Tag Archives: misappropriation

Court reinstates SCO’s misappropriation claim against IBM in long-running lawsuit

For almost a decade and a half, SCO and IBM have been fighting over their collaboration gone wrong concerning the development of a new version of UNIX for Intel processors. The case has garnered much attention, including from the open source community. You can read the backstory here on the Wikipedia page for the dispute. The case has been on appeal to the Tenth Circuit, which released its opinion on October 30. The decision was a mixed ruling – the court affirmed summary judgment in favor of IBM on most of the issues, but ruled in favor of SCO on one important claim – misappropriation.

SCO sued IBM for the tort of misappropriation (a form of unfair competition) arising from IBM’s alleged use in its own product of source code that SCO had contributed to the joint efforts to develop the new UNIX version. The district court granted IBM’s motion for summary judgment on the misappropriation claim, holding that such a claim was barred under New York law’s “independent tort doctrine”. SCO sought review with the Tenth Circuit Court of Appeals. The court reversed and remanded the case on the misappropriation claim.

This doctrine provides that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated. This separate duty must spring from circumstances extraneous to, and not constituting elements of, the contract, although it may be connected with and dependent upon the contract.

In this case, the court held that while IBM and SCO may not have had a formal partnership or joint venture as a matter of law, they surely enjoyed a business relationship in which each reposed a degree of trust and confidence in the other. In such a situation, there exists a duty not to take a business collaborator’s property in bad faith and without its consent in order to compete against that owner’s use of the same property.

SCO v. IBM, — F.3d —, 2017 WL 4872572 (10th Cir., October 30, 2017)

Evan_BrownAbout the Author: Evan Brown is a Chicago technology and intellectual property attorney. Call Evan at (630) 362-7237, send email to ebrown [at] internetcases.com, or follow him on Twitter @internetcases. Read Evan’s other blog, UDRP Tracker, for information about domain name disputes.

Hiring subscribers to access competitor’s database gives rise to misappropriation claim

Reed Construction Data v. McGraw Hill Companies, No. 09-8578 (S.D.N.Y. September 14, 2010)

Court refuses to dismiss lawsuit in which plaintiff accused its competitor of paying others to subscribe to plaintiff’s proprietary database to get confidential information.

Plaintiff and defendant are fierce competitors that provide project news and information to the construction industry. (Really the parties are the only nationwide providers in this market space.) The companies sell subscriptions to their respective databases. Plaintiff requires its subscribers to sign a nondisclosure agreement, making them promise not to share information obtained from the database with others outside the subscriber’s company.

After plaintiff figured out that a copule of its subcribers worked for sham enterprises, it got wise to the notion that defendant had hired those subscribers to access the database. Plaintiff sued, claiming, among other things, misappropriation of confidential information under New York law.

Defendant moved to dismiss for failure to state a claim. The court denied the motion.

To state a claim for misappropriation of confidential information, plaintiff had to allege that defendant used plaintiff’s confidential information for the purpose of securing a competitive advantage. Defendant argued that a tort action for misappropriation was not proper because all that had happened was a use of information in violation of the nondisclosure agreements with the individuals allegedly hired by defendant to access plaintiff’s database.

The court rejected this argument for two reasons. First, plaintiff had not alleged that defendant was a party to the contract. So the liability could not be constrained to just breach of contract. Moreover, the court found, that the tortious conduct of misappropriation had a separate and additional existence apart from any contractual relationship, even if such a relationship did exist. The misappropriation sprang from circumstances extraneous to, and not constituting elements of, the subscription agreements with the parties defendant allegedly hired to access plaintiff’s information.