Katch, LLC v. Sweetser

• Decision Date: 10 November 2015
• Docket Number: Case No. 15-cv-3760 (SRN/JSM)
• Parties: Katch, LLC, f/k/a Vantage Media, LLC, Plaintiff, v. Jeff Sweetser, Defendant.
• Court: U.S. District Court — District of Minnesota

143 F.Supp.3d 854

Katch, LLC, f/k/a Vantage Media, LLC, Plaintiff,

v.Jeff Sweetser, Defendant.

Case No. 15-cv-3760 (SRN/JSM)

United States District Court, D. Minnesota.

Signed November 10, 2015

Jillian M. Flowers and V. John Ella, Jackson Lewis P.C., 225 S. 6th St., Ste. 3850, Minneapolis, MN 55402 for Plaintiff.

David G. Waytz and Teresa M. Thompson, Fredrikson & Byron, P.A., 200 S. 6th St., Ste. 4000, Minneapolis, MN 55402 for Defendant.

MEMORANDUM OPINION AND ORDER

SUSAN RICHARD NELSON

, United States District Judge

This matter is before the Court on Plaintiff Katch, LLC's ("Katch") Motion for Preliminary Injunction and Expedited Discovery ("Motion") [Doc. No. 5]. For the reasons stated below, Katch's Motion is denied.

I. BACKGROUND

A. Katch, Its Business, and the Controversy Regarding "Confidential Information"

Katch is a California limited liability company primarily based out of California. ¹

(Verified Complaint ("Compl.") at ¶ 2 [Doc. No. 1].) Katch is an online advertising service that primarily assists insurance companies (called "advertisers") with placing their ads on third-party websites (called "publishers"). (Compl. at ¶¶ 7–9.) In essence, Katch is an intermediary between advertisers and publishers. (Id. at ¶ 8.) Katch's objective, and the service it provides, is to connect advertisers with publishers who will get ads in front of numerous potential insurance customers, especially those customers most likely to "click" on an ad. (See id. at ¶¶ 12, 14, 22.) A large part of Katch's business is located within the health and life insurance industries (referred to as "verticals"). (Id. at ¶¶ 9, 25.)

Katch assists advertisers in placing their ads by employing a software platform ("Katch Platform") that offers "bid control, analytics, testing, integration, workflow, and customization features for both advertisers and publishers." (Id. at ¶ 7.) The Katch Platform uses an algorithm to tailor which ads are shown to which consumers on the publisher's website based on basic data provided by a consumer visiting the publisher's website and data about various advertisers' insurance products. (See id. at ¶¶ 13–14.) The Katch Platform is periodically "adjusted and tweaked" by certain Katch employees including, until recently, Defendant Jeff Sweetser ("Sweetser") "based on real-time performance data and confidential and trade secret information ...." (Id. at ¶ 13.)

How many consumers delivered to an advertiser through ads on a particular publisher's webpages actually become insurance customers ("Conversion Data") is tracked by Katch. (Id. at ¶ 15.) Katch then uses this Conversion Data to determine the most efficient and productive publishers (referred to as "Quality Publishers"). (Id. ) Knowing which publishers are Quality Publishers, according to Katch's Platform, is important to how Katch profits from its position between advertisers and publishers.

Advertisers submit bids to Katch for their ads to be placed on publisher's websites using the Katch Platform. (See id. at ¶ 11.) These bids are usually expressed on a "per click" basis, meaning the advertiser only pays when an individual actually clicks on, or interacts with, the ad.² (Id. at ¶ 12.) Katch charges advertisers more than it pays publishers per click (this difference is referred to as the "Margin"). (Id. at ¶ 18.) It can do so because of the value added by the Katch Platform. (Id. at ¶ 19.) Although advertisers and publishers can track some performance measures through Katch, they do not have access to the same information. (Id. at ¶¶ 16–17.) For instance, advertisers do not generally know who the Quality Publishers are, or what publishers are paid per click by Katch, and publishers do not know what advertisers bid to Katch, or how they are performing for specific advertisers. (See id. at ¶¶ 16–17, 22.) Katch can charge advertisers more to have their ads displayed with Quality Publishers because such ads produce better results for the advertiser.³ (Id. at ¶ 22.)

Katch describes the confidential information it uses in the above system as:

(A) How much Katch has offered in the past for the opportunity to display advertisements on a publisher's website;

(B) Who the preferred, quality publishers are, based on their track record and the value delivered to advertisers and Katch;

(C) Which publishers have the capacity to handle a certain volume of ads;

(D) Which publishers are particularly vulnerable to price competition; and

(E) What the advertisers are willing and have been willing to pay based on Conversion Data.

(Compl. at ¶ 20.) In supplemental documentation,⁴ Katch focuses more specifically on two pieces of information it claims are confidential trade secrets: the identity of its Quality Publishers (specifically the top eight publishers) and the amount Katch pays its publishers (referred to as the "average revenue per query") (collectively, "Confidential Information"). (Supplemental Declaration of Patrick Cross ("Supp. Cross Dec.") at ¶¶ 2–7 [Doc. No. 18].)

