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Document Security Systems, Inc v. Coupons.Com

May 9, 2013


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


This is an action asserting claims for breach of contract and misappropriation of trade secrets. Now before the Court is Defendant's motion (Docket No. [#30]) to dismiss the latter claim on the grounds that it is merely duplicative of the former claim, and therefore barred under the law of New York State. The application is granted.


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. Amended Complaint [#14-3] ¶ 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 two non-disclosure agreements ("NDA"), one in 2003, and one in 2005. Id., Exs. A & B. The pertinent 2005 NDA indicated that Plaintiff was disclosing such confidential information to Defendant for the following purpose: "To evaluate a potential business relationship regarding patented and unpatented technology and trade secrets of [Plaintiff] related to document printing security features." Id., Ex. B. The NDA stated that Defendant could only use the confidential information for that purpose. The 2005 NDA also contained the following merger clause: "This Agreement constitutes the entire understanding between the parties hereto as to the Confidential Information and merges all prior discussions between them relating thereto." Id. There is no dispute that the 2005 NDA is a valid and binding agreement.

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." Amended Complaint [#14-3], ¶ ¶ 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. On October 24, 2011, Plaintiff commenced this action.

The Amended Complaint purports to state two causes of action. The first cause of action is for breach of contract, referring to the 2005 NDA. The second cause of action is for misappropriation of trade secrets under New York State law, which the Court has already determined applies to the parties' dispute. The breach of contract claim alleges that the 2005 NDA "is a valid and binding contract," which Defendant breached by "using the Blockout File for its own commercial purposes." Amended Complaint ¶ ¶ 24, 28. The claim for misappropriation of trade secrets also arises from Defendant's alleged use of "the Blockout File Technology without [Plaintiff's] consent," id. at ¶ 33, and adds that such unauthorized use was "intentional, willful, malicious and in bad faith." Id. at ¶ 22..

On September 10, 2012 Defendant filed the subject motion [#30] to dismiss the misappropriation cause of action, for failure to state a claim. With respect to its application, Defendant contends that the claim is "duplicative of or precluded by Plaintiff's first cause of action" for breach of contract. Notice of Motion [#30]. In that regard, Defendant contends that Plaintiff could only maintain the misappropriation tort claim if there was either the violation of a legal duty independent of the NDA or a demand for special damages that could not be recovered under the NDA, and that Plaintiff has not pleaded either situation. See, Def. Memo of Law [#30-1] at p. 1 ("There can be no tort claim since Plaintiff has not alleged an independent legal duty extraneous to the NDA or the existence of special damages arising from the alleged NDA breach and unrecoverable under the NDA.").

Plaintiff responds that Defendant is incorrect in asserting that a misappropriation claim and a breach of contract claim cannot simultaneously arise from the breach of a non-disclosure agreement. Specifically, Plaintiff maintains that Defendant's contractual duty of confidence under the NDA can also create the duty of confidence required to establish the tort of misappropriation of trade secret. Plaintiff argues that there was a legal duty of confidentiality owed by Defendant apart from the contract, based upon "the parties' pre-existing relationship," and alternatively, based upon " the fact that the disclosure was for the purpose of facilitating a prospective sale or license" and therefore gives rise to an independent "duty of confidence." Pl. Memo of Law [#42] at p. 6. Plaintiff further maintains that if the misappropriation claim is not dismissed, then it can seek punitive damages in connection with that claim.

On May 3, 2013, counsel for the parties appeared before the undersigned for oral argument of the motion.


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 inferences in favor of the nonmoving party. Burnette v. Carothers, 192 F.3d 52, 56 (2d Cir.1999), cert. den. 531 U.S. 1052, 121 S.Ct. 657 (2000).

The subject motion involves a claim for misappropriation of trade secrets, and the elements ...

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