Next Communications, Inc. v. Viber Media, Inc.

17‐3511 Next Communications, Inc., et al. v. Viber Media, Inc.

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.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 11th day of December, two thousand and eighteen.

Present: DENNIS JACOBS, ROSEMARY S. POOLER, RICHARD C. WESLEY, Circuit Judges. ______________________

NEXT COMMUNICATIONS, INC., NXTGN, INC.,

Plaintiffs‐Appellants, v.            17‐3511

VIBER MEDIA, INC.,

Defendant‐Appellee.* ______________________

The Clerk of the Court is directed to amend the caption as set forth above. *

For Plaintiffs‐Appellants: Annette G. Hasapidis, Hasapidis Law Offices, Ridgefield, CT.

For Defendant‐Appellee: JEFFREY P. WEINGART (Susan M. Schlesinger, Sarah A. Pfeiffer, on the brief), Meister Seelig & Fein LLP, New York, NY.

Appeal from the United States District Court for the Southern District of New York (Sullivan, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment is AFFIRMED.

Plaintiffs  Next  Communications,  Inc.  and  NxtGn,  Inc.  (collectively,  “Next”)  are providers of long‐distance data services for telecommunication carriers. Defendant Viber Media, Inc. (“Viber”) is the maker of a widely used mobile Voice over Internet Protocol application. Next filed a complaint in the United States District Court for the Southern District  of  New  York  alleging  that  Viber  misappropriated  Next’s  trade  secrets  and proprietary information. After limited discovery, Viber moved for summary judgment. The district court, reasoning that Next had failed to state the nature of the allegedly secret technology  with  sufficient  particularity,  granted  the  motion.  Next  now  appeals  the district court’s judgment as to its claims of misappropriation and breach of contract. We assume the parties’ familiarity with the underlying facts, the procedural history, and the issues for review. The standard of review is well known.1

1 This Court reviews a “grant of summary judgment de novo, because such a motion may be granted only when the moving party shows that there is no genuine dispute as to any material

To succeed on a claim for misappropriation of a trade secret under New York law,2 a  plaintiff  “must  prove:  (1) it  possessed  a  trade  secret,  and  (2)  defendant  is  using  that trade secret in breach of an agreement, confidence, or duty, or as a result of discovery by improper means.” Integrated Cash Mgmt. Servs., Inc. v. Digital Transactions, Inc., 920 F.2d 171,  173  (2d  Cir.  1990)  (citation  and  quotation  marks  omitted)  (citing  cases  and Restatement  (First)  of  Torts  § 757  cmt.  b  (1939)  (quoted  in  Ashland  Mgmt.  v.  Janien,  82 N.Y.2d 395, 407 (1993))). As the second factor suggests, the defendant must have accessed the  trade  secret  to  misuse  it.  Id.  A  trade  secret  is  “any  formula,  pattern,  device[,]  or compilation  of  information  which  is  used  in  one’s  business,  and  which  gives  him  an opportunity  to  obtain  an  advantage  over  competitors  who  do  not  know  or  use  it.” Ashland, 82 N.Y.2d at 407 (quoting Restatement (First) of Torts § 757 cmt. b). New York courts  look  to  the  following  factors  in  determining  whether  information  constitutes  a trade secret:

(1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the business to guard the secrecy of the information; (4) the value of the information to the business and its competitors; (5) the amount of effort or money expended by the business in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.

fact and it is entitled to judgment as a matter of law.” Jackson v. Fed. Express, 766 F.3d 189, 193–94 (2d Cir. 2014). The parties’ Non‐Disclosure Agreement (“NDA”) contains a New York choice‐of‐law provision, 2

which neither party challenged in the district court. *4 Id. (brackets omitted) (quoting Restatement (First) of Torts § 757 cmt. b).

