Dastar-barred claim survives both as false advertising and false designation

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.