United States: Reference Your Trade Secret In The Terms Of Use To Make It Protectable

Richard Raysman is a Partner and Elliot Magruder is an attorney in Holland & Knight's New York office

Trade secret protection applies of course only to confidential information. Absent certain specialized exemptions, publicizing the intricate details and applications of a trade secret extinguishes whatever "property right" once possessed by the holder. A closer question is what constitutes sufficient notice to a user of the claimed trade secret protection of certain information? The Southern District of New York recently confronted this issue. See Broker Genius Inc. v. Zalta, No. 17-cv-2099, 2017 WL 5991831 (S.D.N.Y. Dec. 4, 2017).

In Broker Genius, the Court held that a purported holder of a trade secret cannot claim trade secret protections after failing to put a confidentiality provision in the Terms of Use of its software license. Accordingly, the Court held that the inconspicuous language of the licensor's Terms of Use, along with its routine and frequent disclosure of the entirety of its user interface of the software that supposedly constituted a trade secret, precluded a likelihood of success on the licensor's motion for injunctive relief for licensee's alleged trade secret misappropriation.

Facts and Procedural History

Plaintiff Broker Genius, Inc. (Broker Genius) the AutoPricer v.3 (AutoPricer) software, which assists in the automation of ticket pricing in secondary markets. The founder of Broker Genius claimed he intended to create software allowing brokers to build on their existing manual ticket implementation strategies. To that end, AutoPricer supposedly allowed the implementation of said strategies "within a user interface in which the user could engage with the software dynamically and have the ability to change [his or her] strategy very quickly."

According to Broker Genius, because AutoPricer was an entirely new software, Broker Genius expended considerable time and resources to develop it, including by creating multiple versions. In the third version (at issue in this case), every user could access the complete software interface and architecture. Broker Genius then filed a patent application.

Defendant NRZ Entertainment, LLC (NRZ) is a ticket broker. In May 2015, it signed NRZ up for a 30-day trial of Broker Genius's "full-service" subscription service. On February 3, 2016, Broker Genius and NRZ executed a one-year Service Agreement granting NRZ full use of AutoPricer (the License) which required assent to Broker Genius's Terms of Use. During the term of the License, Broker Genius employees conducted training sessions and explained the capabilities of AutoPricer.

NRZ concurrently began to develop its own automated pricing software named TickPricer. Although there was no evidence that NRZ accessed the source code of AutoPricer, the Court believed that it is "abundantly clear from the documentary evidence and witness testimony that defendants closely modeled TickPricer on AutoPricer v.3 and relied heavily on their own knowledge of Broker Genius's product to build their own software." TickPricer became operational in December 2016 and NRZ terminated the License a month early.

That same month, Broker Genius filed against NRZ: (1) a complaint alleging, among other causes of action, violations of trade secret misappropriation under New York law and the Defend Trade Secrets Act (18 U.S.C. § 1831 et seq.); and (2) a request under Fed. R. Civ. P. 65 for an ex parte temporary restraining order to, inter alia, seize any of NRZ's property which incorporated Broker Genius's purported trade secrets and NRZ from marketing TickPricer.

Legal Analysis and Conclusions

To obtain a preliminary injunction, a plaintiff must show: "(1) a likelihood of success on the merits or ... sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in the plaintiff's favor; (2) a likelihood of irreparable injury in the absence of an injunction; (3) that the balance of hardships tips in the plaintiff's favor; and (4) that the public interest would not be disserved by the issuance of an injunction." See Benihana, Inc. v. Benihana of Tokyo, LLC, 784 F.3d 887 (2d Cir. 2015).

The Court held that Broker Genius was unlikely to prevail on its misappropriation of trade secrets claim – the sole claim on which it seeks a preliminary injunction – because the user interface of AutoPricer did not qualify as a trade secret, even though AutoPricer is undoubtedly valuable to Broker Genius and its competitors, and Broker Genius expended roughly $4 million developing it.

Courts in New York refer to the Restatement of Torts to define a trade secret. See Restatement of Torts § 757 (defining a trade secret in relevant part as "any formula ... 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"). Courts have routinely held that software user and architecture is a protectable trade secret, despite being "inherently broad concept[s]." See, e.g., Integrated Cash Mgmt. Serv., Inc. v. Dig Transactions, Inc., 920 F.2d 171 (2d Cir. 1990).

Absolute secrecy is not required for trade secret protection, but the information must be shrouded with a "substantial secrecy." The holder forfeits trade secret protection by making certain disclosures. For example, if a person reveals a trade secret to individuals who are under no obligation to protect its confidentiality, or otherwise publicly discloses the trade secret, "his property right is extinguished."

The Court concluded that Broker Genius failed to undertake "reasonable measures" to ensure the secrecy of the protectable elements of AutoPricer. The discreet disclosures in Broker Genius's patent application and by its sales representatives in demonstrations, as well as its publication of screenshots of an AutoPricer predecessor software that exposed aspects of AutoPricer, did not standalone extinguish its property rights. However, "these types of disclosures – especially taken together – do strongly suggest that Broker Genius did not consider AutoPricer v.3's software architecture or user interface to be trade secrets prior to initiating this litigation."

More fatal to Broker Genius's claims was the "unfettered access" it offered to all users. This is the "one disclosure that did destroy Broker Genius's claim that [AutoPricer is] a trade secret." Among other disclosures, Broker Genius granted each user access to the software and also sent update emails to explain the operational advantages of AutoPricer's functionalities. Unfortunately, the avalanche of disclosures about AutoPricer "explains why defendants were able to duplicate major portions of AutoPricer v.3's user interface... with such speed and for relatively low cost."

Broker Genius notified users only in the Terms of Use that AutoPricer contains trade secrets. The Court found this disclosure insufficient. To convey the confidentiality obligations associated with using AutoPricer, the Court held that "it would have been reasonable to do something more to notify users of the software's confidentiality." The Terms of Use were not accessible through the AutoPricer application, but instead only through its website and "simply does not contain a confidentiality provision." Most importantly, the Terms of Use provision proscribing users from reproducing or distributing AutoPricer did not notify the user of the secrecy of the software, nor that the user was precluded from "describing to others the software's function, structure, and appearance."

Broker Genius's "widespread and comprehensive disclosures extinguished the trade secret status," of the components of AutoPricer that it claimed NRZ had misappropriated. Accordingly, the Court denied the motion for a preliminary injunction.

On December 20, 2017, the parties agreed to a settlement wherein a permanent injunction was issued against NRZ enjoining it from distributing or selling TickPricer. NRZ paid Broker Genius a settlement payment and acknowledged that TickPricer was "improperly derived from [the] AutoPricer software in violation of our contractual obligations with Broker Genius including under Broker Genius' Terms of Use." The parties dismissed the case with prejudice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions