Turret Labs v. CargoSprint

• Court: Court of Appeals for the Second Circuit
• Decided: March 9, 2022
• Docket: 21-952
• Status: Unpublished

Opinion

21-952 Turret Labs v. CargoSprint

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

1 At a stated term of the United States Court of Appeals for the Second Circuit, held at the 2 Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 3 9th day of March, two thousand twenty-two. 4 5 Present: 6 DEBRA ANN LIVINGSTON, 7 Chief Judge, 8 AMALYA L. KEARSE, 9 EUNICE C. LEE, 10 Circuit Judges. 11 _____________________________________ 12 13 TURRET LABS USA, INC., 14 15 Plaintiff-Appellant, 16 17 v. 21-952 18 19 CARGOSPRINT, LLC, JOSHUA WOLF 20 21 Defendants-Appellees. 22 _____________________________________ 23 24 For Plaintiff-Appellant: Leslie R. Bennett (Leslie R. Bennett LLC), Melville, 25 NY. 26 27 For Defendants-Appellees: R. Dale Grimes, Virginia M. Yetter, and Nicholas J. 28 Goldin (Bass, Berry & Sims, PLC), Nashville, TN; 29 Michael Dashefsky (Bass, Berry & Sims, PLC), 30 Washington, D.C.; Joseph A. Matteo (Barnes & 31 Thornburg LLP), New York, NY. 32 1 Appeal from a judgment of the United States District Court for the Eastern District of New

2 York (Komitee, J.).

3 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

4 DECREED that the judgment of the district court is AFFIRMED.

5 Plaintiff-Appellant Turret Labs USA, Inc. (“Turret Labs”) appeals from the district court’s

6 March 22, 2021 judgment dismissing its second amended complaint (“SAC”) for failure to state a

7 claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Turret Labs USA, Inc. v.

8 CargoSprint, LLC, No. 19-CV-6793, 2021 WL 535217, at *1 (E.D.N.Y. Feb. 12, 2021). Turret

9 Labs alleges that Defendants-Appellees CargoSprint, LLC and its chief executive officer, Joshua

10 Wolf, improperly gained access to Turret Labs’ software, Dock EnRoll, and reverse engineered it

11 to create their own competing program. 1 Turret Labs claims misappropriation of a trade secret

12 under the Defend Trade Secrets Act (“DTSA”), 18 U.S.C § 1836(b), and common-law

13 misappropriation of a trade secret. 2 The district court dismissed these trade secret claims, ruling

14 that Turret Labs failed as a matter of law to plead that Dock EnRoll was a “trade secret” under the

15 DTSA and common law because the Plaintiff-Appellant did not adequately allege that it took

16 reasonable measures to keep its information secret from third parties. Turret Labs, 2021 WL

17 535217, at *4–6. We assume the parties’ familiarity with the underlying facts, the procedural

1 Dock EnRoll is an “air cargo ground handling control application that allows for payment of fees and scheduling of shipments based on synchronized real-time United States Customs release notifications, [and] was the first software of its kind at the time.” SAC ¶ 17. 2 The SAC also brings claims for common-law unfair competition, conversion, and defamation, as well as fraud in connection with computers under the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030. The district court dismissed the unfair competition, conversion, and CFAA claims, Turret Labs, 2021 WL 535217, at *6–7, and the parties voluntarily agreed to dismiss the defamation claim with prejudice shortly thereafter. Turret Labs does not pursue these claims on appeal.

2 1 history of the case, and the issues on appeal.

2 * * *

3 We review de novo the district court’s dismissal of Turret Labs’ SAC pursuant to Rule

4 12(b)(6). See Pettaway v. Nat’l Recovery Sols., LLC, 955 F.3d 299, 304 (2d Cir. 2020). To

5 survive a motion to dismiss brought under Rule 12(b)(6), a complaint “must contain sufficient

6 factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft

7 v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

8 We are “required to accept all well-pleaded factual allegations in the complaint as true” and

9 “construe all reasonable inferences that can be drawn from the complaint in the light most

10 favorable to the plaintiff,” but we need not credit conclusory allegations. Lynch v. City of New

11 York, 952 F.3d 67, 74–75 (2d Cir. 2020) (internal quotation marks and citations omitted).

12 Under Section 1836 of the DTSA, the owner of a “trade secret that is misappropriated may

13 bring a civil action . . . if the trade secret is related to a product or service used in, or intended for

14 use in, interstate or foreign commerce.” § 1836(b)(1). For “financial, business, scientific,

15 technical, economic, or engineering information” to constitute a “trade secret,” two factors must

16 be satisfied: (A) the owner must have “taken reasonable measures to keep such information

17 secret”; and (B) the information must “derive[] independent economic value, actual or potential,

18 from not being generally known to, and not being readily ascertainable through proper means by,

19 another person who can obtain economic value from the disclosure or use of the information . . . .”

