United States District Court, N.D. Illinois, Eastern Division
REVISED MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
Schuster LLC is a small financial services firm, founded by
Dr. Josef Schuster, that produces "indexes" of
companies with recent initial public offerings (IPOs). An IPO
is what takes place when a company starts to sell stock to
the public, and an index is a collection of stocks grouped
together to measure the performance of a market. IPOX claims
that the indexes it offers can serve as a "pure proxy
for economic growth and innovation"-an appealing service
for the investing industry.
Asset Management Co., a Japanese investment trust, wanted to
issue a financial product composed of the stocks of American
companies that experienced an IPO in the past five years-the
"Nikko Fund." Though they both aim to approximate
the same market, there is a distinction between an index, a
measurement of a market, and a fund, a product comprising the
stocks of companies within that market.
contracted with Lazard Asset Management (LAM) and Lazard
Japan Asset Management (LJAM), together "Lazard, "
to identify the companies that should be included within the
Nikko Fund. IPOX alleges that the defendants violated its
rights in various ways during the development and marketing
of the Nikko Fund.
and Lazard have moved for summary judgment on the thirteen
counts in IPOX's complaint and on IPOX's request for
punitive damages. IPOX has cross-moved for summary judgment
on the defendants' affirmative defenses.
is a financial services corporation organized under the laws
of Japan. Several years prior to this litigation, it operated
the Nikko Growing Venture Fund, an investment trust that
invested in Japanese companies with IPOs in the previous five
years. In late 2013, the company wanted to create an
analogous fund that would invest in American companies with
recent IPOs. This fund, the subject of this litigation, is
referred to as the Nikko Fund.
up this fund, Nikko asked LJAM and LAM to select and trade
the stocks in the Nikko Fund. Unlike some passively-managed
funds, whose composition is determined by an index, the Nikko
Fund is an actively managed fund whose composition is based
upon the research and advice of investment advisors. In an
agreement between Nikko and LAM establishing their
relationship, they agreed that LJAM would provide services to
LAM to help form the Nikko Fund.
LJAM both contend they were unfamiliar with IPOX before
beginning work on the Nikko Fund. But by August 2014, prior
to any direct contact with IPOX employees, LAM employees were
acquainted with the IPOX indexes. LAM employees utilized
information about the IPOX index to guide their own
investment decisions. In one e-mail sent in early August, an
analyst described how he compared the Nikko Fund model
against the performance of the IPOX index. IPOX Ex. 101 at
LAM00020446. Another e-mail expressed concern that the
weighting of the Nikko Fund-the proportion of certain
investments relative to others-disfavored large corporations
as compared to the IPOX index. IPOX Ex. 69 at LAM00016478.
The record does not identify the source of the information
used by the LAM employees. At the same time these e-mails
were exchanged, Erik Miller, a LAM employee, e-mailed a
question to Schuster about how he compiled the IPOX index.
Schuster provided information to Miller that he later
conceded was confidential.
Krenn, the LAM employee responsible for securing licenses for
services like the IPOX index, e-mailed Schuster to request a
license for the index. Lazard Ex. 96 at IPOX00000493. IPOX
offered prospective customers the option of a data license,
which authorizes the licensee to use the IPOX indexes
internally, and a product license, which permits use of the
IPOX indexes to create a new product. IPOX LR 56.1 Stmt.
¶¶ 11-12. IPOX charges data licensees a flat cost
and product licensees a percentage of the value of IPOX-based
products that they sell. Id. Schuster provided
Krenn, and several other LJAM employees, a free trial:
"Happy to extend this for one month. Please note that a
license is required, should you be interested in using the
index etc. for a product." Lazard Ex. 97 at LAM00000416.
Schuster also protected the confidentiality of his
information by including, in some attachments, notices like
"Confidentiality Disclaimer applies." See,
e.g., Lazard Ex. 85 at IPOX00004904.
employees began to contact Schuster with specific questions
about the inner workings of the IPOX index. Schuster provided
detailed information on how the IPOX index was compiled.
See, e.g., Lazard Ex. 87 at IPOX00006888 (e-mail
from Schuster describing "the index construction
process"). At one point, Shintaro Kambara, an LJAM
employee, mentioned in an e-mail that he had been involved in
an IPO fund with Kosaka, who was already corresponding with
Schuster. Lazard Ex. 142 at IPOX00006875. Kosaka,
Kambara's manager, told Kambara not to mention the
existence of the IPO fund. IPOX Ex. 130 at LAM00061607.