A trade secret, unlike a patent, does not have to be novel or an invention. Softel, Inc.  v.  Dragon  Med.  &  Sci.  Commc’ns,  Inc.,  118  F.3d  955,  968–69  (2d  Cir.  1997)  (citing Restatement  (First)  of  Torts  § 757  cmt.  b).  Rather,  “[a]  trade  secret  can  exist  in  a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design[,] and operation of which, in unique combination, affords a competitive advantage and is a protectable secret.” Integrated Cash, 920 F.2d at 174 (quoting Imperial Chem. Indus. Ltd. v. Natʹl Distillers & Chem. Corp., 342 F.2d 737, 742 (2d Cir. 1965)).  For  this reason,  computer  software  programs that contain components that  are  generally  not  known  by  outsiders  have  received  judicial  recognition  as  trade secrets. See id. at 173–74.

To show that such a process, design, or operation constitutes a trade secret, a party must  describe  the  trade  secret  with  “specific  and  concrete  information.”  Engleman  v. David McKay Co., 422 N.Y.S. 2d 95, 96 (1st Dep’t 1979); see also Hayman v. AR. Winarick, Inc., 325 F.2d 584, 590 (2d Cir. 1963) (rejecting trade secret claim that was “so vague and indefinite as not to be entitled to protection under the law of trade secrets”). In opposition to a motion for summary judgement, this burden requires Next to “set forth specific facts showing that there is a genuine issue for trial” regarding the existence of a trade secret. King Serv., Inc. v. Gulf Oil Corp., 834 F.2d 290, 295 (2d Cir. 1987) (quoting Fed. R. Civ. P. 56(e)  (1987));  see  also  Fed.  R.  Civ.  P.  56(c)(1)(A)  (“A  party  asserting  that  a  fact . . . is *5 genuinely  disputed  must  support  the  assertion  by . . . citing  to  particular  parts  of materials  in  the  record . . . .”).  Thus,  in  the  context  of  a  trade  secret  misappropriation claim, the party opposing summary judgment must be able to identify the alleged trade secret with sufficient specificity to make the moving party aware of what information it has allegedly misappropriated.3

Next  argues  that  its  “NxtGn  HD  Video  Cloud  Architecture  and  method  for monetizing  the  technology”  constitutes  a  trade  secret  and/or  proprietary  information. Appellant Br. 30. But Next did not raise a genuine issue as to (i) the existence of a trade secret or (ii) disclosure of the alleged trade secret to Viber.

First,  Next  fails  to  describe  its  HD  Video  Cloud  Architecture  with  sufficient particularity  to  warrant  trade  secret  protection.  Next  has  described  its  trade  secrets differently at each stage of the litigation. In the Amended Complaint, Next referred to NxtGn Proprietary Services, “a unique technique for routing calls” that “provides several avenues to monetize Next and NxtGn’s advanced videoconferencing services,” and the NextGn App, which “allows . . . millions of people to connect simultaneously to the same video conferencing feed.” J.A. 81. During discovery, Next argued that the combination of

3 Although the Second Circuit has not squarely articulated the precise contours of the specificity requirement in the context of trade secrets, we decline to do so now because Next’s trade secret claims are so vague and general that there is no question that the alleged trade secrets were not sufficiently described. Moreover, Next does not contest that it bears the burden of identifying a trade secret “with sufficient specificity to allow [Viber] to counter the claim.” Appellant Br. 31 (quoting PaySys Int’l, Inc. v. Atos Se, No. 14‐cv‐10105 (KBF), 2016 WL 7116132, at *10 (S.D.N.Y. Dec. 5, 2016) (alteration in original)).

the GSM‐IP Mobile Network, the Secure Financial  Network, and the HD Video Cloud Architecture constituted a trade secret. And now, on appeal, Next argues that the “NxtGn HD Video Cloud Architecture and method for monetizing the technology” constitute a trade secret. Appelllant Br. 30. This confusion is exacerbated by Next’s failure to describe with  particularity  any  of  the  mechanisms  of  its  HD  Video  Cloud  Architecture.  Next merely elaborates on the mystical technology’s purported advantages.

