Bytemark, Inc. v. Xerox Corp.
342 F. Supp. 3d 496
S.D. Ill.2018Background
- Bytemark develops mobile visual-validation ticketing tech, owns two patents ('967 and '993) and trade secrets, and entered contracts with transit customers including New York Waterway.
- From 2012–2015 Bytemark entered NDAs/Teaming Agreements with ACS Transport and Xerox Transport (Xerox divisions) and disclosed proprietary information to them for joint bids.
- Bytemark alleges Xerox Entities cut it out of bids, used its patents/trade secrets to create competing apps (e.g., MyTix), and secured a contract with NJ Transit; Conduent (spun out of Xerox in 2017) is alleged to have continued to service/use the technology.
- NJ Transit allegedly bought the Xerox Entities’ technology and jointly offered it to New York Waterway, which then declined to extend Bytemark’s contract.
- Bytemark sued for patent infringement, breach of contract, trade secret misappropriation, tortious interference, unfair competition (N.Y.), and unjust enrichment (N.Y. & N.J.). Defendants moved to dismiss Counts Eight (unfair competition), Nine (N.Y. unjust enrichment), and Ten (N.J. unjust enrichment) in part.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether unfair competition claim is preempted by federal patent law | Bytemark: claim rests on misappropriation and reverse-passing-off; also alleges bad-faith deception beyond mere patent infringement | Defendants: unfair competition predicated on patent infringement is preempted by federal law | Reverse-passing-off theory preempted; misappropriation-based unfair competition (bad-faith deception to obtain trade secrets) survives dismissal |
| Whether unfair competition vs. Xerox Entities is duplicative of breach of contract | Bytemark: alleges deceptive conduct extraneous to contracts (induced disclosures, then cut-out and purposeful competition) | Defendants: claim duplicates contractual breach and should be dismissed | Not duplicative — factual allegations of deception/misuse beyond mere contract breach suffice to state unfair competition claim against Xerox Entities |
| Whether Conduent and NJ Transit acted in bad faith for unfair competition | Bytemark: contends all Defendants acted in bad faith; Conduent continued using/providing the technology after its formation; NJ Transit collaborated in offers to New York Waterway | Defendants: Plaintiffs fail to plead facts showing Conduent/NJ Transit knew of misappropriation or acted in bad faith | Bad faith adequately alleged as to Conduent (red-flag knowledge and continued use); allegations insufficient as to NJ Transit — unfair competition dismissed as to NJ Transit |
| Whether unjust enrichment claims survive (N.Y. and N.J.) | Bytemark: Defendants were unjustly enriched by saving development costs and diverting revenues through use of Bytemark's IP | Defendants: claims duplicate contract/tort remedies (N.Y.) and lack direct relationship/benefit conferred by plaintiff (N.J.) | N.Y. unjust enrichment dismissed as duplicative and amendment futile; N.J. unjust enrichment dismissed as to Conduent and NJ Transit for failure to plead direct relationship, but leave to amend granted for limited claims |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard for plausibility)
- Kassner v. 2nd Ave. Delicatessen, 496 F.3d 229 (accept allegations as true on motion to dismiss)
- Telecom Int'l Am., Ltd. v. AT & T Corp., 280 F.3d 175 (essence of N.Y. unfair competition — misappropriation of labors/expenses)
- Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318 (as-applied test for patent preemption of state torts)
- Ultra-Precision Mfg., Ltd. v. Ford Motor Co., 411 F.3d 1369 (federal preemption where state law offers patent-like protection)
- Hall v. Bed Bath & Beyond, Inc., 705 F.3d 1357 (unfair competition not preempted where deceptive business-practice allegations add elements beyond patent law)
- Rodime PLC v. Seagate Tech., Inc., 174 F.3d 1294 (state claims survive preemption where they include extra elements beyond patent law)
- Carson Optical Inc. v. eBay Inc., 202 F. Supp. 3d 247 (reverse passing off and preemption under patent law)
- Corsello v. Verizon New York, Inc., 18 N.Y.3d 777 (N.Y. unjust enrichment is equitable and duplicative if adequate legal remedies exist)
- Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225 (states cannot grant patent-like protection under unfair competition law)