Section Partners Management, LLC v. EquityBee, Inc.

Background

Section Partners alleged that it had a trade secret involving a combination of specific features. It also alleged that EquityBee misappropriated that trade secret. The opinion states that Section Partners received an EquityBee contract with nearly identical terms and substantial overlap in terminology, definitions, and structure. Section Partners further alleged that it disclosed the trade secret only to third parties that had signed nondisclosure agreements.

EquityBee moved to dismiss. It argued that Section Partners had not adequately alleged the existence of a trade secret because most of the individual features were already publicly known features of investment vehicles such as variable prepaid forward contracts.

Trade-secret allegation

The court held that the allegations were sufficient for the case to proceed at this stage. Although individual features may have been publicly known, Section Partners alleged that the combination of those features made the information a trade secret. The court cited the principle that a compilation can qualify as a trade secret when it provides a competitive advantage and is not readily ascertainable, including when public information is combined in a novel way.

The court noted that EquityBee might ultimately prove that the combination of features was publicly known, but it concluded that the complaint’s allegations were adequate for now.

Misappropriation allegation

The court also held that Section Partners adequately alleged misappropriation. The complaint did not allege that EquityBee obtained the trade secret directly from Section Partners. It did allege, however, that EquityBee obtained it from a third party with access to the trade secret. Combined with the alleged similarity between the parties’ contracts and Section Partners’ nondisclosure agreements, those allegations supported a plausible inference that EquityBee acquired, disclosed, or used the trade secret through improper means.

Disposition

Judge Vince Chhabria denied EquityBee’s motion to dismiss. The order addressed whether the complaint’s allegations were legally sufficient at this stage; it did not determine whether Section Partners will ultimately prove that the information was a trade secret or that EquityBee misappropriated it.