250Ok Inc. v. Message Systems, Inc., 012221 DECH, 2020-0588-JRS

Docket NºC. A. 2020-0588-JRS
Opinion JudgeSLIGHTS, VICE CHANCELLOR
Party Name250ok, INC. f/k/a 250ok, LLC Plaintiff, v. MESSAGE SYSTEMS, INC., a/k/a SPARKPOST, Defendant.
AttorneyJames P. Hughes, Jr., Esquire and Lauren Dunkle Fortunato, Esquire of Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware and Matthew T. McLaughlin, Esquire and Kacey Houston Walker, Esquire of Nixon Peabody LLP, Boston, Massachusetts, Attorneys for Plaintiff 250ok, Inc., f/k/a 250ok, LLC....
Case DateJanuary 22, 2021
CourtCourt of Chancery of Delaware

250ok, INC. f/k/a 250ok, LLC Plaintiff,

v.

MESSAGE SYSTEMS, INC., a/k/a SPARKPOST, Defendant.

C. A. No. 2020-0588-JRS

Court of Chancery of Delaware

January 22, 2021

Date Submitted: November 17, 2020

James P. Hughes, Jr., Esquire and Lauren Dunkle Fortunato, Esquire of Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware and Matthew T. McLaughlin, Esquire and Kacey Houston Walker, Esquire of Nixon Peabody LLP, Boston, Massachusetts, Attorneys for Plaintiff 250ok, Inc., f/k/a 250ok, LLC.

Ryan D. Stottmann, Esquire and Sarah P. Kaboly, Esquire of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware and Clement S. Roberts, Esquire and Nathan Shaffer, Esquire of Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Attorneys for Defendant Message Systems, Inc. a/k/a SparkPost.

MEMORANDUM OPINION

SLIGHTS, VICE CHANCELLOR

Plaintiff, 250ok, Inc., alleges Defendant, Message Systems, Inc. d/b/a SparkPost ("SparkPost"), breached a Reseller Agreement (defined below) and misappropriated trade secrets. It now seeks equitable relief to prevent further breaches and further misappropriations. While SparkPost acknowledges that both the breach of contract and misappropriation of trade secrets claims are fact-intensive and not proper for resolution on a motion to dismiss, it has moved to dismiss the Complaint's Count III, where 250ok alleges SparkPost was unjustly enriched by its misappropriation and use of 250ok's confidential information and proprietary data.

When a plaintiff asserts a claim under Delaware's trade secrets statute, that claim "occupies the field" and preempts a claim for common law unjust enrichment. Accordingly, as explained below, the motion to dismiss must be granted.

I. BACKGROUND

I have drawn the facts from well-pled allegations in the Verified Complaint (the "Complaint") and documents incorporated by reference or integral to that pleading.1 For purposes of the motion, I accept as true the Complaint's well-pled factual allegations and draw all reasonable inferences in Plaintiffs favor.2

A.

The Parties

Plaintiff, 250ok, a Delaware corporation, is an email marketing company that maintains a comprehensive platform supporting "all phases of email marketing, including tools focused on deliverability, design, validation, and engagement analytics."3 Defendant, SparkPost, also a Delaware corporation, began its relationship with 250ok as a customer in 2013.4 It later became a reseller of 250ok's products under a "Reseller Agreement."5

B.

250ok's Sensor Network Technology

In today's realm of digital technology, companies face the ongoing challenge of ensuring their advertising content reaches their customers and putative customers. Email marketing has become an essential component of digital advertising.6 And, as advertisers attempt to place their content in consumers' email inboxes, the email service providers ("ESPs") for those consumers attempt to block that content as "spam."7 Ending up in a "spam" folder sounds the death bell for an advertiser's email as it all but ensures the email will never see the light of day once sent.8

One way ESPs mark emails as spam is through "spam traps."9 Spam traps are simply email addresses. These email addresses process incoming emails and "extract certain metadata" to ascertain "the sender's identity and other key information."10 By analyzing this information, the ESPs seek to identify which senders are worthy of the ESPs "blacklist."11 If an email address is blacklisted, the sender's emails automatically are diverted into a recipient's spam folder.[12]

Given that operators of spam traps keep the identity of their addresses secret, companies, like 250ok, have attempted to replicate the effect of spam traps to help customers avoid the ESP blacklists.13 These fake spam traps are known as "sensor networks." A "sensor network" is designed to mirror an ESP's spam trap, but "unlike spam traps, the data obtained from pure sensor networks is not used to populate blacklists" but "to help email senders identify deliverability issues" so they can address the issues and avoid the spam traps.[14]

