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Vendavo, Inc. v. Long

United States District Court, N.D. Illinois, Eastern Division

August 30, 2019

VENDAVO, INC., Plaintiff,
v.
KIM LONG, PRICE f(x) AG, and PRICE f(x) INC., Defendants.

          MEMORANDUM OPINION AND ORDER

          ROBERT M. DOW, JR. UNITED STATES DISTRICT JUDGE

         This case represents just one front in a much broader conflict between Vendavo Inc. and Defendants Price f(x) AG and Price f(x) Inc. over intellectual property. The present skirmish concerns allegations that one of Plaintiff's former employees based in Chicago, Defendant Kim Long, stole trade secrets to be used on behalf of her new employer, Price f(x). The major issues currently before the Court are (1) Plaintiff's motion for a preliminary injunction [11] and (2) Defendants' motion to dismiss, or in the alternative, transfer [32]. For the reasons explained below, Plaintiff's motion [11] is granted in part and denied in part, and the Court will enter a preliminary injunction on the terms set out in Section VII. Relatedly, Plaintiff's motion for a sur-reply or alternatively to strike [103] is granted in part (as to the sur-reply) and denied in part (as to the request to strike); Defendants' motions to strike [93] and motion for leave to file a sur-reply [60 (sealed)]; [70 (unsealed)] are also granted. Finally, the Court grants in part Defendants' motion to dismiss [32]. Pursuant to 28 U.S.C. § 1404, the Clerk is directed to transfer the case forthwith to the Northern District of California, where the related case 3:17-cv-06930 (Vendavo, Inc. v. Price f(x) AG, et al) is pending. Defendants' motion to enjoin [73] remains open for disposition in the transferee court.

         I. Background[1]

         Vendavo, Inc. (“Plaintiff”) filed this action against Defendants Kim Long (“Long”), Price f(x) AG and Price f(x) Inc. (collectively “Price f(x)”) to address Long's purported misappropriation of Plaintiff's trade secrets. As noted above, this is but one small piece of a much larger conflict between Plaintiff and Price f(x). Consequently, the Court constrains its recitation of the facts to those specifically relevant to Long.

         Plaintiff is a software company that provides “margin and profit optimization solutions” to other companies. [12, at 34-35.] Plaintiff's software allows those companies to better price their products and increase their overall revenue and profits. [Id. at 35.] One of the key parts of the sales process in the pricing industry is an intensive due diligence process involving “deep investigation by multiple stakeholders across a potential customer's entire organization and often can include investigation by outside consulting firms.” [Id. at 35.] One particularly important part of that due diligence process is the identification of a company's “pain points.” These pain points consist of areas in which a company is “falling short, ” for example, structural inefficiencies or other issues that lead the company to “lose” against the competition. [78, at 57:25-58:14.] Once Plaintiff has identified a company's “pain points, ” it creates a strategy around those pain points and explains how the company can use its software to address pain points and create solutions. [Id. at 58:21-25.] To do so, it creates detailed power point presentations that contain both the “pain points” identified by Plaintiff and Plaintiff's marketing and sales strategy. See, e.g, [12-1, at 172-194.]

         Plaintiff considers all this information highly confidential and takes certain measures to protect the information. For example, it requires all employees to sign a Confidential Information and Invention Assignment Agreement (the “CIIAA”), requires complex passwords to access its sales database where it stores information, protects the data base with technical safeguards (e.g., firewalls, etc.), and implements data security measures on all electronic devices. [12, at 38.] Additionally, Plaintiff does not allow employees to access all forms of information. [Id.] For example, financial information is only available to finance personnel and can only be provided to other employees on an as-needed basis. Likewise, Plaintiff confidentially maintains information regarding a customer's needs, which are generally summarized or included in customer pitch presentations, by requiring clients to sign non-disclosure agreements before Plaintiff ever provides substantive information, such as the initial pitch presentation. See e.g., [12, at 38-39.]

         Defendant Long began working for Plaintiff in August 2007 as a business consultant based in Chicago. [12, at 39.] As a business consultant, Long served in a pre-sales capacity as a business and industry expert. [Id. at 40.] In other words, Long “worked with both existing customers and prospects through the sales cycle to assess a customer's pricing, to recommend and facilitate solutions and proposals, and to help deliver [Plaintiff's] products and services.” [Id.] In her role as a business consultant, Long had access to critical information related to Plaintiff's “sales strategy and methodology, product, pricing, financials, business plans and other confidential information.” [Id.] Because of her role, Plaintiff required Long to sign a CIIAA in which she agreed to use Plaintiff's confidential information for Plaintiff's exclusive benefit both during and after her employment. [Id. at 40, 54-55.] The CIIAA defined confidential information extremely broadly, but explicitly excluded any information that “has become publicly and widely known and made generally available through no wrongful act of [Long] or of others who were under confidentiality obligations as to the item or items involved.” [Id. at 54-55.]

