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Update: First Department Affirms Summary Judgment Dismissal of Misappropriation of Intellectual Property Claims

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  • Posted on: Jun 5 2020

On December 31, 2018, this Blog posted an article, titled “Court Dismisses Complaint Charging Misappropriation of Intellectual Property on Summary Judgment.” (Here.) The case that we examined in that article, Hyperlync Techs., Inc. v. Verizon Sourcing LLC, 2018 N.Y. Slip Op. 33123(U) (Sup. Ct., N.Y. County Dec. 5, 2018) (here), involved allegations that the defendant, Verizon Sourcing, LLC (“Verizon”), disclosed confidential information to Synchronoss Technologies, Inc. (“Synchronoss”), a competitor of the plaintiff, Hyperlync Multimedia Israel, Ltd. (“Hyperlync”), for use in its own competing product. As discussed in the article, the motion court dismissed the claims for, inter alia, the misappropriation of confidential information and ideas. That decision was appealed. In today’s article, we examine the affirmance of the motion court’s decision by the Appellate Division, First Department.

Background

In 2013, Hyperlync developed the Phone Cloner (“Phone Cloner”), a peer-to-peer phone provisioning app. In March of that year, Hyperlync presented the Phone Cloner concept to Verizon. Having expressed interest in the app, Hyperlync gave Verizon functioning versions of the Phone Cloner, as well as technical information for testing. Hyperlync alleged that it disclosed such information to Verizon pursuant to a non-disclosure agreement (“NDA”) the parties signed on October 12, 2012.

In August 2013, Verizon demonstrated the Phone Cloner app at a Verizon “innovation fair” in Walnut Creek, California. The fair was attended by Verizon employees and a Verizon vendor.

Following the fair, the vendor sent an email to two Synchronoss employees informing them that a “content transfer” app was demonstrated at the meeting. The email did not reference Hyperlync or the Phone Cloner. Deposition testimony showed that the vendor neither received materials and information from Verizon regarding the Phone Cloner or any peer-to-peer provisioning technology nor worked on any phone provisioning app.

In October 2013, Verizon declined Hyperlync’s terms for continued development of the Phone Cloner.

Hyperlync alleged that after Verizon disclosed Hyperlync’s trade secret information to Synchronoss in breach of the NDA, Synchronoss then released its own phone provisioning app, named MCT, based on the misappropriated Hyperlync information. Hyperlync maintained that the MCT app had the same functionality, look and feel as the Phone Cloner.

Justice Saliann Scarpulla, granted Verizon’s motion for summary judgment, dismissing Hyperlync’s misappropriation of trade secrets, misappropriation of ideas, and breach of contract causes of action as against it. 

The Motion Court held that Hyperlync failed to identify a trade secret that had been misappropriated, notwithstanding the “voluminous papers and exhibits,” submitted to the Court. The Motion Court explained that Hyperlync failed to provide any specificity concerning the alleged trade secret, concluding that Hyperlync’s “explanation of its trade secret [was] nebulous at best….” 

The Motion Court also held that Hyperlync failed to demonstrate a misappropriation as a consequence of Verizon’s alleged violation of the NDA. The Motion Court found that Hyperlync failed to submit “any documents or testimony to raise an issue of fact” demonstrating that “the ‘how to’ of the Phone Cloner app was passed to Verizon.” This finding was underscored by Hyperlync’s admission that one of its employees could not clearly state “what information he gave to Verizon about the Phone Cloner,” and the employee’s testimony “that Hyperlync did not disseminate any source code associated with [the product].”

Finally, the Motion Court held that Hyperlync failed to demonstrate that the Phone Cloner app was novel – i.e., it “was unlike other products on the market.” “In fact,” the Court noted, deposition testimony “confirmed that the idea for data transfer between two phones via Wi-Fi was already in the public domain at the time of the Phone Cloner app,” and documentary “evidence” presented by Verizon showed that there were a number of “applications for Wi-Fi data transfer” that “pre-dated Phone Cloner.…”

Plaintiff appealed. 

The First Department’s Decision

The First Department found that, “[c]ontrary to Verizon’s arguments” and the Motion Court’s holding, plaintiff described the allegedly misappropriated ideas with sufficient specificity. Slip Op. at *1 (citation omitted). Notwithstanding, the Court said that “the ideas were not sufficiently novel to merit protection.” Id. (citation omitted). The Court explained that the “concepts behind plaintiffs’ app were not new, were readily available in the public domain, and were used by a number of other apps on the market at the time.” Id. The Court rejected plaintiffs’ argument that the app was an improvement in speed and functionality over the apps that existed in 2013, holding that “a smart adaptation of existing knowledge is not considered novel.” Id. (citations omitted).

The Court also found that the ideas for the app were not confidential. Id. (citation omitted). The Court noted that the ideas were in the public domain “before the alleged misappropriation”. Id. The Court explained that “plaintiffs posted the app’s demo videos on YouTube and repeatedly shared those videos with companies with which it did not have nondisclosure agreements.” Id. The Court rejected plaintiffs’ argument that the materials were promotional and did not contain any confidential information. Id. Such an argument said the Court was “belied by [plaintiffs’] own emails, in which they requested assurances of confidentiality.” Id. “Plaintiffs’ subjective understanding that there was an assurance of confidentiality does not create third-party obligations of confidentiality,” concluded the Court. Id. (citation omitted). 

The Court further found that Plaintiffs “failed to establish that Verizon actually conveyed its ideas to Synchronoss.” Id. First, noted the Court, “plaintiffs did not share the app’s source code.” Id. In fact, observed the Court, plaintiffs “encrypted its builds, making the source code unaccessible to Verizon.” Id. Second, said the Court, there was nothing in the record showing “the form in which the misappropriated information was transferred, such as technical specifications, prototypes, or PowerPoint decks, or the person or persons who did the alleged transferring.” Id. The Court did not find plaintiffs’ expert’s opinion that the competing apps functioned similarly sufficient to raise an issue of fact. This was especially so since the opinion was not based on the expert’s review of the source code. Id. The fact that “both apps accomplish the same task in a manner that might seem similar to an end user does not prove misappropriation,” concluded the Court. Id.

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