if the secrecy is necessarily lost when the design or product isplaced on the market. See Hudson Hotels Corp. v. Choice Hotels Int'l,995 F.2d 1173, 1177 (2d Cir. 1993) (finding that hotel room designconcept was not a trade secret because it would be publicly disclosedonce the hotel room was built, marketed and occupied), abrogatedon other grounds by Nadel v. Play-By-Play Toys & Novelties, Inc.,208 F.3d 368 (2d Cir. 2000); Speciner v. Reynolds Metals Co.,279 F.2d 337, 337-38 (2d Cir. 1960) (finding that awindow design was not a trade secret where thefeatures "were readily apparent from a casual inspection of theplaintiff's window which was available on the open market"); Blank v.Pollack, 916 F. Supp. 165, 175 (N.D.N.Y. 1996) (finding a window cranknot to be a trade secret because it is "a device, that upon marketing andsale is open to public inspection of all of its features"); EagleComtronics, Inc. v. Pico, Inc., 453 N.Y.S.2d 470, 472 (4th Dep't 1982)(finding no trade secret when "any secrecy in the design of the trap waslost when it was placed upon the market"). Thus, the primaryconsideration in determining secrecy is whether the information is easilyascertainable by the public.

Computer programs have been found to constitute a trade secret wherethe source code is not easily copied or ascertainable by inspection ofthe program. See, e.g., Q-Co Indus., Inc. v. Hoffman, 625 F. Supp. 608,617 (S.D.N.Y. 1984) (finding source code of plaintiff's computer programwas not accessible to the public and therefore the program was likely tobe a trade secret); Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655,664 (4th Cir. 1993) ("The source code can and does qualify as a tradesecret . . . [because it] is not readily ascertainable by proper means. . ."). The architecture of a software program may also be a tradesecret where only a limited amount of technical detail about the programis disclosed to the public. See Integrated Cash Mgmt. Servs., Inc. v.Digital Transactions, Inc., 920 F.2d 171, 174 (2d Cir. 1990) (findingthat plaintiff's unique combination of computer programs was aprotectable trade secret because "[t]he architecture of the ICM system wasnot `readily ascertainable'") (citation omitted).

In this case, however, the alleged trade secret is not a computerprogram or combination of programs with one or more source codes. It ismerely a system architecture. See Webster Testimony, Tr. at 1181(distinguishing between the design and architecture of a software systemand the ultimate product that gets derived from that design). In fact,plaintiff's counsel and witnesses have compared LinkCo's system to thearchitecture of a building. See Tr. at 48; Webster Testimony, Tr. at1180. While this analogy helps to explain how LinkCo's combination ofelements may be novel, it also demonstrates how the architecture will beeasily ascertainable by the public once the product is marketed. Similarto the architecture of a building, once the combination of LinkCo'selements is seen by the public, the system's architecture will becomeobvious and easily duplicated. In Hudson Hotels, the court found thatonce the hotel room is "built, marketed, and occupied, the features ofthe room would necessarily be disclosed publicly." Hudson Hotels, 995F.2d at 1177. The same is true with LinkCo's software architecture. Oncethe 26-element software architecture system is reduced to a product, itsarchitecture can never remain secret. Because the software architecturecannot remain secret once it is marketed, it cannot rise to the level ofa trade secret, as a matter of law.7

b. Alternative Ground for Rejecting Trade Secret

It is well-established that marketing concepts and new product ideasare notconsidered trade secrets. See Hudson Hotels, 995 F.2d at 1177(addressing, in dicta, the notion that a new product idea cannot, as amatter of law, constitute a trade secret); Boyle v. Stephens, Inc., No.97 Civ. 1351, 1997 WL 529006, at *45 (Aug. 26, 1997) (holding thatplaintiff's concept of structuring a mutual fund according to differentrisk allocations was either a new marketing concept or a new productand, as such, could not be considered a trade secret), aff'd, No.98-9444, 2001 WL 1313784 (2d Cir. Oct. 24, 2001). Webster's descriptionof LinkCo's 26 "corporate disclosure elements," suggests that theseelements may be nothing more than an amalgamation of business concepts,strategies, and ideas to be used in the eventual construction of amarketable computer software program. See Pl. Ex. 360.

