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Document Security Systems, Inc v. Coupons.Com

August 20, 2012


The opinion of the court was delivered by: Charles J. Siragusa United States District Judge 10


This is an action asserting claims for breach of contract, misappropriation of trade secrets, unfair competition and unjust enrichment. Now before the Court is Defendant's motion to dismiss the latter three claims, Plaintiff's cross-motion to amend the Complaint, and Defendant's motion to strike a portion of Plaintiff's reply brief. Defendant's motion to dismiss is granted in part and denied in part, Plaintiff's motion to amend is granted, with clarification, and Defendant's motion to strike is denied.


Plaintiff is a New York corporation with its principal place of business in New York, while Defendant is a Delaware corporation with its principal place of business in California. Plaintiff provides "anti-counterfeiting, authentication and mass-serialization technologies" to other businesses. Complaint ¶ 6. Defendant produces store coupons. Between 2003 and 2008, Plaintiff provided Defendant with "safety paper" for printing coupons. In connection with this business arrangement, the parties signed a non-disclosure agreement ("NDA") in 2005. The NDA pertained to Plaintiff's disclosure to Defendant of "patented and unpatented technology and trade secrets of DSS related to document printing security features." Complaint, Ex. B. The NDA stated that the confidential information was being provided to Defendant solely for Defendant's use in "evaluat[ing] a potential business relationship" involving the aforementioned technology and trade secrets, and would remain the property of Plaintiff. The NDA recited that it was the "entire understanding" between the parties as to confidential information. The NDA further stated that it would be governed by the "applicable laws of the State of New York, excluding its conflict of law provisions."

In 2006, Plaintiff provided Defendant with samples of certain security technology, including "proprietary, secret 'Blockout' technology,' which, when placed onto an image, "render[s] a print-out of the image unable to be copied or scanned." Complaint ¶ ¶ 9-11. Defendant declined to purchase the Blockout technology. However, in August 2010, Plaintiff determined that Defendant was utilizing the same Blockout technology without Plaintiff's permission. Plaintiff maintains that such unauthorized use was "intentional, willful, malicious and in bad faith." Id. at ¶ 20.

On October 24, 2011, Plaintiff commenced this action, alleging four separate causes of action: 1) breach of contract; 2) misappropriation of trade secrets; 3) unfair competition; and 4) unjust enrichment. All four claims concern Defendant's alleged unauthorized use of the Blockout technology. The breach of contract claim alleges that Defendant violated the NDA, which, the Complaint asserts,"is a valid and binding contract." Complaint ¶ 22. The misappropriation claim alleges that there was a confidential relationship between the parties giving rise to a duty to maintain secrecy, which Defendant violated by using the Blockout technology without Plaintiff's consent. The unfair competition claim alleges that a confidential relationship existed between the parties, and that Defendant made unauthorized use of the Blockout technology to exploit and profit from Plaintiff's commercial advantage. The unjust enrichment claim alleges that, by wrongfully using the Blockout technology, Defendant benefitted at Plaintiff's expense.

Defendant then filed the subject motion to dismiss the second, third and fourth causes of action for failure to state a claim. Essentially, Defendant maintains that the alleged unauthorized disclosure and use of the Blockout technology is governed by the NDA, and that while Plaintiff may bring a claim for breach of contract, he cannot, under the law of New York State, see, Clark-Fitzpatrick, Inc. v. Long Island Railroad Co., 70 N.Y.2d 382, 388 (1987), maintain the unfair competition and misappropriation claims since they are merely duplicative of the breach of contract claim. See, Def. Memo of Law [#9] at p. 1 ("New York law is well settled that there can be no tort claims arising from an alleged breach of contract unless a plaintiff pleads an independent legal duty extraneous to the contract[, and Plaintiff] has not pled any facts alleging that [Defendant] owed [Plaintiff] any duties beyond the alleged obligations specified in the 2005 NDA[.]"). Defendant similarly maintains that under New York law, a party cannot maintain a quasi-contractual claim for unjust enrichment where, as here, there is a valid and binding contract.

Plaintiff responds, first, that the trade secret misappropriation claim is governed by the law of California, not New York, and that under California law, such claim may be brought even though there is also a breach of contract claim. See, Pl. Memo of Law [#15] at p. 1-2 ("[U]nder California's version of the Uniform Trade Secrets Act (the 'UTSA'), causes of action for misappropriation of trade secrets and causes of action for breach of contract may co-exist regardless of whether they are based on the same nucleus of facts."). Plaintiff further argues that even if New York law applies to the misappropriation claim, the claim can still be maintained, since Plaintiff is alleging that Defendant committed an independent tort, and is seeking different relief (punitive damages) under that claim than on the breach of contract claim. Additionally, Plaintiff asserts that the unjust enrichment claim should be permitted to go forward as an alternative pleading, even though there was seemingly a contract, since Defendant may challenge the validity or applicability of the NDA.*fn1

Alternatively, Plaintiff requests that, in the event that the Court finds that the Complaint is "too succinct," it be permitted to file an amended complaint solely as to the trade secret misappropriation claim. Pl. Memo of Law [#15] at pp. 2-3. In this regard, Plaintiff has submitted a proposed amended pleading, which adds allegations that Defendant willfully and maliciously misappropriated the subject technology, and which also adds a demand for exemplary damages.

On August 16, 2012, counsel for the parties appeared before the undersigned for oral argument. At that time, Defendant's counsel reiterated that he is not opposing Plaintiff's motion to amend, although he intends to file a motion to dismiss at a later time. On the other hand, Plaintiff's counsel indicated that Plaintiff has decided not to oppose the dismissal of the unfair competition claim.


Defendant has moved to dismiss under Rule 12(b)(6), and the applicable standard for such a motion is clear:

Federal Rule of Civil Procedure 8(a)(2) requires only a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the claim is and the grounds upon which it rests. While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 1964--65, 167 L.Ed.2d 929 (2007); see also, ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir.2007 ) ("To survive dismissal, the plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient 'to raise a right to relief above the speculative level.' ") (quoting Bell Atl. Corp. v. Twombly ) (footnote omitted). When applying this standard, a district court must accept the allegations contained in the complaint as true and draw all reasonable ...

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