Broker Genius, Inc. v. Zalta
| Citation | 280 F.Supp.3d 495 |
| Decision Date | 04 December 2017 |
| Docket Number | 17–cv–2099 (SHS) |
| Parties | BROKER GENIUS, INC., Plaintiff, v. Nathan ZALTA, Michael Shamah, NRZ Entertainment LLC, Joseph Bassil, and Gontham, LLC, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Daniel J. Melman, Veronica Mullally Munoz, Miriam Kurien Tyrell, Nathan David Renov, Pearl Cohen Zedek Latzer Baratz LLP, New York, NY, for Plaintiff.
Jared Eric Paioff, Stephen Howard Orel, Schwartz, Sladkus Reich Greenberg Atlas LLP, Gene W. Lee, Martin Edward Gilmore, III, Matthew Joseph Moffa, Perkins Coie LLP, Steven David Sladkus, Winston & Winston, P.C, William James McCabe, Ropes & Gray, LLP, New York, NY, Jason H. Cooper, Jeffrey Brandon Sladkus, Mark L. Seigel, The Sladkus Law Group, Atlanta, GA, for Defendants.
Broker Genius, Inc., a company that develops software for the ticket broker industry, has sued its former licensees—defendants Nathan Zalta and Michael Shamah, and their company, NRZ Entertainment LLC—alleging that they used their access to Broker Genius's AutoPricer v.3 software improperly to acquire the knowledge and information they needed to build a copycat competitor product called TickPricer. Broker Genius alleges that, in doing so, defendants misappropriated Broker Genius's trade secrets, engaged in copyright infringement, breached their contractual obligations and the implied duty of good faith and fair dealing, unjustly enriched themselves, and tortiously interfered with Broker Genius's current and prospective business relations. (See Compl., ECF No. 1.) Plaintiff later joined two additional defendants—software developer Joseph Bassil and his company, Gontham, LLC—and alleges that they are also liable for trade secret misappropriation, copyright infringement, and unjust enrichment for their roles in helping Zalta, Shamah, and NRZ build TickPricer. (Am. Compl., ECF No. 25.)
Broker Genius has now moved pursuant to Fed. R. Civ. P. 65 to preliminarily enjoin the original defendants—Zalta, Shamah, and NRZ—from using TickPricer or making it available to any third party. (See Order to Show Cause, ECF No. 5; Pl.'s Pre–Hearing Mem. 1.) Broker Genius seeks this relief only in connection with its claims of trade secret misappropriation pursuant to New York law and the Defend Trade Secrets Act of 2016 ("DTSA"), 18 U.S.C. § 1836, et seq . (Pl.'s Pre–Hearing Mem. 17 n.25.)
Because Broker Genius discloses the information that it alleges to be its trade secrets to each of its licensees as a matter of course and because it has not shown that it required those licensees to maintain the confidentiality of user-facing elements of the AutoPricer v.3 software, plaintiff has established neither a likelihood of success on the merits nor sufficiently serious questions going to the merits of its trade secret misappropriation claims. Accordingly, plaintiff's motion for a preliminary injunction is denied.
At the same time that Broker Genius filed its complaint on March 23, 2017, it requested that the Court issue an ex parte temporary restraining order to, inter alia , seize any property of defendants NRZ, Zalta, and Shamah containing Broker Genius's trade secrets and to restrain them from marketing their TickPricer software product. The Court denied plaintiff's request for ex parte relief, held a hearing later that same day with counsel for all sides present, and granted a TRO directing defendants not to access or disclose Broker Genius's proprietary technology or information, not to violate any confidentiality obligations owed to Broker Genius, and not to destroy evidence, but the Court denied Broker Genius's requests to seize defendants' computers and prevent defendants from marketing the TickPricer product. (See Order to Show Cause, ECF No. 5.)
A hearing on Broker Genius's motion for a preliminary injunction was held over the course of three days in June where witnesses were heard and documentary evidence presented. The following constitutes this Court's findings of fact and conclusions of law.
Broker Genius, Inc., is a software company that specializes in developing software products and services to help automate the pricing of tickets in secondary markets. The secondary market for tickets for sporting events, concerts, and theater performances is a multi-billion dollar industry in which ticket brokers purchase tickets from ticket sellers (e.g. , Ticketmaster) in the primary market and then resell to consumers through online exchanges (e.g. , StubHub).
