The lawsuit between Swarmify and Cloudflare recently produced an Order in which U.S. District Court Judge William Alsup denied Swarmify’s motion for a preliminary injunction, and also offers a cautionary tale about what activities might result in bloggers being hauled into Court.
In 2016, Swarmify, a start-up focused on affordable video streaming, and Cloudflare, a corporation that uses a network of data centers for content delivery, entered into confidential negotiations regarding Cloudflare’s potential acquisition of Swarmify. During these discussions, Swarmify disclosed to Cloudflare some confidential information about the company’s proprietary streaming method, including a pending unpublished patent application, but notably did not disclose any computer code. While the discussions were ongoing, Cloudflare offered employment to Swarmify’s CEO and the senior developer of Swarmify’s proprietary streaming method. Both individuals declined, and informed Cloudflare any movement on their part would have to come through Cloudflare’s acquisition of their company. The companies ended negotiations and parted ways, but not for long.
Cloudflare instead allegedly hired other engineers and independently developed its own streaming service, which it introduced through two blog articles on its website. Swarmify contended one of the articles described precisely its own streaming methods, and hence it sued for trade secret misappropriation, while also seeking a preliminary injunction.
Judge Alsup denied Swarmify’s request, however, with the “showstopper” blow being its failure to show irreparable harm, but rather, only “textbook reparable harm.” According to the order, Swarmify’s only evidence of irreparable harm were two conclusory paragraphs in its principles’ declaration and an email from a potential investor commenting on the general competitive nature of the streaming video industry. Swarmify’s argument boiled down to nothing more than a concern that it should be the one profiting from its own technology – a harm that could readily be measured and remediated based on Cloudflare’s unjust enrichment.
This order serves as a good reminder that conclusory statements are not sufficient to support a preliminary injunction; litigants must have concrete evidence and arguments establishing why money is not sufficient recompense.
This order also serves up a valuable lesson regarding adequacy of trade secret disclosures. Judge Alsup stated that Swarmify’s disclosure was wholly inadequate and a “blatant abuse of the system” because it attempted to “lay wholesale claim to such nebulous, sweeping categories as ‘research and information,’ ‘methods for implementing,’ and ‘vendors.’” He further noted that the disclosure “does not even come close to identifying plausible trade secrets with reasonable particularity as required by [California CCP] Section 2019.210.”
As an aside, it is also noteworthy that, in line with the current trend for California federal court plaintiffs, Swarmify opted to submit a trade secrets disclosure in support of its preliminary injunction bid. Nonetheless, it continues to remain an open question if and to what extent similar disclosure rules will be adopted nationally or ordered by federal courts in conjunction with DTSA litigation. We will keep you posted.