Similarly, information consisting simply of business possibilities orgoals is not a trade secret. See PSC Inc. v Reiss, 111 F. Supp.2d 252,258 (W.D.N.Y. 2000) ("It is also difficult to see how the meagerinformation that [defendant] had obtained constituted trade secrets. Someof the items that [plaintiff] stated were confidential were merely goalsthat [plaintiff] hoped to achieve over time in developing its newproduct."); Forest Labs, Inc. v. Lowey, 218 U.S.P.Q. 646, 657 (Sup.Ct.Westchester Co. 1982) ("[U]ndeveloped ideas and plans concerning futureimprovements in the [plaintiff's] process are not protectible as tradesecrets."), aff'd, 482 N.Y.S.2d 500 (2d Dep't 1984). Many of LinkCo's 26elements are merely possibilities and goals (e.g., security, versioncontrol, database management and multiple formats for reports).

While I find it highly unlikely, it is possible that a reasonable jurycould find that LinkCo's software architecture system is something morethan a marketing concept, new product idea, possibility, goal or somecombination thereof. Because I conclude that LinkCo's 26-elementcorporate disclosure system cannot be a trade secret as it is does notsatisfy the element of being "used secretly and continuously incommerce", Hudson Hotels, 995 F.2d at 1177, I need not decide whether italso fails as a trade secret for these alternative reasons.

C. Unfair Competition Claim

The central principle underlying a claim for unfair competition underNew York law is that one may not misappropriate the results of thelabor, skill, and expenditures of another. See Saratoga Vichy SpringCo., Inc. v. Lehman, 625 F.2d 1037, 1044 (2d Cir. 1980). An unfaircompetition claim must also involve some degree of bad faith. Id.

The New York pattern jury instructions identify several types of unfaircompetition: trade secrets, trademark, trade name infringement, palmingoff, misappropriation, and false labeling or advertising. See 2 N.Y.PJI3d 405 (2001). However, the Second Circuit has made clear that unfaircompetition is not limited to the categories of infringement that havebeen described in New York's pattern jury instructions or recognized bycourts, but instead encompasses a broad range of conduct. See NationalBasketball Ass'n v. Motorola, Inc., 105 F.3d 841, 851 (2d Cir. 1997)(describing New York unfair competition law as standing for the "broaderprinciple that property rights of commercial value are to be and will beprotected from any form of commercial immorality") (internal quotationmarks and citation omitted); Roy Expert Co. Establishment of Vaduz,Lichtenstein v. Columbia Broad. Sys., Inc., 672 F.2d 1095, 1105 (2d Cir.1982) ("New York courts have noted the `incalculable variety' of illegalpractices falling within the unfair competition rubric . . . calling it a`broad and flexible' doctrine . . . ."); Electrolux Corp. v. ValWorth,Inc., 6 N.Y.2d 556,568 (1959) ("Unfair competition is a form of unlawfulbusiness injury . . . The incalculable variety of illegal commercialpractices denominated as unfair competition is proportionate to theunlimited ingenuity that overreaching entrepreneurs and trade pirates putto use.") (internal quotation marks and citation omitted). This"adaptable and capacious tort" proscribes all forms of commercialimmorality, the confines of which are marked only by the "conscience,justice and equity of common-law judges." Demetriades v. Kaufman,698 F. Supp. 521, 525 (S.D.N.Y. 1988) (internal quotation marks andcitations omitted)

1. Misappropriation of Trade Secrets and Ideas

Fujitsu argues that there are only two possible predicates to LinkCo'sunfair competition claim: trade secret misappropriation and ideamisappropriation. See Def. Outline at 7-8. The parties agree that if thepredicate is trade secret misappropriation, then LinkCo's unfaircompetition claim is duplicative of its trade secret claim. See Def.Outline at 7; Oral Arg. Tr. at 1961; see also Abernathy-Thomas Eng'g Co.v. Pall Corp., 103 F. Supp.2d 582, 599-600 (E.D.N.Y. 2000) (treatingmisappropriation of trade secrets and unfair competition as stating asingle cause of action when an unfair competition claim is based onwrongful disclosure of proprietary information); Atmospherics, Ltd. v.Hansen, 702 N.Y.S.2d 385, 386 (2d Dep't 2000) (affirming judgment as amatter of law at close of plaintiff's case for misappropriation of tradesecrets and unfair competition when no rational jury could conclude thatplaintiff's information constituted trade secrets). Because I am grantingjudgment as a matter of law on LinkCo's trade secret claim, no furtherdiscussion of this predicate is required.

