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EARTHWEB, INC. v. SCHLACK

October 27, 1999

EARTHWEB, INC., PLAINTIFF,
v.
MARK SCHLACK, DEFENDANT.



The opinion of the court was delivered by: Pauley, District Judge.

  MEMORANDUM AND ORDER

This diversity action involves claims of breach of contract and misappropriation of trade secrets in the fluid and ever-expanding world of the Internet. Plaintiff EarthWeb, Inc. ("EarthWeb") moves for preliminary injunctive relief enjoining defendant Mark Schlack ("Schlack"), a former EarthWeb vice president responsible for "content" on the company's websites, from: (1) commencing employment with International Data Group, Inc. ("IDG"), and (2) disclosing or revealing EarthWeb's trade secrets to IDG or any third parties. For the reasons discussed below, the motion is denied.*fn1

Procedural History

EarthWeb filed this action on September 27, 1999. The next day, EarthWeb filed an order to show cause and temporary restraining order seeking, inter alia, to enjoin Schlack from commencing employment with IDG and from disclosing EarthWeb's trade secrets. After hearing argument from both parties, this Court entered a temporary restraining order granting that temporary relief.*fn2 At that time, EarthWeb offered to continue to pay Schlack his regular salary and benefits during the pendency of the temporary restraining order, and the Court incorporated that condition in its order. The Court also established an expedited briefing schedule and a return date of October 7, 1999 for EarthWeb's application for preliminary injunctive relief.

Over the next nine days, the parties conducted two depositions and submitted a significant volume of discovery material in connection with EarthWeb's motion. At defendant's request and upon consent of the parties, the Court adjourned the motion return date to October 12, 1999. The parties appeared on that date and engaged in lengthy oral argument. At the conclusion of that argument, the Court extended its temporary restraining order pending a determination of this motion.

Findings of Fact and Conclusions of Law

A. Background

EarthWeb, which was founded in 1994, provides online products and services to business professionals in the information technology ("IT") industry. (Gollan Aff. ¶ 3; Compl. ¶¶ 5, 6) IT professionals are individuals who manage and run computer systems, develop software and perform related tasks for the companies that employ them. (Schlack Aff. ¶ 1) EarthWeb employs approximately 230 individuals in offices located in New York City and around the country. (Gollan Aff. ¶ 3; Compl. ¶ 5) Its stock is publicly traded. (Gollan Aff., Ex. A)

EarthWeb operates through a family of websites offering IT professionals information, products and services to use for facilitating tasks and solving technology problems in a business setting. (Gollan Aff. ¶ 3) Some of EarthWeb's websites are free to the user, while others require a subscription fee. EarthWeb's websites contain, inter alia, (1) articles on subjects tailored to IT professionals that discuss and examine the implementation of technology in the corporate environment; (2) lists of articles, training materials, periodicals, books and downloads organized and indexed by subject matter; (3) compilations and aggregations of technical news; (4) a reference library of full-text versions of technical books; and (5) an online forum of discussion groups. (Gollan Aff. ¶ 4)

EarthWeb obtains this content primarily through licensing agreements with third parties. (Gollan Aff. ¶ 9; Schlack Aff. par; 6) Advertising is EarthWeb's primary source of revenue. In 1998, the company generated approximately $3.3 million in revenue. (Gollan Aff. ¶ 4)

Schlack has worked in the publishing industry for the past 16 years. (Schlack Aff. ¶ 1) Prior to joining EarthWeb, Schlack had been employed as senior editor and/or editor-in-chief of several print magazines, such as BYTE and Web Builder. (Gollan Aff. ¶ 5; Schlack Aff. ¶ 3)

Schlack began his employment with EarthWeb in its New York City office on October 19, 1998, and he remained with the company until his resignation on September 22, 1999. His title at EarthWeb was Vice President, Worldwide Content, and as the name suggests, Schlack was responsible for the content of all of EarthWeb's websites. (Gollan Aff. ¶¶ 5, 6) Thus, as described in greater detail below, Schlack had overall editorial responsibility for what appeared on the websites.

Schlack permanently resides in Massachusetts. During his twelve-month tenure with EarthWeb, Schlack resided in a New York City hotel approximately two or three days per week at EarthWeb's expense. (Gollan Aff. ¶ 6) Schlack was one of ten vice presidents at EarthWeb. He served below two senior vice presidents, an executive vice president, and the chief executive officer. (Schlack Aff. ¶ 10)

On September 22, 1999, Schlack tendered to EarthWeb senior vice president William F. Gollan his letter of resignation. Upon inquiry by Gollan, Schlack revealed that he had accepted a position with ITworld.com, a subsidiary of IDG. According to EarthWeb, IDG is the world's leading provider of IT print-based information. (Schlack Aff. ¶ 9; Gollan Aff. ¶ 22) The company generates over $1 billion in annual revenues and publishes more than 280 monthly periodicals. (Reinstein Aff. ¶ 9; Gollan Aff. ¶ 22) The position IDG offered Schlack is based in Massachusetts and would provide him a significant increase in compensation.

B. Schlack's Employment with EarthWeb

EarthWeb describes Schlack as one of its most important officers, while Schlack claims that EarthWeb has inflated the nature of his duties and responsibilities. Schlack also argues that the position waiting for him at IDG is so different that he would have no occasion to divulge any trade secrets belonging to EarthWeb. From those respective viewpoints, the parties have inundated the record with material concerning the extent to which Schlack had access to trade secrets and proprietary information. In particular, EarthWeb has produced copies of over 1,100 documents, a large percentage of which are intra-company e-mails, in order to show that Schlack reviewed and/or created this sensitive information. The trade secrets and other confidential information that EarthWeb claims are likely to be used and disclosed by Schlack to their detriment may be grouped into four broad categories: (1) strategic content planning; (2) licensing agreements and acquisitions; (3) advertising; and (4) technical knowledge. (Pl.'s Mem. at 11) Each category is addressed below.

