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When Alice Leaves Software in Wonderland: Review the Terms of Use
That least-read contract — the Terms of Use (ToU) — can be an effective (albeit the last) weapon in the arsenal of a company trying to protect unpatented software technology while providing on-line services. In particular, a Software as a Service (SaaS) company may need to rely on its user license agreement or ToU to protect against theft of its technology by competitors posing as customers. Importantly, as discussed below, the ToU can support injunctive relief just as is available for patent infringement. Furthermore, even where individual components of the SaaS product are otherwise publicly available, or known in the art, a ToU contract protecting the proprietary combination of such components in the product as a whole will be enforced. See, Aronson v. Quick Point Pencil Co., 440 U.S. 257, 99 S. Ct. 1096 (1978) (enforcing contractual obligations freely undertaken at arm's length to continue to pay royalties on unpatented publicly available product).
Protecting Technology
A company may spend millions of dollars and much time and resources developing valuable software technology that implements a novel method of doing something (i.e., reducing an abstract idea to practice). Under Alice Corp. v. CLS Bank International, 573 U.S. 208,134 S.Ct. 2347 (2014), the Court relying on, Mayo v. Prometheus, 566 U.S. 66, 132 S.Ct. 1289 (2012), found that an abstract idea cannot be patented just because it is implemented on a computer. So, where its software technology may not be patent eligible, the company must resort to other means to protect its investment. One option may be trade secret protection for the software architecture, but that requires the company to have had enough foresight to implement, and adhere to, the practices required to sufficiently protect its trade secrets before the need for enforcement arises.
In Broker Genius, Inc. v. Zalta, 280 F. Supp. 3d 495 (S.D.N.Y. 2017), the court denied a preliminary injunction based on a theft of trade secrets claim, holding that “plaintiff's widespread and comprehensive disclosures extinguished the trade secret status of the information that Broker Genius claims was misappropriated by defendants.” Id. at 524. Nevertheless, despite it having been adjudicated in Zalta that it had no trade secrets in its unpatented technology, Broker Genius subsequently secured a preliminary injunction against another ex-customer based on breach of contract – specifically a breach of its ToU. See, Broker Genius, Inc. v. Volpone et al., 313 F. Supp. 3d 484 (S.D.N.Y 2018). Thereafter, a permanent injunction was entered after a jury returned a verdict for Broker Genius on breach of contract and unfair competition claims. See, Broker Genius, Inc. v. Seat Scouts, LLC and Drew Gainor, No. 1:17-CV-08627-SHS-SN (S.D.N.Y. Feb. 7, 2019).
Broker Genius is a SaaS company servicing ticket brokers in the secondary ticket market. It provides an auto pricing product that allows brokers to dynamically reprice the many thousands of tickets in their inventories according to comparable ticket prices in a fluctuating market. Having spent millions of dollars on requirements engineering to develop and optimize its product, Broker Genius needed a way to protect its investment and its technology from misappropriation by would-be competitors posing as customers. Without patents or trade secrets, that much-needed protection came down to the contract users/customers agreed to before getting access to the product — the user license agreement, or ToU. The author of this article represented Broker Genius and learned first-hand the issues involved in enforcing a far from perfect ToU.
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