Advanced
Fluid Systems, Inc. v. Huber, 28 F. Supp. 3d 306 (M.D. Pa. 2014)
AFS sued
Huber for violations of the Lanham Act, the CFAA, the Pennsylvania Uniform
Trade Secrets Act, and various common law claims. AFS designs and installs hydraulic systems used
to move heavy machinery for complex operations. It created a system, TELHS for
the Mid–Atlantic Regional Spaceport (MARS) under a contract with the Virginia
Commercial Space Flight Authority (VCSFA).
VCSFA hired AFS to provide the complete system for the Antares rocket’s hydraulic motion control system.
Orbital
developed the Antares rocket and agreed to launch from MARS. In the process of
completing the contract, AFS generated a lot of proprietary information; VCSFA
got legal ownership to all inventions and works created under the contract, but
AFS had physical possession of the relevant trade secrets and used them to
fulfill its obligations. Defendant Huber
served as AFS’s main point of contact with Orbital. Another defendant, Aufiero, supervised Huber
until Aufiero resigned, and is now the hydraulic sales manager for defendant
L&H, an AFS competitor. Huber had
acess to AFS’s confidential technical information as well as its costs and
quotes for its projects. Huber resigned
in October 2012; when AFS retrieved his company-issued laptop and cellphone, it
allegedly found that he attempted to erase all the data. AFS restored the information and allegedly
discovered that Huber was working with L&H as early as January 2012, while
still an AFS employee.
AFS
alleged a conspiracy to access and use AFS’s confidential information to divert
business from AFS. In November 2011,
Huber allegedly used AFS’s server and email system to send L&H images of the
Antares rocket test launches using TELHS. In January 2012, L&H allegedly
granted Huber access to L&H’s network and set up an email address for Huber
in its internal email system. Huber then allegedly organized a secret meeting
at the MARS facility with L&H to discuss future upgrades to TELHS. He also
allegedly accessed AFS’s server and downloaded lots of files unrelated to any of
his projects, and, after he announced his resignation, began saving significant
amounts of confidential information to an external drive. This included
information about two of his past projects and all pending AFS quotes; this was
all allegedly transmitted to AFS.
Huber then
formed a company called INSYSMA, allegedly copying at least four AFS drawings
of engineering plans and re-signing them for INSYSMA with his own initials. The
INSYSMA website displayed a photograph of a successful launch of the Antares
rocket using TELHS and stated that INSYSMA was currently working with Orbital
in support of current and upcoming launches, allegedly falsely implying that
INSYSMA designed and installed TELHS. Finally, L&H allegedly attempted to
recruit AFS’s top electrical engineers.
AFS
alleged that the conspiracy diverted AFS’s business opportunities. In Sept.
2012, Huber allegedly submitted an unusually high bid on behalf of AFS for
upgrades to TELHS, while secretly and simultaneously submitting a substantially
lower bid for L&H for the same project.
L&H and INSYSMA won the contract.
Later, for a larger upgrade, Huber allegedly sent Orbital a quote on behalf
of L&H and got the contract. AFS
alleged that it had been shut out of all future work with Orbital at other
launch sites as well as VCSFA’s plan to further develop the MARS facility, and
also that defendants usurped several other business opportunities. This included a Huber-sent bid listing Huber
as L&H’s project manager that represented that L&H made and installed
TELHS.
The court
first found that AFS, as possessor of trade secrets even if not legal owner,
could bring a trade secret claim. “[T]he
knowledge-driven value of trade secrets compels a possession-based theory of
liability rather than a purely ownership-based theory.” Pennsylvania’s UTSA, which preempts common
law remedies for trade secret misappropriation, preempted the other claims only
to the extent they were based on alleged misappropriation of trade secrets. At this stage of the case, the court couldn’t
conclude that the allegedly misappropriated information was a trade secret or
that the other tort claims only involved trade secrets.
AFS
asserted CFAA claims against Huber and L&H for aiding and
abetting/conspiracy to violate the CFAA. L&H argued that there was no cause
of action against an end user of information unlawfully accessed by another. However, the complaint alleged an active
conspiracy to access a protected computer.