Under New York law, a claim for idea misappropriation requires: (1) alegal relationship between the parties in the form of a fiduciaryrelationship, an express or implied-in-fact-contract, or quasi-contract,and (2) a novel and concrete idea. See Adsani v. Miller, PMA, No. 94Civ. 9131, 1996 WL 194326, at *16 (S.D.N.Y. Apr. 22, 1996). Fujitsusubmits that there is no sufficient evidentiary basis that would permit areasonable jury to find that a legal relationship exists between theparties. See Def. Outline at 8. LinkCo concedes that there is no suchrelationship. See Oral Arg. Tr. at 1962. Accordingly, LinkCo has no ideamisappropriation claim.

2. Misappropriation of Information

Instead, LinkCo argues that there can be a misappropriation of labor,skill, and expenditures that does not fall within either trade secret oridea misappropriation. See Pl. Mem. at 23. In support of this claim,LinkCo points to the fact that New York courts have recognized anadditional tort unfair competition based on "investment" misappropriationdespite the fact that there are separate torts for trade secretmisappropriation and idea misappropriation, which suggests that unfaircompetition is a broader cause of action. See id. at 22.

Indeed, the doctrine of unfair competition has been applied in varioussituations, like this, where a plaintiff alleges misappropriation ofinformation that does not rise to the level of misappropriation of tradesecrets or ideas. See, e.g., Robotic Vision Sys., Inc. v. GeneralScanning, Inc., No. 96-CV-3884, 1997 WL 1068696, at *6 (E.D.N.Y. 1997)(finding that allegations of misappropriation of information regarding abidding strategy used to acquire a company support a claim for unfaircompetition under New York law); Innovative Networks, Inc. v. SatelliteAirlines Ticketing Ctrs., 871 F. Supp. 709, 729-30 (S.D.N.Y. 1995)(holding that unauthorizedphysical taking and exploitation of internalcompany documents for use in competitor's business constitutes unfaircompetition, although information taken would not qualify as a tradesecret) Demetriades, 698 F. Supp. at 526 (applying law of unfaircompetition where interior features of an unsold residence were found notto be trade secrets); Continental Dynamics Corp. v. Kantner,408 N.Y.S.2d 801, 802 (2d Dep't 1978) (holding that misappropriation ofcustomer lists, although not considered trade secrets, neverthelessstates cause of action under unfair competition).

A claim for unfair competition based on misappropriation generallyinvolves the taking of a property right. Roy Expert, 672 F.2d at 1105.New York courts have found that persons have a protectable propertyinterest in their "labor, skill, expenditure, name and reputation . . . ."See Metropolitan Opera Ass'n. v. Wagner-Nichols Recorder Corp.,101 N.Y.S.2d 483, 492 (Sup.Ct. N.Y. Co. 1950). Undoubtedly, there issubstantial evidence in the record for a jury to find that LinkCoinvested labor, skill, and expenditures in the development of itssystem. See LinkCo, 2002 WL 237838, at *3 (finding LinkCo had more thantwenty professionals working for over two years on its system, at a costof over two million dollars); 10/14/02 Testimony of Bruce Webster("Webster Testimony"), Tr. at 1191-92, 1418 (acknowledging the magnitudeof documents produced by LinkCo in conjunction with the development ofits system as compared to the lack of any Fujitsu architecturedevelopment documents prior to September 1997). In addition, there issufficient proof for a reasonable jury to find that Fujitsumisappropriated the information in bad faith and used it for its ownbenefit. See Ito Testimony, Tr. at 160, 183-84, 229-30 (acknowledgingKanda had information regarding Japan's disclosure system that Fujitsucould use); Maimon Testimony, Tr. at 399-403, 463 (testifying thatdocuments Fujitsu received from Kanda contained information on LinkCo'sbusiness ideas that should not have been disclosed); Ito Testimony, 155, 171, 212, 222-23 (describing Fujitsu's secret meetings with Kandaand Kambil in New York). Because the weight of such evidence may only bedecided by a jury, judgment as a matter of law on LinkCo's unfaircompetition claim is inappropriate, provided LinkCo has profferedsufficient evidence of damages as a result of Fujitsu's misappropriationof information. Cf. Commercial Union Assurance Co. v. Milken, 17 F.3d 608,612 (2d Cir. 1994) (affirming summary judgment dismissal of RICO claimwhere plaintiff failed to present any demonstrable damages)

D. Damages

Because the claims for tortious interference with contract andmisappropriation of trade secret are dismissed, the sole remainingquestion is whether there is a legally sufficient evidentiary basis for ajury to calculate an award of damages on LinkCo's unfair competitionclaim. See Def. Outline at 2. Fujitsu argues that there is insufficientproof in the record from which a jury can "fill in the blanks" in themethodology for calculating damages offered by LinkCo's expert, AronLevko. Id. LinkCo contends that the evidence is not only greater thanFujitsu suggests, but also sufficient for a jury to either "fill[] inLevko's blanks" or use alternate methods to determine damages. Pl. 19.