Where Next does point to specific evidence, the evidence falls short. For example, Next’s  expert,  Dr.  Roger  Marks,  relies  heavily  on  slides  within  the  PowerPoint presentations NxtGn Video Cloud Platform and NxtGn Video Cloud Platform (2013), and particularly  slide  NEXT000030,  titled  NxtGn  HD  Video  Cloud  Architecture.  However, these slides consist of vague labels, rudimentary graphics, and high‐level concepts. The accumulation  of  icons  and  arrows  fails  to  convey  any  information  about  the  logical relationship between the operations, data structures, and software Next alleges combine to form a trade secret. Next employee Vitaliy Yurchenko’s declaration is even less specific than Marks’s; it fails to  provide  any information that shows  how  the  HD Video Cloud Architecture works as whole. For example, Yurchenko describes the functions of various components,  but  not  how  they  function  as  an  operating  system.  Neither  declarant explains  “the  way  in  which  all  of  the  features  [are]  interrelated,”  “the  know‐how  by which”  the  HD  Video  Cloud  Architecture  was  created,  or  “the  method  of  making  it work.” Imperial Chem., 342 F.2d at 740. In short, because Next fails to define the contours *7 of  the  HD  Video  Cloud  Architecture,  a  court  cannot  determine  what  exactly  the  HD Video Cloud Architecture encompasses. Consequently, we conclude that Next has failed to identify a protectable trade secret.

Even if Next succeeded in identifying a trade secret with specificity, it fails to show how  the  protected  materials  were  disclosed  to  Viber.4  Next  alleges  that  it  voluntarily shared  its  trade  secret  with  Viber—not,  for  example,  that  Viber  stole  the  trade  secret without its knowing. This means of disclosure would appear to place Next in the best position to demonstrate how and when its trade secret was conveyed. Internal inquiries, in other words, should have done the job. And yet Next comes up short. For example, in its  Opposition  to  Viber’s  Motion  for  Summary  Judgment,  Next  provided  a  second declaration of its CEO, Arik Maimon. Maimon asserted that on June 30, 2013 he shared the alleged trade secret via email. Inexplicably, Next did not provide the district court with this email.

4 Next argues that the district court’s bifurcated discovery plan prevented it from accessing information related to the method of disclosure. However, Next has waived any argument premised on an objection to the district court’s discovery plan. Under Federal Rule of Civil Procedure 56(d), “a party resisting summary judgment on the ground that it needs discovery in order to defeat the motion must submit an affidavit” that justifies its need for additional discovery. Gurary v. Winehouse, 190 F.3d 37, 43 (2d Cir. 1999) (citing Fed. R. Civ. P. 56(f) (1987)). “[T]he failure to file such an affidavit is fatal to a claim [that a party was precluded from conducting discovery] even if the party resisting the motion for summary judgment alluded to a claimed need for discovery in a memorandum of law.” Id. at 43–44. Therefore, although Next objected on the record to the bifurcation of discovery, and requested that the district court declare a former Viber employee’s confidentiality clause void, neither of these actions complied with Rule 56(d)’s requirements for preserving an objection to a discovery plan.

Finally, Next’s breach of contract claim fails for the reasons discussed above. To succeed on a breach of contract claim under New York law, a plaintiff must prove: “(i) the formation of a contract between the parties; (ii) performance by the plaintiff; (iii) failure of defendant to perform; and (iv) damages.” Johnson v. Nextel Commc’ns, Inc., 660 F.3d 131, 142 (2d Cir. 2011). Next alleges that Viber breached the parties’ NDA, under which Viber was  authorized  to  use  proprietary  information  only  for  purposes  directly  related  to “assessing  possible  business  transactions  between  the  Parties.”  J.A.  109.  Because  Next fails to define  its alleged proprietary information with  sufficient specificity, this Court cannot  determine  exactly  what  information  was  conveyed  to  Viber  and  whether  that information was used in breach of the terms of the NDA.

We  have  considered  Next’s  remaining  arguments  and  find  them  to  be  without merit. Accordingly, we AFFIRM the judgment of the district court.

FOR THE COURT: Catherine O’Hagan Wolfe, Clerk