Strategic Content Planning

Schlack does not dispute the extent of his editorial involvement with EarthWeb's websites. Instead, he claims that he had virtually no interaction with senior management and therefore knows little about EarthWeb's overall business goals. (Schlack Aff. ¶ 16) He also contends that whatever he knows about EarthWeb's strategic planning is likely to become obsolete rather quickly because the company's websites are constantly changing. (Schlack Aff. ¶ 18)

Licensing Agreements and Acquisitions

During his employment, Schlack was involved in negotiating at least two licensing agreements with third parties, and he was generally aware of the terms and conditions of other such agreements. (Gollan Aff. ¶ 9; Schlack Aff. ¶ 23) Schlack also knows of companies whose content EarthWeb is interested in licensing. As vice president for content, Schlack often played a key role in determining whether particular content should be licensed, and if so, what the terms of the deal would be. (Gollan Reply Aff. ¶ 12) With respect to acquisitions, Schlack analyzed and evaluated websites and companies that EarthWeb later acquired. Schlack also knows of at least four companies that EarthWeb continues to view as desirable acquisitions. (Gollan Reply Aff. ¶ 9)

Schlack contends, and EarthWeb does not dispute, that the terms of EarthWeb's licensing agreements are frequently revealed by licensors as they continue to search for better deals. (Schlack Aff. ¶ 22) Schlack disputes the number of acquisitions in which he was actually involved, and claims that the mechanics of the deals were handled by a separate department at EarthWeb. (Schlack Aff. ¶ 20-21) Schlack also suggests that he analyzed prospective acquisitions simply by looking at their websites (Schlack Aff. ¶ 21), but the record indicates that his research also included meetings with high-level managers of those companies. (Gollan Reply Aff. ¶ 9; Dep/Schlack/31-33, 106)

It should be noted that EarthWeb does not allege that Schlack has retained copies of any licensing agreements or other sensitive documents concerning licensors. Schlack maintains that he does not remember the details of the licensing agreements which he worked on or approved. (Schlack Aff. ¶ 23) Similarly, Schlack claims that he is unaware of the terms of any proposed or pending acquisitions. As the person ultimately responsible for deciding what content would be posted on EarthWeb's websites, Schlack asserts that his role was limited to evaluating the content to be licensed or acquired and determining whether a deal should be pursued. (Gollan Reply Aff. ¶ 13)

Advertising

Schlack was also involved, albeit less directly, with EarthWeb's marketing and sales efforts. Schlack describes his role as "explain[ing] EarthWeb's editorial focus and how [it] might relate to the advertiser's customer." (Schlack Aff. ¶ 12) On occasion, Schlack joined members of EarthWeb's sales and marketing departments on business development calls in order to solicit advertising and sponsorships on the company's websites. (Gollan Aff. ¶ 11) According to EarthWeb, Schlack's efforts in this area would have allowed him to gain some insights into the specific audiences that EarthWeb's advertisers were seeking to target. (Gollan Aff. ¶ 11) Schlack was also involved in the creation of custom publishing websites for EarthWeb's advertisers. (Gollan Reply Aff. ¶ 22)

However, Schlack's main function with respect to advertising appears to have been one of internal coordination. Schlack, as vice president of content, met regularly with senior managers for the sales and marketing departments so that each department could make certain that it was coordinating its efforts with the others. (Gollan Reply Aff. ¶ 20; Schlack Aff. ¶ 12) Schlack received sales and marketing updates at those meetings and was consulted with respect to a number of particular products and initiatives. (Gollan Reply Aff. ¶ 21) Here again, however, it should be noted that EarthWeb does not accuse Schlack of absconding with a list of advertisers or other confidential advertising information. EarthWeb's customer list was maintained in a special database which Schlack could not access. (Schlack Aff. ¶ 12)

Technical Knowledge

Schlack's job responsibilities required him to be familiar with the software and hardware infrastructure that supports EarthWeb's websites. Thus, Schlack has general knowledge of how EarthWeb customized and deployed the products of outside vendors and consultants in order to fit EarthWeb's programming needs. Schlack also gained an understanding of the technical problems that EarthWeb successfully tackled in order to make its websites operate efficiently. (Gollan Aff. ¶ 12)

However, Schlack had no access to EarthWeb's source codes or configuration files, so his knowledge of EarthWeb's proprietary software and infrastructure is necessarily limited. In addition, EarthWeb plans to revamp its software infrastructure in the near future, so any knowledge Schlack has may soon become obsolete. (Schlack Aff. ¶ 14; Gollan Aff. ¶ 19)

EarthWeb's main concern is Schlack's awareness of the trial and error process that EarthWeb undertook in implementing the products and services of outside consultants. (Gollan Reply Aff. ¶ 17) Armed with this knowledge, EarthWeb contends that Schlack would be able to solve similar technical problems if they arose at ITworld.com and thereby avoid the mistakes that EarthWeb made in the past. (Gollan Reply Aff. ¶ 19) EarthWeb claims that such information constitutes a trade secret.

In summary, Schlack was primarily responsible for determining what content EarthWeb licensed or acquired for its websites. In that capacity, Schlack was privy to information concerning a wide range of matters. Schlack often worked collaboratively with other department heads and employees on technology issues, marketing and advertising. (Gollan Aff. ΒΆ 7) While such matters may have been handled principally by other departments, Schlack's decisions concerning content directly impacted ...


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