20 18 U.S.C. § 1839(3), (3)(A)–(B). Turret Labs argues that the district court erred in concluding

21 that it failed adequately to allege that it took reasonable measures to protect Dock EnRoll’s secrecy.

22 For the following reasons, we disagree.

23 Turret Labs alleges that after developing Dock EnRoll, it entered into a joint venture

3 1 agreement and an exclusive licensing agreement with Lufthansa Cargo Americas (“Lufthansa”),

2 which authorized Lufthansa to manage Dock EnRoll and grant access to other users. SAC ¶ 21(f)

3 (“User Access for Dock EnRoll is managed by Lufthansa only[] and no other party has access

4 without Lufthansa’s authority”); SAC ¶ 21(j) (pleading that Turret Labs “assign[ed] to Lufthansa

5 the right to vet users and grant access”). The SAC alleges that Defendants-Appellees gained

6 unfettered access to Dock EnRoll by falsely presenting themselves as freight forwarders to

7 Lufthansa. 3 It is not clear from the SAC, however, whether such unfettered access was granted

8 by Lufthansa, or if Defendants-Appellees used other wrongful means to expand their access after

9 initially receiving login information. 4 Turret Labs pleads, without explanation, that Defendants-

10 Appellees were “given unfettered access to all corners of the Dock EnRoll platform that, based on

11 Lufthansa’s protocols, no freight forwarder or other user would have been granted access to, and

12 it was only due to Defendants’ wrongful actions that they were able to obtain such greater access

13 to the platform.” 5 SAC ¶ 31. Such “expansive unauthorized access to [Dock EnRoll] and

14 confidential information contained therein allowed [Defendants-Appellees] to reverse engineer the

3 “Freight forwarders” are “the entities that arrange for the storage and shipping of merchandise on behalf of shippers.” SAC ¶ 16. 4 Turret Labs alternatively alleges that Defendants-Appellees gained access by “[u]sing a pre- approved access through Damco or other authorized freight forwarders [to] log[] in to the system . . . .” SAC ¶ 24(b). Turret Labs alleges nothing further regarding “Damco,” however, or how access to an approved freight forwarder’s login information was used to obtain unfettered access “above and beyond what authorized [freight forwarders] would be entitled to access . . . .” See SAC ¶ 35. 5 Turret Labs alleges that a freight forwarder’s access to Dock EnRoll would generally “allow such forwarder to be able to see information for airway bills assigned to that [particular] forwarder,” SAC ¶ 32, but that Defendants-Appellees were “able to gain access to the airway bill information of multiple freight forwarders,” providing them information such as the name of the shipper, consignee name, nature of the goods, weight, volume and customs release information, “which is proprietary information for the specific freight forwarder,” SAC ¶ 33.

4 1 software,” SAC ¶ 34, and create a program that is “identical to Dock EnRoll, particularly the

2 scheduling system,” SAC ¶ 35.

3 The DTSA gives scant guidance on what constitutes “reasonable measures” to keep

4 information secret. But given that trade secrets may appear in a wide variety of “forms and

5 types,” § 1839(3), “[w]hat measures are ‘reasonable’ must depend in significant part on the nature

6 of the trade secret at issue,” see Exec. Trim Constr., Inc. v. Gross, 525 F. Supp. 3d 357, 380

7 (N.D.N.Y. 2021). We agree with the district court that where an alleged trade secret consists

8 “primarily, if not entirely,” of a computer software’s functionality—“functionality that is made

9 apparent to all users of the program”—the reasonableness analysis will often focus on who is given

10 access, and on the importance of confidentiality and nondisclosure agreements to maintaining

11 secrecy. Turret Labs, 2021 WL 535217, at *4; see also Mason v. Amtrust Fin. Servs., Inc., 848

12 F. App’x 447, 450 (2d Cir. 2021) (holding that plaintiff’s failure to “execut[e] a nondisclosure or

13 licensing agreement or . . . stipulate[e] in his employment contract that the [software] was his

14 proprietary information” evidenced that he “had not taken reasonable measures to protect his

15 information”); Inv. Sci., LLC v. Oath Holdings Inc., No. 20 Civ. 8159, 2021 WL 3541152, at *3

16 (S.D.N.Y. Aug. 11, 2021) (concluding that the plaintiff did not employ reasonable measures to

17 protect its claimed trade secrets because, among other reasons, the plaintiff “concede[d] that it did

18 not require [the defendant] to sign a confidentiality agreement before sharing the contents of the

19 [product]”); Exec. Trim, 525 F. Supp. 3d at 380; Charles Ramsey Co., Inc. v. Fabtech-NY LLC,

20 No. 1:18-CV-0546, 2020 WL 352614, at *15 (N.D.N.Y. Jan. 21, 2020) (collecting cases); Mintz

21 v. Mktg. Cohorts, LLC, No. 18-CV-4159, 2019 WL 3337896, at *6 (E.D.N.Y. July 25, 2019)

22 (dismissing a DTSA claim because plaintiff “did not require defendants to sign a non-disclosure

23 agreement nor any sort of covenant to protect the passwords”).