Broker Genius was founded in 2013 by Shmuel ("Sam") Sherman, who had previously worked as a ticket broker on the secondary market and currently serves as the company's CEO. (Tr. 181:1–13.) Sherman testified that he started Broker Genius in order to build a software product that would allow brokers to "implement the strategies" they had already been using to price tickets manually, but "within a user interface in which the user could engage ... with the software dynamically and have the ability to change [his or her] strategy very quickly." (Tr. 182:10–15.) Sherman recognized that brokers did not only need an automatic pricing solution, but that they also needed a user interface that would enable them to efficiently "analyze the market" in order to define and price their inventory against comparable listings. (Tr. 182:15–22, 185:11–16.) At the time of Broker Genius's founding in 2013, no other software offered these capabilities. (Tr. 182:8–22, 185:11–16.)
Sherman and plaintiff's expert, Dr. Eric Koskinen, testified that because Broker Genius was creating a type of product that did not already exist in the marketplace, it spent considerable time creating its own roadmap for the functions the software should perform and refining its user interface through trial and error and responses to customer feedback. (Tr. 112:11–24, 114:3–18, 189:19–190:8.) Accordingly, Broker Genius created multiple iterations of its product over the course of two years; it released the first version in September 2013 and did not launch the version at issue in this case—AutoPricer v.3—until July 2015. (Koskinen Expert Report, PX–62 § 5.2.1; see also Deposition of Sam Sherman, May 19, 2017, Pl.'s Pre–Hearing Mem., PX–84; Tr. 66:9–14.) This development process necessitated an investment of over $4 million. (Tr. 199:3–5.)
During the early stages of Broker Genius's development of its automatic pricing technology, it decided to protect its invention by filing a patent application with the U.S. Patent Office. Broker Genius's patent application was published on January 22, 2015 as Pub. No. US 2015/0025918 A1 (the " '918 Patent Application"). The '918 Patent Application describes a comprehensive system to automate the entire "ticket management process"—from forecasting market trends and purchasing event tickets to pricing the tickets for sale through various marketplaces. ( '918 Patent Application, DX–1 ¶ 22.) A major portion of the system described in the application has a functionality which enables brokers to "manage all of their electronic tickets from one interface," automatically change the prices of tickets based on "predetermined user inputs," and "upload[ ] [their] ticket listings seamlessly to multiple secondary ticket exchange servers and integrat[e] with them in real time." (DX–1 ¶¶ 22, 33.) This is the same functionality that is found in AutoPricer v.3—the software at issue in this case.
AutoPricer v.3 is a dynamic automatic pricing software that allows ticket brokers to manage their ticket inventories by setting pricing rules that enable the prices of their tickets to automatically adjust to reflect changes in the market. To accomplish this, AutoPricer v.3 integrates with point of sale ("POS") ticket inventory systems used by the brokers (e.g. , SkyBox), as well as the ticket exchanges in which tickets are sold to consumers (e.g. , StubHub).
In Dr. Koskinen's expert report, he identified fourteen "software components" that Broker Genius claims are the trade secrets that defendants misappropriated to create TickPricer. (Koskinen Expert Report, PX–62; see also Pl.'s Identification of Asserted Trade Secrets, June 5, 2017; Tr. 97:13–98:2.) These claimed trade secrets are generally comprised of: (1) AutoPricer v.3's application architecture (see SC001, SC014), (2) its overall user experience and user interface ("UX/UI"), including certain inter-operating and interactive software components (see SC003–SC0012), and (3) its techniques for improving the speed of pricing calculations and making the software scalable to accommodate an expanding user base (see SC002, SC013).1
At the preliminary injunction hearing, Dr. Koskinen defined software architecture as "the overall organization of a computer system, how the different elements of the functionality or infrastructure [are] organized." (Tr. 99:24–100:1.) He analogized it to the manner in which "the different systems of [a] car, braking system versus the drive train, are organized." (Tr. 100:2–4.) According to plaintiff, the architecture of AutoPricer v.3 corresponds to the software component "Dynamic Automatic Ticket Pricing System" (SC001), which Dr. Koskinen describes somewhat amorphously as the "platform" and "system" for AutoPricer v.3 in his expert report. (Pl.'s Post–Hearing Mem. 4; Koskinen Expert Report, PX–62, Ex. C at 1.1.) Although there is substantial overlap between the architecture of the AutoPricer v.3 software and its user interface, the architecture also apparently encompasses the underlying structure of the pricing application and the manner in which it is integrated with brokers' POS ticket inventory systems and ticket exchanges. (PX–62, Ex. C at 1.1.)
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