         Defendant Price f(x) is one of Plaintiff's direct competitors in the pricing software market. [80, at 51:3-4, 9-12.] Price f(x) was founded by former employees of Plaintiff between 2010 and 2011. [12, at 48.] Since its founding, Price f(x) has hired approximately 35 of Plaintiff's employees, including several key sales members in the United States and Europe. [Id.] After initially operating in Europe alone, Price f(x) expanded into the U.S. in 2015. [Id.] According to Plaintiff, the competition between the two significantly intensified in December 2017, which coincided with Price f(x)'s opening of its Chicago office that Price f(x) describes as its “new center of gravity.” [Id.]

         The events giving rise to this lawsuit began on January 22, 2019, when Long informed her manager that she planned to leave the company. [12, at 40.] Long's manager subsequently informed Megan MacLean, Plaintiff's Senior Vice President [for] North America Enterprise Sales. [Id. at 34, 40.] MacLean spoke to Long directly on January 23, 2019. [Id. at 40.] At that meeting, MacLean asked Long about her new employer. [Id.] Long represented that she had three offers, two with non-competitors and one with a competitor. [Id.] When MacLean directly asked whether Long was leaving to join Price f(x), Long demurred. [Id.] Nonetheless, MacLean suspected Long was leaving for Price f(x) given Long had resigned the previous year intending to leave for Price f(x). [Id.] In light of that suspicion, MacLean subsequently informed Long that she would no longer be going to a meeting with a prospective client scheduled for the next week. [Id. at 45.]

         The next day, January 24, 2019, Long spoke with Jessica Shor, Plaintiff's general counsel, three times. [78, at 98:14-17; 103:9-16.] Shor initiated the first call to reiterate that Long could not take confidential information with her. [Id. at 103:17-104:3.] In response, Long told Shor that she had no intention of doing so but wished to take her family photos and personal documents from her work computer. [Id. at 104:4-10.] Shor explained that personal documents did not pose a problem and that after Long had pulled all her documents into one place, Shor would have someone from IT perform a spot check to ensure that Long did not have any confidential information in that folder. [Id. at 104:12-20.] Long called Shor an additional two times after Shor's initial call. First, Long asked if she could take “documentation that she had created during her time at Vendavo, but had created from publicly available sources.” [Id. at 105:19-22.] Long later called again to ask if she could take her “employee files, her offer letter, her CIIAA, and her comp plan.” [Id. at 106:1-4.] With regard to the first category, Shor explained that those documents should not be taken, but with regard to the second, Shor told Long that she could keep her own employee files. [Id. at 105:22-25; 106:4-8.] In both cases, Long acknowledged Shor's response and thanked her. [Id. at 106:1-8.]

         Long's last day with Plaintiff was January 28, 2019. [59-1, at 31 (72:23-73:10).] At some point thereafter, Plaintiff began an investigation into whether Long had misappropriated trade secrets at the time of her departure. [12, at 3.] Plaintiff asserts that this investigation provided evidence that Long had misappropriated a significant number of documents in her last several weeks at the company. [Id.] On March 12, 2019, Plaintiff filed the instant action asserting four claims regarding Long and Price f(x)'s alleged theft and misappropriation of its trade secrets: trade secrete misappropriation under Federal and State Law (Counts I & II), breach of contract (Count III), and conversion (Count IV). [1, at 11-15.] Along with that complaint, Plaintiff also a requested a TRO, [10-11], which the Court authorized on March 13, 2019. See [13], [15]. Specifically, on March 15, 2019, the Court authorized Plaintiff to search both Long's personal residence and Price f(x)'s Chicago headquarters with the marshals to locate the documents Plaintiff purportedly took. [15, at 5.] Three days later, on March 18, 2019, Plaintiff carried out the searches. [80, at 36:5-38:14.] During the searches, Plaintiff asserts that it recovered additional trade secrets located on a large external hard drive at Long's home, in Long's work emails at Price f(x), in old work laptops at Long's home, as well as a banker's box of Vendavo documents.

         Since then, the parties have conducted some discovery regarding Plaintiff's claims and extensively briefed Plaintiff's motion for a preliminary injunction. Following the close of that initial discovery, on June 6, 2019, the Court conducted an all-day hearing. See [78-80]. After the hearing, the Court requested additional briefing regarding several outstanding questions on June 20, 2019, [77], which the parties filed on July 2, 2019. [89], [91]. After yet another round of briefing on issues raised by those responses, see, e.g., [93], [103], the motion for preliminary injunction is now ripe for decision.