250ok's proprietary sensor network is known as MailboxPark (the "Sensor Network").15 Utilizing the Sensor Network as the backbone, 250ok offers a service known as Reputation, "which helps senders monitor their internet protocol addresses and domains to identify sending practices that damage the sender's reputation."[16]To build the Sensor Network and subsequently roll-out its Reputation product, 250ok "invested significant resources" in order to build "an innovative software platform that leverages partnerships with a wide range of domain owners and managers to generate email data from the traffic sent to those domains."17 250ok maintains that "[t]he components, composition, and architecture of the Sensor Network are not known or readily ascertainable, . . . [which] allows the Sensor Network to mimic the functionality of spam-trap networks."18

C. The Reseller Agreement

On July 17, 2015, 250ok and SparkPost entered into the Reseller Agreement, whereby "SparkPost [was designated] as a reseller of the service that 250ok provides through its Platform (the 'Service')."19 The Reseller Agreement granted SparkPost a license to "use and access the 250ok Service for the purpose of bundling the subscription to the Service for re-sale with [SparkPost] products and services to [SparkPost's] Customers . . . ."20

To protect 250ok's information, the Reseller Agreement, at Section 5.2, contained several restrictions upon SparkPost's use of information it received as a 250ok reseller:

Restrictions. [SparkPost] shall not (a) modify, copy or create derivative works based on the Service; (b) frame or mirror any content forming part of the Service, other than on [Sparkpost's] and Customer's own intranets or otherwise for its own internal business purposes; (c) reverse engineer the Service; or (d) access the Service in order to (i) build a competitive product or service, or (ii) copy any ideas, features, functions or graphics of the Service.21

As defined, "Confidential Information" included, among other things, "technology and technical information, product designs, and business processes."[22] In Section 6.2 of the Reseller Agreement, SparkPost promised "not to disclose or use any Confidential Information of [250ok] for any purpose outside the scope of this Agreement."23 SparkPost also agreed that it would "use the same degree of care to protect the Confidential Information as it used to protect its own information of a confidential and proprietary nature, but in no event shall it use less than reasonable care [24].

D. 250ok's Disclosure and SparkPost's Alleged Misuse of 250ok's Confidential Information

After 250ok launched its Sensor Network, and in furtherance of the Reseller Agreement, 250ok provided SparkPost with "proprietary data generated from its own Sensor Network."25 250ok also provided SparkPost detailed information regarding a number of product features, including "encoded information contained in email headers"26 and "the composition and architecture of its Sensor Network."[27] This data transparency, according to 250ok, was unique within the industry and provided particular value to recipients of the information, including SparkPost.28

In the early spring of 2019, SparkPost began exploring the possibility of acquiring some or all of 250ok's business, leading to a May 10, 2019 meeting between the parties.29 At this meeting, "SparkPost presented 250ok with a demonstration of its new product, SparkPost Signals, which incorporated sensor-network data to replicate the functionality of 250ok's Service."30 When asked how SparkPost acquired the information necessary to build out its own sensor network, SparkPost's Chief Technology Officer acknowledged that SparkPost "had figured out how to 'reverse engineer' the domains that constitute 250ok's Sensor Network."31 Upon learning that its confidential information had been used for this purpose, 250ok expressed its view that SparkPost had misappropriated 250ok's confidential information and declined SparkPost's offer to purchase the company.[32]

On May 14, just four days after its meeting with 250ok, SparkPost publicly introduced SparkPost Signals.33 According to 250ok, "SparkPost could not have developed-and did not develop-its Signals product . . . without wrongfully appropriating 250ok proprietary and confidential information and/or trade secrets that SparkPost gleaned from or as a result of its reseller relationship with 250ok."34

E. Procedural History

250ok filed its Complaint in this Court on July 16, 2020. 250ok alleges that SparkPost misappropriated its proprietary information related to its Sensor Network and has used this information to build and monetize its own sensor network known as SparkPost Signals. The Complaint comprises three counts. Count I alleges breach of the Reseller Agreement; Count II alleges misappropriation of trade secrets under the Delaware Uniform Trade Secret Act (the "DUTSA")35; and Count III alleges unjust enrichment. SparkPost has moved to dismiss only Count III. The proffered grounds for dismissal are that Count III is preempted by 250ok's statutory claim for misappropriation of trade secrets under the DUTSA and otherwise barred as duplicative of 250ok's breach of contract claim.

For reasons explained below, I agree with SparkPost that 250ok's claim under the DUSTA encompasses the restitutionary elements and purposes of its common law unjust enrichment claim and that the common law claim, therefore, is preempted. Given this holding, I need not address whether the unjust enrichment claim is improperly duplicative of the breach of contract claim.36

II...

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