Katch claims to have expended millions of dollars and considerable amounts of time and resources developing the Confidential Information. (Compl. at ¶ 28.) As a result, "Katch has undertaken consistent efforts to maintain the secrecy of" the Confidential Information. (Id. at ¶ 29.) For instance, Katch requires its publishers to sign confidentiality agreements stating they will not disclose Katch's prices to third parties. (Ex. 1 to the Second Supplemental Declaration of Patrick Cross ("Publisher Agreement") at 3 [Doc. No. 30–1].⁵ ) Furthermore, Katch employees are required to sign confidentiality agreements in which they agree not to disclose Katch's confidential or trade secret information. (Compl. at ¶ 29; Ex. 1 to Compl. ("Confidentiality Agreement") at 1 [Doc. No. 1–1].⁶ ) However, Katch acknowledges that "small changes in the marketplace" lead to Confidential Information from a particular time losing relevance such that after six months it would "lose much, but not all, of its value ...." (Compl. at ¶ 26.)

According to Katch, if a competitor knew the price it paid to publishers, the competitor could "start at the finish line" and immediately win over Katch's publishers by outbidding Katch. (See Compl. at ¶¶ 26-27.) Similarly, knowing the identity of the Quality Publishers would allow a competitor to attract more bids at higher prices from advertisers, assuming the competitor could win over those publishers. (See Declaration of Patrick Cross ("Cross Dec.") at ¶ 10 [Doc. No. 9].) Keeping Katch's competitive edge over its rivals by safeguarding the Confidential Information is especially important during the open enrollment periods for health insurance under the Affordable Care Act and Medicare, which occur in the last few months of each year. (See Cross Dec. at ¶ 9.)

B. Sweetser and MediaAlpha

Sweetser lives and works in Minnesota. (Compl. at ¶ 4.) He has worked in the online advertising industry since 2006. (Declaration of Jeff Sweetser ("Sweetser Dec.") at ¶ 3 [Doc. No. 20].) His first job was with a firm called QuinStreet, Inc. ("QuinStreet"), which is a direct competitor of Katch. (Sweetser Dec. at ¶ 3.) During his first six years in the industry, Sweetser claims to have developed considerable knowledge and expertise about the online advertising marketplace including: "how advertisers and publishers interact ... how to develop relationships with publishers, how to find potential publishers, and how to effectively sell online advertising." (Id. at ¶ 5.)

In 2012, Katch recruited Sweetser and he joined the company as a Senior Manager of Business Development. (Id. at ¶ 4; Compl. at ¶¶ 30–31.) He was later promoted to Senior Director of Business Development. (Sweetser Dec. at ¶ 4; see Compl. at ¶ 31.) Sweetser's job at Katch "was to use his intimate knowledge of Katch's [Confidential Information] to run the publisher side of the health insurance vertical ...." (Compl. at ¶ 31.)

As a condition of his employment with Katch, Sweetser signed an Employee Proprietary Information and Inventions Agreement ("Confidentiality Agreement"). (See Compl. at ¶ 29; Confidentiality Agreement.) The Confidentiality Agreement requires that Sweetser not disclose or use any of Katch's Proprietary Information after his employment ends. (Confidentiality Agreement at 1.) "Proprietary Information" is defined, in relevant part, as "all confidential and/or proprietary knowledge, data, or information of [Katch] ... include[ing] ... trade secrets ... and (b) information regarding ... prices and costs, suppliers and customers ...." (Id. ) Importantly, Sweetser did not sign any sort of non-compete or non-solicitation agreement.⁷

In mid-September 2015, Sweetser informed Katch of his intention to leave the company later that month and go to work for MediaAlpha, LLC ("MediaAlpha"). Sweetser would hold a similar, if not identical, position at MediaAlpha. (Compl. at ¶ 35.) MediaAlpha is a direct competitor of Katch for online advertising in the health insurance vertical. (Id. at ¶¶ 37, 39, 41.) Previously, in 2014, MediaAlpha hired away two other Katch executives, Keith Cramer ("Cramer")⁸ and Michael Foster ("Foster"). (Id. at ¶ 43.) Cramer contends that while he and Foster worked for Katch, they were exposed to the same sorts of Confidential Information as Sweetser and signed confidentiality agreements nearly identical to the one Sweetser signed. (See Declaration of Keith Cramer ("Cramer Dec.") at ¶¶ 7, 14.) Despite these facts, there is no indication Katch sought legal recourse against either Cramer or Foster, nor is there any allegation either disclosed any of Katch's confidential information.

After Sweetser announced his departure, Katch attempted to convince him to stay. First, Sweetser claims Katch offered him "a substantial bonus" if he would sign a non-compete and not work for MediaAlpha or another online advertising platform for a year. (Sweetser Dec. at ¶ 10.) Sweetser declined this offer. (Id. ) Katch then offered Sweetser twice his normal salary for...