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Court Allows Employer’s Interference With Prospective Economic Advantage Claims To Survive In Lawsuit Claiming Employee’s Theft of Twitter Account

Posted in Trade Secrets

By Robert Milligan and Gary Glaser

A California federal district court denied a former employee’s motion to dismiss his former employer’s claims for tortious interference with prospective economic advantage and negligent inteference with prospective economic advantage Monday in a closely watched lawsuit concerning the interplay between social media, trade secrets, and employee mobility.

We previously wrote about this case from the United States District Court for the Northern District of California after the Court ruled that PhoneDog, an “interactive mobile news and reviews web resource,” could proceed with its lawsuit against Noah Kravitz, a former employee, who it claims unlawfully continued using PhoneDog’s Twitter account after he quit. PhoneDog v. Noah Kravitz, No. C11-03474 MEJ, 2011 U.S. Dist. LEXIS 129229 (N.D.Cal.)(James)(November 8, 2011)

PhoneDog reviews mobile products and services and provides users with the resources that they can use to research, compare prices, and shop from mobile carriers. Kravitz worked for PhoneDog as a product reviewer and video blogger. He was given access to PhoneDog’s Twitter Account “@PhoneDog_Noah,” using a password and used the Account to send out information and promote PhoneDog’s services on its behalf. The centerpiece of PhoneDog’s trade secret claims are that all PhoneDog_Name_Twitter Accounts and the passwords to such accounts used by PhoneDog’s employees — like the one to which Kravitz was given access to and use of – constitute proprietary, confidential information. PhoneDog contends that the Twitter Account to which Kravitz was allowed to use on its behalf generated about 17,000 Twitter followers during Kravitz’s employment.According to the complaint, the employee refused to turnover the Twitter account after he left and instead changed the name handle and continued to use the account with the built-in following.

Kravitz had moved to dismiss the entire suit on the grounds, among other things, that a Twitter account’s followers are not “secret” and that Kravitz’s followers were not property.

As part of its November ruling, the Court granted the employee’s motion to dismiss PhoneDog’s tortious interference and negligent interference with prospective economic advantage claims, subject to PhoneDog’s right to file an amended complaint. PhoneDog subsequently filed an amended complaint and then Kravitz filed a motion to dismiss PhoneDog’s claims for tortious interference with prospective economic advantage and negligent inteference with prospective economic advantage.

In its most recent January ruling denying Kravitz’s motion to dismiss, the Court found that ”the court is able to draw the reasonable inference that PhoneDog had an economic relationship with at least one third-party advertiser that was disrupted by Kravitz’s alleged conduct, causing it economic harm.”

The Court stated that it initially dismissed PhoneDog’s tortious interference claim because PhoneDog failed to sufficiently allege which economic relationships were actually disrupted by Kravitz’s alleged conduct. Dkt. No. 28 at 11-12. To cure this deficiency, according to the Court, PhoneDog’s first amended complaint clarified that it had economic relationships with (1) the approximately 17,000 followers of the Twitter account at issue; (2) its current and prospective advertisers; and (3) CNBC and Fox News, and that each of these economic relationships were actually disrupted by Kravitz’s conduct. FAC ¶¶ 19, 33-36.

Kravitz’s motion attacked each of these three alleged economic relationships as insufficient to sustain the intentional interference claim. The Court reasoned that for PhoneDog to have properly alleged its tortious inteference claim, only one of the above economic relationships has to meet the elements of the tort. The Court found that the alleged relationship between PhoneDog and its current and prospective advertisers suffices.

The Court rejected Kravitz’s argument that the allegations supporting this relationship are speculative because they only assert that PhoneDog’s advertising revenue “might have” decreased. According to the Court, PhoneDog explicitly alleges in its first amended complaint that a significant amount of its income is derived from advertisements on its website, and “advertisers pay for ad inventory on PhoneDog’s website for every 1000 pageviews generated from users visiting PhoneDog’s website.” FAC ¶ 10. According to the complaint, due to Kravitz’s alleged conduct, “there is decreased traffic to [the] website through the Account, which in turn decreases the number of website page views and discourages advertisers from paying for ad inventory on PhoneDog’s website.” FAC ¶ 36. “As a direct and proximate result of Defendant’s wrongful acts, PhoneDog has suffered damage to is business by way of lost advertising revenue . . . .” FAC ¶ 38. Based on these factual allegations, the Court concluded that it is able to draw the reasonable inference that PhoneDog had an economic relationship with at least one third-party advertiser that was disrupted by Kravitz’s alleged conduct, causing it economic harm.

The Court also found that PhoneDog’s first amended complaint also sufficiently alleges its third claim for negligent interference with prospective economic advantage. The Court previously dismissed this claim on the same grounds as it dismissed the second claim for intentional interference: PhoneDog had not sufficiently alleged which economic relationships were actually disrupted by Kravitz’s alleged conduct. Dkt. No. 28 at 13. The Court found based upon the amendments discussed above that the previous deficiencies have been corrected by PhoneDog’s amended allegations in the first amended complaint.  The Court also noted that the other reason the Court previously dismissed the third claim was because PhoneDog had failed to allege that Kravitz owed it a duty of care, which is a necessary element of the negligent interference claim. To rectify this missing allegation, PhoneDog’s first amended complaint now asserts that “Defendant owed a duty of care to PhoneDog as an agent of PhoneDog.” FAC ¶ 42. Accordingly, the Court concluded that PhoneDog had complied with the Court’s previous order and provided Kravitz with the reason why it believes he was negligent (as an employee, he owed his company a duty of care).

The next milestone in this closely watched case appears to be Kravitz’s not yet filed summary judgment motion which will likely challenge PhoneDog’s claims that the Twitter followers constitute trade secrets and its ownership interest in the Twitter account.