Schuster e-mailed Kambara back to confirm that an IPO fund
was being formed. In response, Kambara stated:
"Actually, we don't decide to launch a IPO fund now
and we are conducting due diligence of relevant IPO
Index." Lazard Ex. 89 at IPOX00001755. Schuster and
Lazard employees continued to correspond.
mid-September 2014, representatives of Nikko, LJAM, and LAM
traveled to New York City to present the Nikko Fund to SMBC
Nikko, a major potential investor. At the presentation, the
defendants shared a PowerPoint that touted the benefits of
investing in the U.S. IPO market. The title slide included
the name of each defendant. One slide stated "The Post
IPO Index (IPOX-100US) Tends to Perform Well in Almost Every
Market Environment." IPOX Ex. 72 at LAM00153200
(PowerPoint). Other slides also referred to IPOX's strong
Nikko introduced marketing materials onto its website around
October 1, 2014, the date of the launch of the Nikko Fund.
The website was targeted solely to Japanese investors, was
written in Japanese, and did not provide an option to
purchase into the Nikko Fund from the site itself. On the
website, the IPOX trademark was used in a chart comparing the
strong performance of the IPOX index against three other
indexes that did not measure the IPO market.
using a search engine directed towards Japanese websites,
Schuster learned of the materials on the Nikko website on
October 16, 2014. By the end of October, Schuster, suspecting
that Lazard was not merely conducting due diligence of the
IPOX index, e-mailed Krenn to "retract" the
"data license proposal" he extended to LAM in order
to secure a license with Nikko directly, the "funds
sponsor." Lazard Ex. 106 at IPOX00002949. In his
response e-mail, Krenn implied he did not know which fund
Schuster was talking about. Id. Schuster and Krenn
never reached an agreement on a license.
August 2014, Schuster had separately begun negotiations with
Nikko for a license after Ronald Cajetan, an IT professional
employed by Nikko, requested a data license. Nikko Ex. N at
IPOX00007060. Schuster sent Cajetan a proposal, to which
Cajetan stated "we are OK to move forward with the
signing." But Cajetan responded to his own message to
inform Schuster that the Nikko "business side"
asked Cajetan not to sign the license. On October 16, 2014,
after learning of Nikko's use of the IPOX mark on its
Japanese website, Schuster e-mailed Cajetan and instructed
him to direct Nikko's legal counsel to reach out to IPOX
regarding the alleged infringement. Cajetan and Schuster
began to negotiate an agreement again.
insisted that Nikko take a product license. Cajetan
responded: "After your product's license
infringement by us, I know I should not ask you but would it
be possible to . . . revert back to [the data license] you
first quoted for me." IPOX Ex. 91 at Nikko0000058.
Cajetan e-mailed Schuster a marked-up proposal, to which
Schuster agreed. To ensure Schuster had adopted the marked-up
proposal, Cajetan wanted to see the revised agreement before
assenting to it. On October 28, Schuster responded: "Let
me know if you are OK with countersigning then I will mail
the original documents to you." This document, which
Schuster e-mailed to Cajetan on October 29, 2014, is the one
IPOX alleges is the basis of an express contract between
Nikko and IPOX. The "business side" of Nikko again
intervened to instruct Cajetan to reject the agreement. Nikko
also removed all reference to IPOX on its website by February
the terms of the purported agreement formed at the end of
October, IPOX was responsible for sending Nikko daily updates
on the performance of the IPOX indexes. It began sending data
updates in February upon advice of its counsel.
current version of IPOX's complaint in this lawsuit
asserts fourteen claims against Nikko, LJAM, and LAM. IPOX
alleges the defendants committed misappropriation under
Illinois common law (Count 1) and the Illinois Trade Secrets
Act (ITSA), 765 ILCS 1065/2 (Count 2), and infringed
IPOX's trademark under Illinois common law and the Lanham
Act, 15 U.S.C. § 1114 (Count 3). The Court previously
dismissed the fourth count of IPOX's amended complaint.
IPOX also alleges the defendants violated the Illinois
Deceptive Trade Practices Act, 815 ILCS 510/2 (Count 5), and
the Illinois Trademark Registration Protections Act, 765 ILCS
1036/65(a) (Count 6). Against LJAM and LAM, IPOX alleges
fraud (Count 7) and violation of the Illinois Consumer Fraud
and Deceptive Business Practices Act, 815 ILCS 505/2 (Count
8). IPOX also asserts against Nikko a claim for breach of
express contract (Count 9) and a claim for breach of implied
contract (Count 10). IPOX also alleges LAM breached an
implied contract (Count 11), interfered in IPOX's
contract with Nikko (Count 13), and interfered with a
prospective business relationship (Count 14). IPOX also
asserts an unjust enrichment claim against all defendants
and Lazard have both moved for summary judgment. Lazard also
moved for summary judgment on IPOX's request for punitive
damages on several counts. IPOX cross-moved for summary
judgment on Nikko and Lazard's affirmative defenses.