5 1 This observation is consistent with those of our sister circuits. See, e.g., Farmers Edge

2 Inc. v. Farmobile, LLC, 970 F.3d 1027, 1033 (8th Cir. 2020) (holding that under the DTSA, a

3 company that, “without a confidentiality agreement and without other policies or practices for

4 safeguarding secrets . . . shared the relevant information with a third-party who had no obligation

5 to keep it confidential . . . did not take reasonable steps to safeguard its trade secrets”); InteliClear,

6 LLC v. ETC Glob. Holdings, Inc., 978 F.3d 653, 660 (9th Cir. 2020) (holding, under the DTSA,

7 that the plaintiff took “reasonable measures” by “encrypt[ing] and compil[ing] its source code and

8 requir[ing] licensees to agree to confidentiality,” as “[c]onfidentiality provisions constitute

9 reasonable steps to maintain secrecy”); VBS Distribution, Inc. v. Nutrivita Lab’ys, Inc., 811 F.

10 App’x 1005, 1009 (9th Cir.), cert. denied, 141 S. Ct. 454 (2020) (“Providing alleged

11 trade secrets to third parties does not undermine a trade-secret claim, so long as the information

12 was provided on an understanding of confidentiality.” (internal quotation marks and citation

13 omitted)).

14 Notably absent from Turret Labs’ SAC is any specific allegation that Lufthansa or any

15 other user of Dock EnRoll was required to keep Turret Labs’ information confidential. Turret

16 Labs does not plead that it had confidentiality or nondisclosure agreements in place with Lufthansa

17 or other users of Dock EnRoll. Nor does it allege that Lufthansa was obligated to limit access to

18 the software to freight forwarders that were themselves bound to respect the secrecy of Turret

19 Labs’ information. Although the SAC alleges generally that Lufthansa’s internal guidelines

20 dictated the terms of use, there is no allegation that these guidelines contractually obligated users

21 to keep the software, its client-facing functionality, or its internal mechanics confidential. And

22 without confidentiality or nondisclosure agreements in this context, it is not apparent from the

23 SAC that any user could not simply replicate the software after using it.

6 1 Turret Labs argues that, regardless, its extensive list of security measures for Dock EnRoll,

2 as pled in the SAC, plausibly constitutes “reasonable measures” to keep its information secret.

3 See § 1839(3)(A). The SAC pleads, among other things, that Dock EnRoll’s physical servers

4 were kept in monitored cages within a data center with restricted access and that access to the

5 software was limited to those with usernames and passwords approved by Lufthansa. SAC ¶ 21.

6 But secured physical servers are largely irrelevant where users such as Defendants-Appellees

7 could simply be given access by Lufthansa and view and replicate Dock EnRoll’s functionality.

8 And, again, the SAC is silent regarding any obligation on Lufthansa’s part to protect proprietary

9 information by granting access only to legitimate freight forwarders bound by confidentiality

10 agreements. The SAC implies (but does not allege) that Defendants-Appellees hacked into the

11 software to obtain unfettered access to Dock EnRoll’s algorithms and other internal mechanics

12 after getting login information from Lufthansa. But Turret Labs has failed to plead how any of

13 its security measures might have prevented such an unwanted intrusion.

14 In the absence of nonconclusory allegations that it took reasonable measures to keep its

15 information secret, Turret Labs has not plausibly alleged that Defendants-Appellees

16 misappropriated a “trade secret” under the DTSA. See § 1839(3)(A). Turret Labs’ common-

17 law misappropriation claim is inadequately pled for the same reason. See Defiance Button Mach.

18 Co. v. C & C Metal Prod. Corp., 759 F.2d 1053, 1063 (2d Cir. 1985) (noting that under New York

19 common law, owner of a trade secret must take “reasonable measures to protect its secrecy”

20 (internal quotation marks omitted)); Mason, 848 F. App’x at 450–51. Accordingly, the district

21 court did not err in dismissing these claims.

22 * * *

7 1 We have considered Plaintiff-Appellant Turret Labs’ remaining arguments and find them

2 to be without merit. Accordingly, we AFFIRM the judgment of the district court.

3 FOR THE COURT: 4 Catherine O’Hagan Wolfe, Clerk of Court