         Additionally, in the interim, Defendants filed a motion to dismiss, or, in the alternative, to transfer the case to the Northern District of California where Price f(x) and Plaintiff are already engaged in a long-standing dispute regarding intellectual property. See generally [32], [33]. This motion has now been fully briefed as well-once again, after several additional briefs-and the Court will address it as well. However, before turning to the main events, the Court must address several threshold matters.

         II. Defendants' Motion to Strike

         Defendants have filed a motion to strike [93] seeking to exclude the new declarations of Jeremy Ben Blaney [89-14], Fred Cartwright [89-6], and David Freskos [89-9] filed by Plaintiff in support of its supplemental brief [89] requested by the Court following the preliminary injunction hearing [77]. Defendants object to Plaintiff's provision of new testimonial evidence after the hearing on the preliminary injunction. Defendants argue that it is unfair for Plaintiff to offer testimony for which they will not receive any opportunity to cross-examine or impeach the witness. Plaintiff responds that the evidence was properly offered in response to the Court's questions, and that both parties submitted a significant number of new exhibits.[2]

         First, while the Court has in the past allowed additional affidavits to be submitted after an initial around of briefing, in each of those instances the opposing party had sufficient time and opportunity to respond to them. See, e.g., Luxottica Grp. S.p.A. v. Light in the Box Ltd., 2016 WL 6092636, at *4 (N.D. Ill. Oct. 19, 2016) (declining to strike affidavits submitted with a supplemental brief given defendant had ample time to review and respond to the plaintiff's brief and supporting declarations prior to the preliminary injunction hearing); Brown v. Club Assist Rd. Servs. U.S., Inc., 2014 WL 1884461, at *2 (N.D. Ill. May 12, 2014) (allowing plaintiffs to file additional affidavits provided defense counsel was allowed sufficient time to review them).

         Additionally, as Defendants point out, Plaintiff itself admits that the new affidavits by Freskos and Blaney are largely unnecessary as they simply confirm evidence that is already in the record. See, e.g., [107, at 3-4, 6-7]. Likewise, while it appears the Cartwright affidavit seeks to provide additional information, Plaintiff asserts that “each of these questions are supported by significant other evidence in the record, such that Mr. Cartwright's declaration does not alter the analysis or arguments presented in Vendavo's response to Questions Nos. 3 and 4.” [Id. at 5.]

         Thus, in an abundance of caution and in fairness to Defendants, and because Plaintiff acknowledges that the facts within them should not alter the Court's analysis or conclusions, the Court will disregard the additional affidavits from Blaney, Cartwright, and Freskos.[3] Defendants motion to strike [93] is granted.

         III. Choice of Law

         Two weeks after the parties submitted their supplemental briefs, Plaintiff moved for leave to file a sur-reply, or in the alternative to strike, Defendants' argument in its supplemental brief [90] that California law applies to the trade secret claims in this action. [105.] Given that (1) whether to grant a motion for leave to file a sur-reply lies within a district court's discretion, Johnny Blastoff, Inc. v. L.A. Rams, 188 F.3d 427, 439 (7th Cir. 1999); (2) Defendants assert that choice of law could prove dispositive because California law does not recognize the trade secret doctrine of inevitable disclosure, see [90, at 27-31]; and (3) the parties have fully briefed the issue, the Court grants the motion for leave to file a sur-reply and resolves the question.

         California law does not allow a plaintiff to rely on a theory of inevitable disclosure when seeking an injunction on the basis of trade secret misappropriation. See, e.g., Whyte v. Schlage Lock Co., 125 Cal.Rptr.2d 277, 294 (2002) (“we reject the inevitable disclosure doctrine”). In light of that holding, Defendants argue that any of Plaintiff's claims predicated on “inevitable disclosure” are foreclosed because Long's contract with Plaintiff included a choice of law provision selecting California law. [90, at 27 (citing [12, at 66]).] Plaintiff responds that the choice of law provision is exceptionally narrow and does not apply in this case.[4]

         Defendants contend that Illinois law does not apply to the misappropriation claims against Long in light of the California choice-of-law provision in her CIIAA. A federal court exercising supplemental jurisdiction over state-law claims-in this case a state law trade secret misappropriation claim-applies the choice-of-law rules of the forum state. McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674, 684 (7th Cir. 2014). When determining if a contract's choice-of-law provision applies to related tort claims, Illinois courts apply a two-part analysis. See Gen. Elec. Co. v. Uptake Techs., Inc., 2019 WL 2601351, at *8 (N.D. Ill. June 25, 2019). First, the court must examine the breadth and language of the choice-of-law provision. See Medline Indus. Inc. v. Maersk Med. Ltd., 230 F.Supp.2d 857, 863 (N.D. Ill. 2002). Second, it must determine whether the claims are dependent on the agreement and thus subject to the choice-of-law clause. Id.

         Here, the choice of law clause is exceptionally narrow, stating only that the “validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California.” [12, at 66.] And Plaintiff's misappropriation claims could exist absent the contract. Consequently, the Court concludes that Illinois law controls Plaintiff's misappropriation claims. See, e.g., Gen. Elec. Co. v. Uptake Techs., Inc., 2019 WL 2601351, at *8 (N.D. Ill. June 25, 2019) (choice of law provision did not apply given the narrowness of the provision and the independence of the misappropriation claims); Precision Screen Machines Inc. v. Elexon, Inc., 1996 WL 495564, at *2 (N.D. Ill. Aug. 28, 1996) (same). With these threshold issues resolved, the Court turns to Plaintiff's motion for a preliminary injunction and Defendant's motion to dismiss.

         IV. Preliminary Injunction

         A. Legal Standard

         In Valencia v. City of Springfield, Illinois, the Seventh Circuit recently articulated the controlling standard for the award of a preliminary injunction:

An equitable, interlocutory form of relief, a preliminary injunction is an exercise of a very far-reaching power, never to be indulged in except in a case clearly demanding it. It is never awarded as a matter of right. To determine whether a situation warrants such a remedy, a district court engages in an analysis that proceeds in two distinct phases: a threshold phase and a balancing phase.
To survive the threshold phase, a party seeking a preliminary injunction must satisfy three requirements. It must show that: (1) absent a preliminary injunction, it will suffer irreparable harm in the interim period prior to final resolution of its claims; (2) traditional legal remedies would be inadequate; and (3) its claim has some likelihood of succeeding on the merits.
If the moving party satisfies each of these requirements, the court proceeds to the balancing phase of the analysis. In the balancing phase, the court weighs the irreparable harm that the moving party would endure without the protection of the preliminary injunction against any irreparable harm the nonmoving party would suffer if the court were to grant the requested relief. In so doing, the court employs a sliding scale approach: the more likely the plaintiff is to win, the less heavily need the balance of harms weigh in his favor; the less likely he is to win, the more need it weigh in his favor. Where appropriate, this balancing process should also encompass any effects that granting or denying the preliminary injunction would have on nonparties (something courts have termed the public interest).

883 F.3d 959, 965-66 (7th Cir. 2018) (internal quotations, citations, and punctuation omitted).

         B. Analysis

         Plaintiff's and Defendants' briefing focuses almost entirely on the proprietary of granting a preliminary injunction on the basis of Defendants' misappropriation and Long's inevitable disclosure of trade secrets in violation of the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1831 et seq. (Count I) and the Illinois Trade Secrets Act (“ITSA”), 765 ILCS 1065/1 et seq. (Count II).[5] Thus the Court has only addressed the likelihood of success on those two counts. For the reasons explained below, the Court concludes that Plaintiff has demonstrated the propriety of granting at least some of the relief it seeks.

         1. Likelihood of Success on the Merits

         “A party moving for preliminary injunctive relief need not demonstrate a likelihood of absolute success on the merits. Instead, he must only show that his chances to succeed on his claims are ‘better than negligible.'” Whitaker By Whitaker v. Kenosha Unified Sch. Dist. No. 1 Bd. of Educ., 858 F.3d 1034, 1046 (7th Cir. 2017) (quoting Cooper v. Salazar, 196 F.3d 809, 813 (7th Cir. 1999)). As the Seventh Circuit has explained, this is a relatively low bar. Id. (citing Michigan v. U.S. Army Corps of Engineers, 667 F.3d 765, 782 (7th Cir. 2011)).

