Ad Lightning Inc. v. Clean.io, Inc.

Background

Ad Lightning Inc. sued Clean.io, Inc., alleging misappropriation of trade secrets under the federal Defend Trade Secrets Act and Washington’s Uniform Trade Secrets Act. Ad Lightning sought damages, an order stopping Clean.io from using the alleged trade secrets, fees, and costs.

Ad Lightning alleged that it participated in an accelerator program run by R/GA from August through November 2017. Oath, Inc., which funded the program and was separately testing Ad Lightning’s technology, ended licensing negotiations on October 19, 2017. Eight days later, Clean was formed. Clean, like Ad Lightning, helps protect businesses from malicious online advertisements. Clean’s current chief executive officer, Matt Gillis, and two other executives had previously worked for Oath.

Legal standard

Clean moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. The court applied the rule that a complaint must contain enough factual allegations to make liability plausible, not merely possible or consistent with wrongdoing.

Court’s analysis

To state a claim under the federal trade-secrets statute, Ad Lightning had to allege that it possessed a trade secret and that Clean misappropriated it.

The court held that Ad Lightning adequately alleged possession of trade secrets. Ad Lightning described proprietary information that combined synthetic audiences with live, detailed user data to monitor clients’ advertising inventories for bad advertisements, suspicious behavior, and compliance violations. It also described a reporting feature that allowed publisher clients to send reports of bad advertisements to the suppliers that provided them. Although some allegations repeated the statutory definition at a high level, the court found that the description provided just enough notice of the claimed trade secrets. The court also found sufficient allegations that Ad Lightning took reasonable measures to protect the information, including requiring employees and clients to sign confidentiality agreements and restricting access to parties who agreed to confidentiality terms.

The court found the allegations of misappropriation insufficient. Ad Lightning relied on circumstantial facts, including Oath’s failure to activate the reporting feature, the timing of Clean’s formation, the former Oath employees’ access to Ad Lightning’s information, and the alleged absence of equivalent Yahoo! products. The court concluded that these facts did not provide a concrete link between the Oath employees who tested Ad Lightning’s technology and the people who founded Clean, nor did they show that the information was actually acquired through improper means. The court stated that Clean’s founders could have been developing similar software independently, making Ad Lightning’s allegations merely consistent with liability rather than plausibly establishing it.

Other claim and amendment request

Because the federal claim was dismissed, the court declined to exercise supplemental jurisdiction over Ad Lightning’s Washington trade-secrets claim. Supplemental jurisdiction is a court’s authority to hear related state-law claims alongside federal claims.

Ad Lightning requested permission to amend if its allegations were found insufficient. The court directed Ad Lightning to file a letter motion and a marked draft of a proposed second amended complaint by August 27, 2020, explaining how additional facts would state a claim. The opinion did not grant leave to amend automatically.

Disposition

The court granted Clean’s motion to dismiss. It permitted Ad Lightning to request leave to file a second amended complaint by letter motion on or before August 27, 2020. If Ad Lightning did not seek leave to amend, or did not file the required letter by that date, the court stated that it would enter final judgment and close the case, permitting an appeal.