The assumption underlying the parties' damages arguments is that thisis a trade secret misappropriation case, for which this Court has ruledthat the most appropriate measure of damages is a reasonable royalty.See 9/4/02 Tr. at 3-4. However, it is now necessary to determine theappropriate measure of damages on an unfaircompetition claim, an issueupon which this Court has not yet ruled. Once a method for calculatingdamages has been established, the final question is whether LinkCo hasoffered sufficient proof from which a reasonable jury can determine theamount of damages.

Damages in unfair competition cases are typically determined byplaintiff's lost profits resulting from defendant's improper conduct. SeeAmerican Safety Table Co. v. Schreiber, 415 F.2d 373, 380 (2d Cir.1969). The losses must be directly attributable to the unfair acts ofdefendant. See American Electric, Inc. v. Neptune Meter Co.,290 N.Y.S.2d 333, 335 (1st Dep't 1968) ("The basic rule of damage in acase of unfair competition is the amount plaintiff would have made exceptfor defendant's wrong."). In addition, the evidence of such losses mustnot be speculative. See American Safety, 415 F.2d at 381 (findingrecovery for lost profits not justified where proof of profits would bespeculative).

In trade secret misappropriation cases, however, the courts havediverged from a straight lost profits analysis in cases where plaintiff'slosses and defendant's actual gain cannot be easily computed. See VermontMicrosystems, Inc. v. Autodesk, Inc., 88 F.3d 142, 151 (2d Cir. 1996)(finding "reasonable royalty" method appropriate where there isinsufficient evidence of lost profits or unjust enrichment). A reasonableroyalty award attempts to measure, as of the time of themisappropriation, a hypothetically agreed value of the property defendantwrongfully obtained. Id. (citing Georgia-Pacific Corp. v. United StatesPlywood-Champion Papers, Inc., 446 F.2d 295, 296-97 (2d Cir. 1971).

I have already held that a reasonable royalty would have been the bestmethod for calculating damages for Fujitsu's alleged misappropriation ofa trade secret because lost profits would be difficult to establish giventhat: (1) LinkCo ceased operations not long after the allegedmisappropriation, and (2) Fujitsu made no significant profits from suchmisappropriation. See 9/4/02 Tr. at 4. A similar method should be usedwith respect to the lost profits element of damages in an unfaircompetition claim because the same difficulties exist with respect tocalculating potential profits.

Moreover, it is well established that if there is a claim, there mustbe a remedy. Cf. Commercial Union Assurance, 17 F.3d at 612 (affirmingdismissal of action because plaintiffs could not prove the "mostfundamental of legal elements necessary to support a viable cause ofaction - any demonstrable damages") As noted earlier, New York courtshave recognized that unfair competition is broadly construed to includemisappropriation of a competitor's property, even if such property doesnot qualify as a trade secret. While none of the cases cited in PartIII.C.2, supra, discussed damages, the absence of profits cannot nullifythe claim any more than it would in the context of misappropriation of atrade secret. As discussed, the courts have fashioned a method forcalculating damages for misappropriation of trade secrets in the absenceof profits. The same method can be applied in the context ofmisappropriation of information. See Flexitized, Inc. v. NationalFlexitized Corp., 214 F. Supp. 664, 675 (S.D.N.Y. 1963) ("The law ofunfair competition, however, must be applied flexibly, and whether reliefshould be granted in a given instance must be determined by an appraisalof the particular circumstances of the case."), rev'd on other grounds,335 F.2d 774 (2d Cir. 1964).