         For Plaintiff to show that Defendants misappropriated a trade secret, Plaintiff must demonstrate that the information in question was “(i) secret (that is, not generally known in the industry), (ii) misappropriated (that is, stolen from it rather than developed independently or obtained from a third source), and (iii) used in the defendants' business.” Composite Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1265-66 (7th Cir. 1992); see also Abrasic 90 Inc. v. Weldcote Metals, Inc., 364 F.Supp.3d 888, 896 (N.D. Ill. 2019). Because Plaintiff asserts that Defendants have misappropriated its trade secrets in at least two ways, the Court will analyze each theory of misappropriation separately. However, before determining whether any information was misappropriated, the Court must first determine what, if any, information may be treated as a trade secret.

         a. Nature of the Information

         A trade secret may encompass any form or type of “financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes.” 18 U.S.C. § 1839(3); see also 765 ILCS 1065/2(d) (defining a trade secret as “information, including but not limited to, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or suppliers”). Regardless of exactly what type of information or what form it exists in, to be a trade secret the information must be (1) “sufficiently secret to impart economic value because of its relative secrecy” and (2) the Plaintiff must make “reasonable efforts to maintain the secrecy of the information.” Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714, 722 (7th Cir. 2003); see also 18 U.S.C. § 1839(3) (“the term ‘trade secret' means all forms and types of * * *information, * * *if-- (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information”); 765 ILCS 1065/2(d) (“‘Trade secret'” means information, * * * that: (1) is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality.”)

         In analyzing whether a purported trade secret meets these requirements, Illinois courts look to the following six factors: “(1) the extent to which the information is known outside of the plaintiff's business; (2) the extent to which the information is known by employees and others involved in the plaintiff's business; (3) the extent of measures taken by the plaintiff to guard the secrecy of the information; (4) the value of the information to the plaintiff's business and to its competitors; (5) the amount of time, effort and money expended by the plaintiff in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.” Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714, 722 (7th Cir. 2003) (collecting cases).

         As an initial matter, Defendants assert that Plaintiff's trade secret claims fail “out of the box” because Plaintiff has failed to identify particular trade secrets subject to protection. As numerous courts have explained, where a plaintiff suggests that general categories of information are trade secrets, the lack of specificity greatly reduces its chances of demonstrating that a defendant has misappropriated its trade secrets. See, e.g., PrimeSource Bldg. Prod., Inc. v. Huttig Bldg. Prod., Inc., 2017 WL 7795125, at *15 (N.D. Ill.Dec. 9, 2017); Composite Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1266 (7th Cir. 1992) (noting that the plaintiff must point to concrete secrets, not broad areas of technology, to prevail on trade secrets claim); see also Service Ctrs. of Chi., Inc. v. Minogue, 535 N.E.2d 1132, 1135 (Ill.App.Ct. 1989) (reversing grant of preliminary injunction where plaintiff “consistently failed to identify with any degree of particularity the alleged trade secrets or confidential information in need of protection”). Such particularly is necessary given that a plaintiff cannot prevail at trial under either the DTSA or ITSA unless it identifies its trade secrets in sufficient detail that the trier of fact can determine what information comprises the secret and whether it was kept secret. GlobalTap LLC v. Elkay Mfg. Co., 2015 WL 94235, at *5-6 (N.D. Ill. Jan. 5, 2015).[6] Consequently, “where a plaintiff cites [only] general categories of information, but ‘never singles out any particular trade secret, explaining how it created and safeguarded that particular bit of information,' the lack of particularity renders it unlikely to succeed on its trade secrets misappropriation claim.” PrimeSource Bldg. Prod., Inc, 2017 WL 7795125, at *15 (quoting Traffic Tech, Inc. v. Kreiter, 2015 WL 9259544, at *20 (N.D. Ill.Dec. 18, 2015); but see APC Filtration, Inc. v. Becker, 646 F.Supp.2d 1000, 1010 (N.D. Ill. 2009) (granting summary judgement and finding that Defendant had misappropriated certain categories of information).

         Here, Plaintiff originally pointed to five categories of information that Ms. Long allegedly stole and later delivered to Vendavo:

(1) Vendavo's customer list, including identification of future customers and customer revenue potential; (2) Vendavo's sales projections and its sales “pipeline” it has cultivated for its future growth; (3) Vendavo historical sales revenue reports; (4) Vendavo's most up-to-date marketing plans, including details of Vendavo's future plans for client and product development; and (5) Vendavo's current and future pricing models, including the “science” behind how it prices its products.

[12, at 18-19.] Despite Defendants' protestations to the contrary, these categories are sufficiently definite for the Court to determine “what information comprises the secret and whether it was kept secret.” Nonetheless, and perhaps in light of Defendants' arguments, Plaintiff slightly reformulated these categories in its response to the Court's supplemental questions [77] following the preliminary injunction hearing on June 6, 2019.[7] Reworded and reformulated, Plaintiff argues that Long and Price f(x) misappropriated the four following categories of information:

(1) customer-specific information, such as product preferences, deviated pricing, and contract terms; potential customer and existing customer “discovery, ” such as “pain points” (key pricing challenges and drivers for that customer/potential customer), business cases, and ...

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