“The plain language of the CFAA requires only ‘access’—‘no modifying
term suggesting the need for “personal access” is included.’” Thus, inducing another to access a protected
computer that he or she is otherwise not authorized to use constitutes “access”
within the meaning of the CFAA. AFS also
alleged that L&H installed a VPN profile on AFS’s protected computer that
allowed Huber to initiate a connection between that computer and L&H’s
network. Even if direct access was a
prerequisite to CFAA liability, then, the allegations in the complaint were
sufficient.
However,
AFS failed to state a claim for aiding and abetting; the CFAA doesn’t create a
cause of action for that. In addition,
the court found a narrow view of the CFAA more persuasive. Misuse of information an employee was
authorized to access doesn’t violate the CFAA.
That said, there were allegations that Huber continued his access
through his company-issued laptop after he quit, which could violate the CFAA. But, for now, AFS failed to explain how it
suffered more than $5000 in the kind of loss or damage the CFAA covers—to a
computer or computer system. Conclusory
allegations of damage were insufficient.
Lanham
Act: AFS alleged that defendants “have falsely attributed to themselves the
design, manufacture and installation of the Antares lift and launch retract
system,” constituting false advertising and false designation of origin. Apparently not noticing that Dastar bars the false designation claim,
defendants argued that AFS could have no remedy for misuse of a trademark it
doesn’t own—arguing this as a matter of “standing.” Lexmark
kills that argument (the court apparently applied Lexmark to both §43(a)(1)(A) and (B), as it should) given the
allegations of damage to AFS’s commercial interest and reputation.
But were
the challenged statements in “commercial advertising or promotion”? Purely private communications, such as those
between Huber and the Air Force as a potential client, were not actionable
under §43(a)(1)(B). However, displaying a
photograph of TELHS on the INSYSMA website “without attributing the system’s
design to AFS” constituted advertising and promotion. “An internet website is a
broad advertising medium, offering wide-ranging and instantaneous dissemination
of the false information.” Also: “The website, in its ambiguity, invites the
logical inference that defendants, not AFS, designed and installed TELHS.” This
is implicit falsity, and intentionally creating a false impression can lead to
liability. (If the court were to follow several
other courts, e.g., Baden and Antidote Films, Dastar would bar this theory as a false advertising theory too, not
just as a false designation theory.) (Also, the false impression need not be
intentional, just sayin’.)
Because nobody
noticed the Dastar problem, AFS’s
false designation claim survived, based on alleged false implications to
prospective consumers and the general public that Huber and INSYSMA designed
and manufactured the TELHS system installed at Wallops Island. Using the photo
of the system on their website and failing to attribute it to AFS “implicitly
brand[ed] the TELHS system as their own.”
Defendants argued that the potential audience was too savvy to be fooled
given the expense of the system, but that wasn’t a good argument on a motion to
dismiss. AFS also successfully alleged
causation and damages flowing from the “purposeful ambiguity” on INSYSMA’s
website.
Tortious
interference claims also survived, given that AFS sufficiently alleged a
reasonable expectation of realizing its prospective contracts. AFS alleged more than a mere hope. Certainty isn’t required. Here, “AFS’s own employee was contacted by
and solicited AFS’s prospective clients,” and AFS alleged that it had
traditionally had a record of “success in bidding on similar projects.” Plus,
for the TELHS contract, AFS alleged that it performed the initial contract with
great success and historically had received upgrade contracts when its
principal project was successful. Thus, AFS sufficiently pled a reasonable
likelihood that, but for defendants’ collective diversionary tactics, it would
have had an opportunity to bid on and receive several military contracts.
1 comment:
If you actually went to INSYSMA's website, they used a stock photo from NASA's and Orbital Sciences website They also credited the photographer. It also states that they had ongoing subcontracts with Orbital Sciences and never said anything about installing the TELHS. There were no standalone pics of the TELHS nor were there discernible depictions of the TELHS. Nothing that would seem to fool a technical observer. Just a rocket plume and a rocket. Upon discovery, AFS' claim will fail. And it won't even be close.
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