250ok, Inc. f/k/a 250ok, LLC v. Message Systems, Inc., a/k/a SparkPost

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
250ok, INC. f/k/a 250ok, LLC )
)
Plaintiff, )
)
v. ) C.A. No. 2020-0588-JRS
)
MESSAGE SYSTEMS, INC., a/k/a )
SPARKPOST, )
)
Defendant. )
MEMORANDUM OPINION
Date Submitted: November 17, 2020
Date Decided: January 22, 2021
James P. Hughes, Jr., Esquire and Lauren Dunkle Fortunato, Esquire of Young
Conaway Stargatt & Taylor, LLP, Wilmington, Delaware and Matthew T.
McLaughlin, Esquire and Kacey Houston Walker, Esquire of Nixon Peabody LLP,
Boston, Massachusetts, Attorneys for Plaintiff 250ok, Inc., f/k/a 250ok, LLC.
Ryan D. Stottmann, Esquire and Sarah P. Kaboly, Esquire of Morris, Nichols, Arsht
& Tunnell LLP, Wilmington, Delaware and Clement S. Roberts, Esquire and Nathan
Shaffer, Esquire of Orrick, Herrington & Sutcliffe LLP, San Francisco, California,
Attorneys for Defendant Message Systems, Inc. a/k/a SparkPost.
SLIGHTS, Vice Chancellor
Plaintiff, 250ok, Inc., alleges Defendant, Message Systems, Inc. d/b/a
SparkPost (“SparkPost”), breached a Reseller Agreement (defined below) and
misappropriated trade secrets. It now seeks equitable relief to prevent further
breaches and further misappropriations. While SparkPost acknowledges that both
the breach of contract and misappropriation of trade secrets claims are fact-intensive
and not proper for resolution on a motion to dismiss, it has moved to dismiss the
Complaint’s Count III, where 250ok alleges SparkPost was unjustly enriched by its
misappropriation and use of 250ok’s confidential information and proprietary data.
When a plaintiff asserts a claim under Delaware’s trade secrets statute, that
claim “occupies the field” and preempts a claim for common law unjust enrichment.
Accordingly, as explained below, the motion to dismiss must be granted.
I. BACKGROUND
I have drawn the facts from well-pled allegations in the Verified Complaint
(the “Complaint”) and documents incorporated by reference or integral to that
pleading.1 For purposes of the motion, I accept as true the Complaint’s well-pled
factual allegations and draw all reasonable inferences in Plaintiff’s favor. 2
1
Verified Compl. (“Compl.”) (D.I. 1); Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d
312, 320 (Del. 2004) (noting that on a motion to dismiss, the court may consider documents
that are “incorporated by reference” or “integral” to the complaint).
2
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002).
1
A. The Parties
Plaintiff, 250ok, a Delaware corporation, is an email marketing company that
maintains a comprehensive platform supporting “all phases of email marketing,
including tools focused on deliverability, design, validation, and engagement
analytics.”3 Defendant, SparkPost, also a Delaware corporation, began its
relationship with 250ok as a customer in 2013.4 It later became a reseller of 250ok’s
products under a “Reseller Agreement.”5
B. 250ok’s Sensor Network Technology
In today’s realm of digital technology, companies face the ongoing challenge
of ensuring their advertising content reaches their customers and putative customers.
Email marketing has become an essential component of digital advertising. 6 And,
as advertisers attempt to place their content in consumers’ email inboxes, the email
service providers (“ESPs”) for those consumers attempt to block that content as
3
Compl. ¶¶ 4, 14.
4
Compl. ¶¶ 5, 23.
5
Compl. ¶ 24.
6
Compl. ¶ 8.
2
“spam.”7 Ending up in a “spam” folder sounds the death bell for an advertiser’s
email as it all but ensures the email will never see the light of day once sent.8
One way ESPs mark emails as spam is through “spam traps.” 9 Spam traps are
simply email addresses. These email addresses process incoming emails and
“extract certain metadata” to ascertain “the sender’s identity and other key
information.”10 By analyzing this information, the ESPs seek to identify which
senders are worthy of the ESPs “blacklist.”11 If an email address is blacklisted, the
sender’s emails automatically are diverted into a recipient’s spam folder.12
Given that operators of spam traps keep the identity of their addresses secret,
companies, like 250ok, have attempted to replicate the effect of spam traps to help
customers avoid the ESP blacklists.13 These fake spam traps are known as “sensor
networks.” A “sensor network” is designed to mirror an ESP’s spam trap, but
“unlike spam traps, the data obtained from pure sensor networks is not used to
7
Compl. ¶ 10.