is entitled to summary judgment if it can demonstrate that
the non-movant has not presented enough evidence for a
reasonable jury to find in its favor. Fed.R.Civ.P. 56(a);
Marr v. Bank of America, N.A., 662 F.3d 963, 966
(7th Cir. 2011). The Court grants the non-movant all
reasonable inferences supported by the record. United
States ex rel. Yannacopoulos v. Gen. Dynamics, 652 F.3d
818, 823 (7th Cir. 2011).
addressing the specific claims asserted by IPOX, the Court
must consider whether LJAM acted as an agent of LAM in its
dealings with IPOX. The existence of an agency relationship
is a question of fact to be determined by the jury, unless
the relationship is "so clear as to be undisputed."
Rankow v. First Chicago Corp., 870 F.2d 356, 359
(7th Cir. 1989), quoting St. Ann's Home for the Aged
v. Daniels, 95 Ill.App.3d 576, 579, 420 N.E.2d 478, 481
(1989). An agent may possess express authority, which is
directly granted in express terms, or implied authority,
which is inferred from the conduct of the principal.
Curto v. Illini Manors, Inc., 405 Ill.App.3d 888,
892, 940 N.E.2d 229, 233 (2010). There is evidence from which
a reasonable jury could find that LAM conferred both express
and implied authority to LJAM. Specifically, there is
evidence of express authority based upon the agreement
between Nikko and LAM, which stated that LJAM was an
affiliate of LAM that would "provide services to [LAM]
to intermediate for the conclusion of this agreement."
Lazard Ex. A at LAM00000552. And there is evidence that LJAM
derived implied authority from its course of conduct with
LAM. Specifically, LAM described LJAM as its subsidiary.
Mazzari Decl. ¶ 1. LAM did not rebuke LJAM for asking if
it was interested in forming a business relationship between
Nikko and LAM. Lazard LR 56.1 Stmt. ¶ 13. LJAM employees
were responsible for "introduc[ing] the strategies . . .
run by Lazard New York . . . to Japanese investors."
Lazard Ex. 8 at 10 (Kosaka deposition). These circumstances
are sufficient for a jury to reasonably conclude that LAM
intended LJAM to act as its agent in dealings related to
Nikko. Curto, 405 Ill.App.3d at 892, 940 N.E.2d at
Count 1: Misappropriation under Illinois common law
alleges that Nikko, LJAM, and LAM misappropriated its index
under Illinois common law. As the Court previously held, in
Illinois the common law tort of misappropriation applies only
to non-confidential information given the preemptive effect
of the Illinois Trade Secrets Act (ITSA) with regard to
confidential information. IPOX Schuster, LLC v. Nikko
Asset Mgmt. Co., 191 F.Supp.3d 790, 802 (N.D. Ill.
"hot news" tort, first described in
International News Service v. Associated Press, 248
U.S. 215 (1918), applies in cases in which "(i) a
plaintiff generates or gathers information at a cost; (ii)
the information is time-sensitive; (iii) a defendant's
use of the information constitutes free-riding on the
plaintiff's efforts; (iv) the defendant is in direct
competition with a product or service offered by the
plaintiffs; and (v) the ability of other parties to free-ride
on the efforts of the plaintiff or others would so reduce the
incentive to produce the product or service that its
existence or quality would be substantially threatened."
Nat'l Basketball Ass'n v. Motorola, Inc.
(NBA), 105 F.3d 841, 845 (2d Cir. 1997)
(interpreting New York state misappropriation law). See
Chicago Bd. Options Exch., Inc. v. Int'l Sec. Exch.,
L.L.C., 2012 IL App (1st) 102228, ¶ 45, 973 N.E.2d
390, 404-05 (Illinois and New York law on misappropriation is
attempts to analogize its claim to the claim asserted in
Board of Trade of City of Chicago v. Dow Jones &
Co., 98 Ill.2d 109, 456 N.E.2d 84 (1983). In Board
of Trade, the Illinois Supreme Court affirmed a
declaratory judgment that the Chicago Board of Trade's
plan to issue a futures contract based upon the Dow Jones
Industrial Average, an index, constituted misappropriation.
Id. at 121-23, 456 N.E.2d at 89-91.
allegations depart from Board of Trade in two ways
usefully understood through the NBA elements. First
is the requirement that the information be time-sensitive.
NBA, 105 F.3d at 845. In Board of Trade,
the proposed product was a passively-managed security,
meaning that its composition was determined entirely on the
most recent movements of the index on which it was based.
Bd. of Trade, 98 Ill.2d at 114, 456 N.E.2d at 86.
