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Current Developments in the Commercial Divisions of the
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Posted: July 17, 2014

Court Examines Elements of Claim for Misappropriation of Skills and Expenditures in Pinterest Lawsuit

On July 8, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Schroeder v. Pinterest Inc., 2014 NY Slip Op. 31809(U), illustrating the elements of a claim for misappropriation of skills and expenditures.

In Schroeder, the plaintiffs claimed that the defendants used their ideas and work in creating the website Pinterest. The defendants moved to dismiss. This post looks at the court’s denial of the defendants’ motion with respect to the plaintiffs’ claim for misappropriation of skills and expenditures. The court explained:

To make a claim of misappropriation of skills and expenditures, plaintiffs must allege (1) investment of labor, skill or expenditure, (2) that the information was misappropriated in bad faith, (3) and used for defendant’s own benefit. Such claims are traditionally called unfair competition. Unfair competition claims can stand even when a misappropriation of trade secret claim fails. Finally, bad faith requires the existence of a confidential or fiduciary relationship and can consist of theft, deception, bribery, or coercion.

(Internal quotations and citations omitted). The court found all three elements adequately pleaded with respect to the individual defendant, Cohen, but not Pinterest, explaining:

Plaintiffs allege that the investment in skill, labor, and expenditures was misappropriated by Mr. Cohen when he took plaintiffs’ ideas to the Pinterest founders. Plaintiffs allege that Mr. Cohen acted in bad faith by stealing ideas when he promised he would not. Plaintiffs allege that Mr. Cohen, as chairman and CEO of both RDV and Skoopwire, while acting as an agent of NY A, knew that the proprietary information he acquired from plaintiffs should be kept confidential. Plaintiffs further allege that Mr. Cohen knew such information was to be kept confidential because Mr. Cohen signed the operating agreement, refused to sign a liquidation agreement, and wrote an email promising that he would not profit from plaintiffs’ ideas. . . .

Plaintiffs sufficiently allege that Mr. Cohen’s misappropriation of Mr. Schroeder’s labor, skill, and expenditures was for Mr. Cohen and NY A’s own benefit and gave defendants an unfair advantage. NY A is allegedly also responsible because Mr. Cohen was at all times acting in furtherance of NY A business and within the scope of his authority as an NYA officer. NYA exists “to provide capital to entrepreneur’s starting new businesses.” Mr. Cohen was affiliated with NY A and plaintiffs met with Mr. Cohen to look for capital. NY A’s success occurs through the investments made by its members. For example, NY A touted the success of Pinterest with a tombstone on its website. NY A is not just a clearinghouse (independent consortium of angel investors) and it does not matter that it is a not-for-profit entity.

This decision illustrates that even where a claim for theft of trade secrets might not exist, a plaintiff might still have a claim for the misappropriation of the fruits of her labor.

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