8
Compl. ¶ 9.
9
Compl. ¶ 10.
10
Id.11
Id.12
Id.13
Compl. ¶ 11–12.
3
populate blacklists” but “to help email senders identify deliverability issues” so they
can address the issues and avoid the spam traps. 14
250ok’s proprietary sensor network is known as MailboxPark (the “Sensor
Network”).15 Utilizing the Sensor Network as the backbone, 250ok offers a service
known as Reputation, “which helps senders monitor their internet protocol addresses
and domains to identify sending practices that damage the sender’s reputation.”16
To build the Sensor Network and subsequently roll-out its Reputation product,
250ok “invested significant resources” in order to build “an innovative software
platform that leverages partnerships with a wide range of domain owners and
managers to generate email data from the traffic sent to those domains.”17 250ok
maintains that “[t]he components, composition, and architecture of the Sensor
Network are not known or readily ascertainable, . . . [which] allows the Sensor
Network to mimic the functionality of spam-trap networks.”18
14
Compl. ¶ 13.
15
Compl. ¶ 19.
16
Compl. ¶ 15.
17
Compl. ¶ 18.
18
Compl. ¶ 20.
4
C. The Reseller Agreement
On July 17, 2015, 250ok and SparkPost entered into the Reseller Agreement,
whereby “SparkPost [was designated] as a reseller of the service that 250ok provides
through its Platform (the ‘Service’).” 19 The Reseller Agreement granted SparkPost
a license to “use and access the 250ok Service for the purpose of bundling the
subscription to the Service for re-sale with [SparkPost] products and services to
[SparkPost’s] Customers . . . .” 20
To protect 250ok’s information, the Reseller Agreement, at Section 5.2,
contained several restrictions upon SparkPost’s use of information it received as a
250ok reseller:
Restrictions. [SparkPost] shall not (a) modify, copy or create derivative
works based on the Service; (b) frame or mirror any content forming
part of the Service, other than on [Sparkpost’s] and Customer’s own
intranets or otherwise for its own internal business purposes; (c) reverse
engineer the Service; or (d) access the Service in order to (i) build a
competitive product or service, or (ii) copy any ideas, features,
functions or graphics of the Service.21
As defined, “Confidential Information” included, among other things,
“technology and technical information, product designs, and business processes.”22
19
Compl. ¶ 24.
20
Compl. ¶ 26 (alteration in original); Compl., Ex. A (“Reseller Agreement”) § 3.5.
21
Reseller Agreement § 5.2.
22
Compl. ¶ 29; Reseller Agreement § 6.1.
5
In Section 6.2 of the Reseller Agreement, SparkPost promised “not to disclose or
use any Confidential Information of [250ok] for any purpose outside the scope of
this Agreement.” 23 SparkPost also agreed that it would “use the same degree of care
to protect the Confidential Information as it used to protect its own information of a
confidential and proprietary nature, but in no event shall it use less than reasonable
care.”24
D. 250ok’s Disclosure and SparkPost’s Alleged Misuse of 250ok’s
Confidential Information
After 250ok launched its Sensor Network, and in furtherance of the Reseller
Agreement, 250ok provided SparkPost with “proprietary data generated from its
own Sensor Network.” 25 250ok also provided SparkPost detailed information
regarding a number of product features, including “encoded information contained
in email headers”26 and “the composition and architecture of its Sensor Network.”27
This data transparency, according to 250ok, was unique within the industry and
provided particular value to recipients of the information, including SparkPost.28
23
Compl. ¶ 29 (alteration in original); Reseller Agreement § 6.2.
24
Compl. ¶ 29; Reseller Agreement § 6.2.
25
Compl. ¶ 33.
26
Compl. ¶ 35.
27
Compl. ¶ 37.
28
Compl. ¶ 41.
6
In the early spring of 2019, SparkPost began exploring the possibility of
acquiring some or all of 250ok’s business, leading to a May 10, 2019 meeting
between the parties. 29 At this meeting, “SparkPost presented 250ok with a
demonstration of its new product, SparkPost Signals, which incorporated sensor-
network data to replicate the functionality of 250ok’s Service.” 30 When asked how
SparkPost acquired the information necessary to build out its own sensor network,
SparkPost’s Chief Technology Officer acknowledged that SparkPost “had figured
out how to ‘reverse engineer’ the domains that constitute 250ok’s Sensor
Network.”31 Upon learning that its confidential information had been used for this
purpose, 250ok expressed its view that SparkPost had misappropriated 250ok’s
confidential information and declined SparkPost’s offer to purchase the company.32
On May 14, just four days after its meeting with 250ok, SparkPost publicly
introduced SparkPost Signals. 33 According to 250ok, “SparkPost could not have
developed—and did not develop—its Signals product . . . without wrongfully
29
Compl. ¶¶ 42, 46.
30
Compl. ¶ 47.
31
Id.
32
Compl. ¶ 48.
33
Compl. ¶ 49.
7
appropriating 250ok proprietary and confidential information and/or trade secrets
that SparkPost gleaned from or as a result of its reseller relationship with 250ok.”34
E. Procedural History
250ok filed its Complaint in this Court on July 16, 2020. 250ok alleges that
SparkPost misappropriated its proprietary information related to its Sensor Network
and has used this information to build and monetize its own sensor network known
as SparkPost Signals. The Complaint comprises three counts. Count I alleges
breach of the Reseller Agreement; Count II alleges misappropriation of trade secrets
under the Delaware Uniform Trade Secret Act (the “DUTSA”) 35; and Count III
alleges unjust enrichment. SparkPost has moved to dismiss only Count III. The
proffered grounds for dismissal are that Count III is preempted by 250ok’s statutory
claim for misappropriation of trade secrets under the DUTSA and otherwise barred
as duplicative of 250ok’s breach of contract claim.
For reasons explained below, I agree with SparkPost that 250ok’s claim under
the DUSTA encompasses the restitutionary elements and purposes of its common
law unjust enrichment claim and that the common law claim, therefore, is
34
Compl. ¶ 52.
35
6 Del. C. § 2001 et seq.
8
preempted. Given this holding, I need not address whether the unjust enrichment
claim is improperly duplicative of the breach of contract claim.36
II. ANALYSIS
The standard for deciding a motion to dismiss under Court of Chancery
Rule 12(b)(6) is well-settled:
all well-pleaded factual allegations are accepted as true; (ii) even vague
allegations are “well-pleaded” if they give the opposing party notice of
the claim; (iii) the Court must draw all reasonable inferences in favor
of the non-moving party; and (iv) dismissal is inappropriate unless the
plaintiff would not be entitled to recover under any reasonably
conceivable set of circumstances susceptible of proof. 37
36
For what it is worth, I note that I likely would not have granted SparkPost’s motion on
this ground. Pleading unjust enrichment in the alternative is permitted where “there is
doubt surrounding the enforceability or the existence of the contract.” Albert v. Alex.
Brown Mgmt. Servs., Inc., 2005 WL 2130607, at *8 (Del. Ch. Aug. 26, 2005). On this
issue, SparkPost argued itself into a corner. SparkPost argued on the inhale that “the
existence and validity of the Reseller Agreement is undisputed.” Def.’s Opening Br. in
Supp. of Partial Mot. to Dismiss Pl.’s Verified Compl. (“OB”) (D.I. 23) at 12; 250ok, Inc.
f/k/a 250ok, LLC v. Message Sys., Inc., d/b/a SparkPost, C.A. No. 2020-0588-JRS, at 18
(Del. Ch. Nov. 17, 2020) (TRANSCRIPT) (D.I. 34). But, at the same time, SparkPost
argued on the exhale that it “reserves the right to argue for the proper interpretation of the
Reseller Agreement or that individual provisions are unenforceable. But it does not dispute
that the Reseller Agreement is a valid legal agreement between the parties.” OB at 12 n.4.
If SparkPost later argues that certain provisions of the Reseller Agreement are
unenforceable, then that will bring to the fore a potential dispute regarding the
enforceability of the Reseller Agreement. In the meantime, the fact that SparkPost reserved
its rights with respect to enforceability bars SparkPost from arguing that the enforceability
of the Reseller Agreement is not in dispute such that unjust enrichment is improperly
duplicative.
37
Savor, 812 A.2d at 896–97 (citation omitted).
9
As noted, SparkPost’s motion to dismiss is prompted, in part, by 250ok’s
choice to plead both misappropriation of trade secrets under the DUSTA and unjust
enrichment in the same Complaint. Section 2007 of the DUTSA provides:
(a) Except as provided in subsection (b) of this section, this chapter displaces
conflicting tort, restitutionary and other law of this State providing civil
remedies for misappropriation of a trade secret.
(b) This chapter does not affect:
(1) Contractual remedies, whether or not based upon misappropriation of
a trade secret;
(2) Other civil remedies that are not based upon misappropriation of a
trade secret; or
(3) Criminal remedies, whether or not based upon misappropriation of a
trade secret. 38
By its terms, the statute presents the threshold question of whether a common
law claim that arguably is “displaced” by the statute can be dismissed as such before
the court has determined that a protectable trade secret exists. 39 On this point, our
courts have almost uniformly held that Delaware “has joined the ‘majority view’ that
Section 2007 of the DUTSA precludes common law claims based on
misappropriation of business information even in cases in which the claim does not
38
6 Del. C. § 2007.
39
iBio, Inc. v. Fraunhofer USA, Inc., 2020 WL 5745541, at *12 (Del. Ch. Sept. 25, 2020)
(“The parties disagree over a threshold question under the statute: Does the statute displace
claims that seek to protect confidential information that does not qualify as a trade secret
under the DUTSA?”).
10
meet the statutory definition of ‘trade secret’ under the Code.” 40 Under this majority
view, “[p]reemption applies regardless of whether the information would ultimately
rise to the level of a trade secret.”41 Thus, unless expressly carved-out, the DUTSA
prohibits even alternatively pled common law claims that are based on the same
wrongdoing as a trade secrets claim, notwithstanding that the alleged trade secret
might later be deemed unworthy of statutory protection.
250ok argues that even if the DUTSA precludes common law claims pled in
the alternative, the statute only “displaces” tort-based claims, not contract-based
claims like unjust enrichment. But this misconstrues the nature of unjust enrichment
and ignores the plain language of the statute. The DUTSA unambiguously provides
that claims in service of a “restitutionary” remedy are displaced by the statute.42 And
that is precisely the essence of the unjust enrichment cause of action; unjust
40
Atl. Med. Specialists, LLC v. Gastroenterology Assocs., P.A., 2017 WL 1842899, at *15
(Del. Super. Apr. 20, 2017); iBio, 2020 WL 5745541, at *12.
41
Alarm.com Hldgs., Inc. v. ABS Capital P’rs Inc., 2018 WL 3006118, at *11 (Del. Ch.
June 15, 2018) (internal quotations omitted) (quoting Yeiser Research & Dev. LLC v.
Teknor Apex Co., 281 F. Supp. 3d 1021, 1051 (S.D. Cal. 2017)); Ethypharm S.A. France
v. Bentley Pharm., Inc., 388 F. Supp. 2d 426, 433 (D. Del. 2005) (holding that the DUTSA
preempts “all claims stemming from the same acts as the alleged misappropriation”).
42
6 Del. C. § 2007.
11
enrichment is a quasi-contract claim that seeks restitution. 43 It is, therefore,
displaced, or preempted, by the DUTSA.
This construction of the DUTSA is not groundbreaking; both Delaware and
federal courts have consistently held that unjust enrichment claims “based on the
same alleged wrongful conduct as the trade secret claims” are preempted by the
DUTSA.44 For instance, in Incyte Corp. v. Flexus Biosciences, Inc., our Superior
Court held that an unjust enrichment claim was preempted by the DUTSA where
that claim alleged, “Defendants have enriched themselves by acquiring and using
Incyte’s trade secrets and confidential information.”45 While 250ok avoids the term
“trade secret” in its Count III, it is clear the claim for unjust enrichment pled in that
count rests on the same alleged misappropriation of “confidential information and
43
See Schock v. Nash, 732 A.2d 217, 232 (Del. 1999) (“For a court to order restitution it
must first find the defendant was unjustly enriched at the expense of the plaintiff.”).
44
Incyte Corp. v. Flexus Biosciences, Inc., 2017 WL 7803923, at *3 (Del. Super. Ct.
Nov. 1, 2017) (“Therefore, to the extent Incyte’s unjust enrichment and civil conspiracy
claims are based upon misappropriation of trade secrets, the motion to dismiss those claims
is granted on the basis of DUTSA displacement.”); Ethypharm, 388 F. Supp. 2d at 434(“[The unjust enrichment] claim is based entirely on the same facts which purportedly
support the misappropriation of trade secrets and, thus, is displaced by the DUTSA.”).