The alleged use of the IPOX index is not time-sensitive, as
the Nikko fund is not passively managed via the movements of
the IPOX index. Rather, the Lazard employees actively manage
the fund, using information other than that provided by the
for this same reason, IPOX cannot establish that Lazard's
use of its index constitutes free-riding. NBA, 105
F.3d at 845. The product that the Chicago Board of Trade
wanted to sell changed whenever the Dow Jones Industrial
Average changed: if the composition of the index shifted, the
composition of the futures contract automatically shifted.
Bd. of Trade, 98 Ill.2d at 114, 456 N.E.2d at 86.
The composition of the Nikko Fund may change alongside the
IPOX index, but that is only because analysts at LAM and LJAM
are tasked with constructing a basket of securities that
track the same market of companies with recent IPOs that the
IPOX index measures. The efforts of LAM and LJAM, not the
IPOX index, control the composition of the Nikko Fund.
these reasons, IPOX cannot sustain a common law
misappropriation claim. The defendants are entitled to
summary judgment on Count 1.
Count 2: Misappropriation under the Illinois Trade Secrets
alleges that Nikko, LAM, and LJAM misappropriated its trade
secrets in violation of the ITSA, 765 ILCS 1065/2. To sustain
a claim for misappropriation of a trade secret, IPOX must
show (1) there was a trade secret, (2) the trade secret was
misappropriated, and (3) the defendants used the trade secret
in the course of business. Learning Curve Toys, Inc. v.
PlayWood Toys, Inc., 342 F.3d 714, 721 (7th Cir. 2003).
The defendants argue that they are entitled to summary
judgment because IPOX cannot show the information at issue
was a trade secret.
ITSA defines a trade secret as information that is
sufficiently secret to derive economic value and is subject
to reasonable efforts to maintain its secrecy. 765 ILCS
1065/2(d). If the plaintiff does not take reasonable steps to
maintain the secrecy of the information, the law will not
consider the information to be a trade secret.
Rockwell Graphic Sys., Inc. v. DEV Indus.,
Inc., 925 F.2d 174, 177-79 (7th Cir. 1991). If the
plaintiff intentionally releases the information to the
public, he or she "can no longer make a successful trade
secrets misappropriation claim because the information is not
subject to reasonable efforts to maintain secrecy."
Ho v. Taflove, 648 F.3d 489, 504-05 (7th Cir. 2011).
Lazard notes, Schuster has presented a great deal of
information about the IPOX indexes to the public through the
IPOX website, PowerPoint presentations, and a
publicly-released book chapter. Any information contained in
these publicly-available disclosures cannot be a trade
secret. See Dkt. No. 138 (stipulation identifying
all content available on the IPOX website from January 1,
2012 through December 31, 2015); Lazard Exs. 46-55 (collected
PowerPoints); Lazard Ex. 73 (Josef A. Schuster, Indexing
the IPO Sector with IPOXTM Indices,
in Initial Public Offerings: An International
Perspective (Greg N. Gregoriou ed. 2006)).
issue is whether IPOX took reasonable steps to protect the
confidentiality of non-public information that Lazard
obtained from IPOX, either through its free trial or through
e-mail correspondence with Schuster. As IPOX notes, what is
reasonable for one entity to take may be unreasonable for
another, smaller entity. See Elmer Miller, Inc. v.
Landis, 253 Ill.App.3d 129, 134, 625 N.E.2d 338, 342
(1993) ("reasonable steps for a two or three person shop
may be different from reasonable steps for a larger
company."). IPOX has four employees, Schuster Decl.
¶ 3, and it may be less capable than its larger peers of
bearing the costs and burdens of completely securing its
has produced enough evidence to permit a reasonable jury to
find that it took reasonable steps to protect its non-public
information. One document that Schuster e-mailed to an LJAM
employee contained strategies on how the IPOX indexes were
composed. It was marked with "Confidentiality disclaimer
applies" at the bottom of each page. Lazard Ex. 14 at
491-92 (Schuster deposition); Lazard Ex. 85 at IPOX00004894
(e-mails between Schuster and Kosaka). Likewise, after
Schuster shared a free license with LAM employees, he
notified Krenn that "a license is required, should you
be interested in using the index etc. for a product."
Lazard Ex. 97 at LAM00000415. Schuster continued to pursue a
product license after this exchange. To be clear, a
reasonable jury could find in Lazard and Nikko's favor:
the facts show that Schuster's efforts to protect the
secrecy of the information were often less than painstaking.
Erik Miller, a former employee of LAM, e-mailed Schuster with
a question about the composition of the IPOX index, which
Schuster answered without any effort to protect the
confidentiality of that information. Lazard Ex. 84 at
IPOX0003073 (e-mails between Miller and Schuster). Summary
judgment, however, is ...