The following factors should be considered when assessing damages on anunfair competition claim based on the misappropriation of information:(1) the time spentdeveloping the information, (2) the money invested,(3) the labor invested, and (4) a reasonable portion of the expectedprofitability of the final product that incorporates the misappropriatedinformation, measured at the time of a hypothetical negotiation for thesale or licensing of the property created by plaintiff's labor, skill andexpenditures. In determining the "reasonable portion of the expectedprofitability," the jury must evaluate how much of the final product wasbased on plaintiff's information. Because plaintiff's work does not riseto the level of a trade secret, plaintiff is not entitled to the fullreasonable royalty that would be paid for the use of a trade secret.Trade secret law places a premium on the value of secrecy, and createsexclusive rights in the holder of the secret. Misappropriation ofinformation cannot be used as an end-run around the secrecy requirement.

The absence of evidence of any of these factors is not dispositive. Forexample, the inability to find profits does not preclude a damage award.A jury may choose to award damages solely for the amount of money or timeplaintiff invested in developing the information.

LinkCo has presented many documents and hours of testimony concerningits damages. Although much of the evidence is circumstantial, the Courtmay not weigh the credibility of witnesses or consider the weight of theevidence. See Reeves, 530 U.S. at 150. Instead, the Court must review allof the evidence in the light most favorable to plaintiff. SeeGaldieri-Ambrosini, 136 F.3d at 289. Based on a careful and extensivereview of the evidence, and the measure of damages articulated above, Iconclude that LinkCo has produced sufficient evidence for a rational juryto compute damages, if Fujitsu is found liable. Should the jury awarddamages to LinkCo, Fujitsu will have an opportunity to challenge thataward if it believes that any portion of it is speculative or against theweight of the credible evidence.


For the reasons set forth above, LinkCo's claims for tortiousinterference with contract and misappropriation of trade secret aredismissed. Fujitsu's motion to dismiss LinkCo's claim of unfaircompetition is denied.

1. LinkCo withdrew its conversion claim at the start of the trial andpreviously withdrew its misappropriation of trade secret claim underMassachusetts law. See 9/30/02 Trial Transcript ("Tr.") at 6.

2. On October 17, 2002, Fujitsu prepared an outline setting forth thelegal and factual bases for its JMOL motion. See Outline of Fujitsu'sArgument Pursuant to Fed.R.Civ.P. 50(a) ("Def. Outline"). On October 18,2002, the Court heard oral argument. See 10/18/02 Transcript of OralArgument on Motion for Judgment as a Matter of Law ("Oral Arg. Tr."). OnOctober 22, 2002, LinkCo filed its opposition. See Memorandum of Law inOpposition to Fujitsu's Motion for Judgment as a Matter of Law ("Pl.Mem."). On the same day, Fujitsu submitted a revised version of itsOctober 17, 2002 outline, see Memorandum in Support of Fujitsu's Motionfor Judgment as a Matter of Law Pursuant to Fed.R.Civ.P. 50(a) ("Def.Mem."), as well as a supplemental memorandum in support of its motion.See Supplemental Memorandum in Support of Fujitsu's Motion for Judgmentas a Matter of Law Pursuant to Fed.R.Civ.P. 50(a) ("Def. Supp. Memo"). Onthe following day, Fujitsu submitted a reply to LinkCo's opposition. SeeReply Memorandum in Support of Fujitsu's Motion for Judgment as a Matterof Law Pursuant to Fed.R.Civ.P. 50(a) ("Def. Reply Mem.").

3. The absence of proof is so evident that LinkCo has not evenattempted to identify trial testimony to illustrate Fujitsu's directknowledge of Kanda's contract. See Pl. Mem. at 2-4 (citing testimony thatFujitsu only knew Kanda was employed by LinkCo).

4. In a pretrial telephone conference, this Court ruled that the onlyway LinkCo could recover damages for its claim regarding Fujitsu's use ofthe TanshinStation name is if the elements of the tortious interferenceclaim were established, and the use of "TanshinStation" by Fujitsu werefound to be a consequence of that interference. Because I am dismissingthe tortious interference claim, there is no basis for an award ofdamages for the use of the TanshinStation name.

5. The parties agree that a trade secret can consist of separateelements, each of which is in the public domain, when there is somethingnovel and unique about the combination of the elements creating a unifiedprocess, design or operation. See Pl. Mem. at 9; Def. Reply Mem. at3.

6. Four of these six factors concern secrecy: factors 1, 2 3, and6.

7. Because the system architecture cannot be a trade secret, there isno need to discuss the proof as to whether defendant used the allegedtrade secret in breach of an agreement, confidential relationship orduty, or as a result of discovery by improper means. See supra PartIII.B.

Back to top