Bertec Corp. v. Sparta Software Corp.

BERTEC CORPORATION, Plaintiff, v. SPARTA SOFTWARE CORPORATION AND PLAYGROUND GLOBAL LLC Defendants.

Case No. 2:19-CV-04623

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF OHIO EASTERN DIVISION

December 27, 2019

CHIEF JUDGE ALGENON L. MARBLEY

Magistrate Judge Vascura

OPINION AND ORDER

This matter comes before the Court on the Motion for Preliminary Injunction by Plaintiff, Bertec Corporation. (ECF No. 2). Defendants Sparta Software Corporation and Playground Global LLC have each filed their opposition to Plaintiff's motion. (ECF No. 47; No. 44). Bertec has replied. (ECF No. 56). A hearing was held on December 17, 2019. For the reasons stated below, this court DENIES Plaintiff's motion.

I. BACKGROUND

Bertec Corporation ("Bertec") is an Ohio company that manufactures and sells force plates, a product that analyzes a person's gait, balance, and performance in certain exercises when a person jumps on the force plate. (ECF No. 2 at 4-5). Sparta Software Corporation ("Sparta") is a corporation that provides health and performance software and services to athletes and military personnel. (ECF No. 27 at 2). Playground Global LLC ("Playground") is a Palo Alto venture capital fund that invests in and provides engineering and other services to early stage startup companies, like Sparta. (ECF No. 44 at 2). Playground invested approximately $5 million in Sparta in December 2017 and acquired 20% of Sparta's shares. Id. at 4.

Beginning in December 2017, Playground conducted due diligence into Sparta's business operations and learned that Sparta had no capabilities to manufacture its own force plates. Sparta and Playground agreed that Playground would design a prototype of a force plate for Sparta and Sparta would decide whether to use that prototype. (ECF No. 44 at 5). Between June and September 2018, Playground built and tested a force plate prototype. Id. at 6. In July of 2018, Playground tested its prototype and did some benchmark comparisons of its prototype compared with Bertec's force plates. Id. at 6. According to Playground, it used a publicly available program called Tera Term as well as Bertec's free and publicly available software to read the raw data generated by both the prototype and Bertec's force plates. Id. Playground conducted further testing in September 2018 and then handed off the design files to Sparta. Id. Sparta also identified several manufacturers that Sparta could pay to build the force plate prototype and continued to provide input into Sparta's manufacturing of its own force plate. Id. at 6-7.

Bertec has sold Sparta force plates since 2010. (ECF No. 2 at 5). Since 2016, Sparta's customers experienced issues with Bertec's force plates which Sparta tried to resolve by asking Bertec to debug its code. (ECF No. 47 at 4). In 2017, upon Sparta's request, Bertec made changes to its software's source code to make the force plate compatible with Sparta's needs. (ECF No. 47 at 3). Those changes were written in MATLAB code and were provided to Sparta in January 2017. Id. According to Sparta, those changes did not help resolve the issues Sparta's customers were facing, so Sparta requested access to Bertec's source code. (ECF No. 47 at 4). In August 2018, around the same time that Playground was developing and testing its force plate prototype, Bertec and Sparta negotiated and entered into an Exclusive Supply and Software License Agreement ("Agreement") wherein Sparta agreed to purchase all the force plates it would need exclusively from Bertec for five years and Bertec agreed to give Sparta access to its source code so that Spartacould standardize its data to ensure it was medically and scientifically valid. (ECF No. 2 at 7-8). Sparta contends that upon gaining access to the source code, it discovered the code was just a "translation" of the MATLAB code that Sparta had already received from Bertec. (ECF No. 47 at 6). In June 2019, Sparta informed Bertec that it was planning to create and sell its own force plates, and that it had been developing these force plates since December 2017. (ECF No. 2 at 9).

Bertec brought suit against Sparta and Playground on October 18, 2019 for breach of contract, promissory estoppel, unjust enrichment, tortious interference, and misappropriation of trade secrets, alleging that Sparta breached the Agreement at Playground's direction by sharing its source code with Sparta to create its own force plates. (ECF No. 1; No. 2 at 9-10). In its motion for a preliminary injunction, it requests that this Court: (1) enjoin Sparta's breach of the Agreement with Bertec; (2) enjoin Playground's tortious interference with the Agreement; (3) enjoin Sparta and Playground's misappropriation of Bertec's trade secrets.

Playground alleges that it did not know about the agreement between Bertec and Sparta until this lawsuit was filed in October 2019 and that it has never seen the source code that Bertec produced to Sparta. (ECF No. 44 at 7). Sparta argues that Bertec cannot establish a likelihood of success on its contract claim, disputing that it has breached the Agreement and arguing that Bertec has no evidence that Sparta misappropriated its source code. (ECF No. 47).

