This is a short update to a previous post, Zillow Case Shows Danger of Unprotected Trade Secrets During Business Negotiations, posted on May 8, 2015.
In that post, we described a trade secrets lawsuit filed against Zillow by a competing online real estate information company, Top Agent Network. Zillow prevailed in an early skirmish in that case when the District Court issued an order dismissing Top Agent’s core trade secrets claim. The court held that Top Agent failed to allege sufficient detail showing that its alleged trade secrets were, in fact, trade secrets instead of mere non-protectable ideas, features, and functions of design and operation.
But the dismissal order allowed Top Agent leave to amend (i.e., to try to state a proper trade secrets claim). Top Agent amended, and now its trade secrets claim is back. Score round 2 in this bout to Top Agent.
The amended trade secret claim
In its amended complaint, Top Agent specified its alleged trade secrets in far greater detail.
The amended complaint focuses on slides distributed at a March 12, 2014 meeting between Top Agent and Zillow executives. Those slides, according to the complaint, included “internal metrics concerning client engagement, market penetration, members’ use of information on [Top Agent’s] private web pages, and the size of its homebuyer secondary market; the frequency with which members in different markets open their emails; the percentage of home sales made by [Top Agent] member agents in three geographic areas and member statistics from those markets; and market research survey results indicating how clients specifically use [Top Agent] in advancing their businesses.”
The amended complaint further alleged that all of the above information was kept confidential (through confidentiality provisions in employment agreements) and had economic value.
Finally, Top Agent alleged Zillow misappropriated its trade secrets by using the aforementioned metrics and market data without Top Agent’s permission, after Zillow assured Top Agent that the information would be kept confidential.
Zillow filed a motion to dismiss Top Agent’s amended complaint.
The District Court’s Order
This time around, the District Court ruled that Top Agent stated a valid claim for trade secret misappropriation. Whereas Top Agent’s first complaint failed to specify what constituted its trade secrets (with the allegations sounding more like non-protectable ideas, features, and functions), the amended complaint provided the necessary details and focused on protectable metrics and market data.
As to misappropriation, the court acknowledged that Top Agent’s allegations remained “somewhat conclusory,” in that they fell short of “chronicling in precisely what manner such data proved integral to the development of” Zillow’s competing product offerings. But, the court held, “to impose such a steep hurdle prior to discovery would be inappropriate.”
The court also upheld Top Agent’s claim for breach of oral contract, which alleged that Zillow broke its verbal promise to keep Top Agent’s information confidential.
The court dismissed, without leave to amend, Top Agent’s fraud and unfair competition claims on the grounds that they were superseded by the California Uniform Trade Secrets Act.
The main lesson from this case, as stated in our prior post, remains that companies should be acutely aware of their trade secrets, and should always obtain a written NDA before sharing those secrets.
Top Agent’s failure to properly articulate its trade secrets in its original complaint and its failure to obtain a written NDA turned out to not be fatal to its case, but it forced the case into an early defensive posture, which is never good for a plaintiff.
We’ll continue to monitor this case for developments.