45
Incyte, 2017 WL 7803923, at *2. In reaching this result, the court noted “that it need not
decide whether the complaint’s mention of the misuse of ‘confidential information’ in
addition to the misuse of trade secrets saves the claims from displacement” because
plaintiffs had not “argue[d] that Defendants misappropriated any confidential information
that was not a trade secret.” Id. at *2 n.18. Likewise, here, Plaintiff has not alleged that
any relevant confidential information misappropriated by SparkPost is not a “trade secret”
under the DUTSA.
12
proprietary data” that animates the misappropriation of trade secrets claim in
Count II. 46
250ok argues Total Care Physicians, P.A. v. O’Hara supports its view that
unjust enrichment claims are not subject to preemption under the DUTSA. There,
the Superior Court declared in a footnote that “[t]he unjust enrichment claim is not
a tort-based claim and is not, therefore, subject to the statutory preemption addressed
in Leucadia.”47 While this is a seemingly clear pronouncement of law, the decision
in Total Care fails to reflect the current state of our law for a number of reasons. 48
First, Total Care was decided before our Supreme Court issued its decision in
Savor, Inc. v. FMR Corp. In Savor, the Court clarified that the DUTSA’s
“displacement” provision does not apply only to tort-based claims, but rather
potentially preempts all “alternative common law claims” beyond those expressly
exempted from preemption in the statute. 49 Second, Incyte also postdates Total Care
and, with careful and persuasive analysis, the court there determined the DUTSA
46
Accord Ethypharm, 388 F. Supp. 2d at 434 (holding an unjust enrichment claim “based
entirely on the same facts which purportedly support the misappropriation of trade
secrets . . . displaced by the DUTSA”).
47
Total Care Physicians, P.A. v. O’Hara, 2002 WL 31667901, at *10 n.54 (Del. Super.
Ct. Oct. 29, 2002); Leucadia, Inc. v. Applied Extrusion Techs., 755 F. Supp. 635, 637
(D. Del. 1991).
48
I note that this judge was the author of Total Care “in a former life.”
49
Savor, 812 A.2d at 898.
13
displaces an unjust enrichment claim.50 Finally, in Total Care, the court found that
“the misappropriation of trade secrets claim affords [the Plaintiff] an adequate
remedy at law which, in turn, disables its unjust enrichment claim.”51 Thus, the
court’s declaration that unjust enrichment claims were not subject to statutory
preemption was irrelevant to the outcome of that case; the court found the unjust
enrichment claim unavailable in the shadow of the misappropriation of trade secrets
claim, albeit for a reason that varied slightly from statutory preemption.
Under our settled law, what matters for preemption purposes is whether the
trade secrets and unjust enrichment claims are based on the “same alleged wrongful
conduct.” 52 If so, then the unjust enrichment claim must be dismissed. 250ok fails
to dispute SparkPost’s argument that 250ok’s unjust enrichment claim is based on
the same facts and wrongdoing that support its trade secrets claim, and for good
reason. As noted, the trade secrets claim alleges, “SparkPost used the confidential
and proprietary trade secrets . . . to derive, through improper means, further 250ok
trade secrets regarding the components, composition, and architecture of 250ok’s
Sensor Network.”53 The unjust enrichment claim rests on the same facts: “SparkPost
50
Incyte, 2017 WL 7803923, at *2–3.
51
Total Care, 2002 WL 31667901, at *10 n.54.
52
Savor, 812 A.2d at 898.
53
Compl. ¶ 67.
14
acted in knowing bad faith in misappropriating 250ok’s confidential information and
proprietary data to exploit 250ok’s Sensor Network, which 250ok expended
substantial time and money to develop.”54 Given the factual overlap, 250ok’s unjust
enrichment claim is preempted by the DUTSA and, therefore, must be dismissed.55
III. CONCLUSION
Based on the foregoing, the motion to dismiss must be GRANTED. Count III
of the Complaint is dismissed with prejudice.
IT IS SO ORDERED.
54
Compl. ¶ 78.
55
Of course, under 6 Del. C. § 2003, 250ok may seek restitutionary damages as a remedy
for any proven misappropriation of trade secrets, but unjust enrichment “does not survive
as a standalone claim.” Incyte, 2017 WL 7803923, at *3; 6 Del. C. § 2003 (“Damages can
include both the actual loss caused by misappropriation and the unjust enrichment caused
by misappropriation that is not taken into account in computing actual loss.”).
15