In its reply, Bertec clarified that it is only moving for an injunction on its breach of contract claim, abandoning its requests made in its motion for a preliminary injunction as to the tortious interference and misappropriation of trade secrets claims. (ECF No. 56 at 2 n.1).

II. LEGAL STANDARD

Preliminary injunctions are extraordinary remedies which should be granted only if the movant carries his or her burden of proving that the circumstances clearly demand it. SeeOverstreet v. Lexington-Fayette Urban Cty. Gov't, 305 F.3d 566, 573 (6th Cir. 2002). The "purpose of a preliminary injunction is merely to preserve the relative positions of the parties until a trial on the merits can be held." Univ. of Tex. v. Camenisch, 451 U.S. 390, 395 (1981). In light of its "limited purpose," a preliminary injunction is "customarily granted on the basis of procedures that are less formal and evidence that is less complete than in a trial on the merits." Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535, 542 (6th Cir. 2007). Accordingly, a party need not prove her case in full at a preliminary injunction hearing. Id. Whether to grant such relief is a matter within the discretion of the district court. N.A.A.C.P. v. City of Mansfield, Ohio, 866 F.2d 162, 166-67 (6th Cir. 1989).

Courts consider four factors when determining whether to grant a request for a preliminary injunction. Those factors are: (1) whether the movant has a strong likelihood of success on the merits; (2) whether the movant would suffer irreparable injury without the injunction; (3) whether the issuance of the injunction would cause substantial harm to others; and (4) whether the public interest would be served by issuance of the injunction. Bonnell v. Lorenzo, 241 F.3d 800, 809 (6th Cir. 2001). A party seeking an injunction must establish each element of its case by clear and convincing evidence. See Handel's Enterprises, Inc. v. Schulenburg, 765 Fed.Appx. 117, 124 (6th Cir.2019); Honeywell, Inc. v. Brewer-Garrett Co., 145 F.3d 1331 (6th Cir.1998) (citing Garlock, Inc. v. United Seal, Inc., 404 F.2d 256, 257 (6th Cir.1968)).

III. LAW & ANALYSIS

In Bertec's reply, it clarified that "Bertec is only moving for an injunction on its breach of contract claim." (ECF No. 56 at 2 n.1). Therefore, this Court DENIES as MOOT Bertec's request for a preliminary injunction as to the misappropriation of trade secrets claims against Sparta and Playground and the tortious interference claim against Playground. Bertec has maintained itsrequest for a preliminary injunction preventing Sparta from breaching the contract "so that the parties can proceed with the lawsuit under the status quo, i.e. the terms of the Agreement." Id. at 1.

A. Likelihood of Success on the Merits

The first factor the Court must address is Bertec's likelihood of success on the merits of its claims. In order to show a likelihood of success on the merits, "a plaintiff must show more than a mere possibility of success." Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535, 543 (6th Cir. 2007) (citing Six Clinics Holding Corp. v. Cafcomp Sys., Inc., 119 F.3d 393, 402 (6th Cir.1997)). The Sixth Circuit has held that where the other factors favor injunctive relief, "a lower court is within its discretion in issuing a preliminary injunction if the merits present sufficiently serious questions to justify further investigation." In re DeLorean Motor Co., 755 F.2d 1223, 1230 (6th Cir. 1985); see Citigroup Glob. Markets, Inc. v. VCG Special Opportunities Master Fund Ltd., 598 F.3d 30, 35 (2d Cir. 2010) ("The 'serious questions' standard permits a district court to grant a preliminary injunction in situations where it cannot determine with certainty that the moving party is more likely than not to prevail on the merits of the underlying claims, but where the costs outweigh the benefits of not granting the injunction.").

1. Breach of Contract Claim

Bertec's motion for a preliminary injunction argued that Bertec breached the Agreement between them by notifying Bertec that it would be creating its own force plates and by using Bertec's source code to develop its own force plates. (ECF No. 2 at 12-15). In its reply, Bertec narrowed its breach of contract claim, arguing that Sparta has breached the Agreement by: (1) purchasing force plates that it needs from another company; and (2) not co-branding and co-marketing the force plates it purchased from Bertec. (ECF No. 56 at 1). Bertec adds that Sparta has admitted to buying the force plate it designed jointly with Playground from another supplier,BriteLab. (ECF No. 56 at 3). Sparta argues that it has not breached the Agreement because the Agreement only required it to purchase 80 force plates of the specific model number listed in...