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Court of Chancery Denies Preliminary Injunction to Business Partner Who Alleges Breach of Confidentiality and Misappropriation of Trade Secrets

Nutzz.com v. Vertrue Inc., C.A. No. 1231-N, 2005 WL 1653974 (Del. Ch. July 6, 2005). Plaintiff Nutzz.com ("Nutzz") sought a preliminary injunction against defendant Vertrue Inc. ("Vertrue"), a company with which Nutzz contracted to develop an online membership program for NASCAR fans. After Vertrue terminated the agreement (claiming that Nutzz missed deadlines and promotion requirements), it sent an email to 1,200 Nutzz members advertising Vertrue's own membership program as an upgrade. Nutzz claimed that Vertrue's actions constituted a breach of their confidentiality agreement and a misappropriation of trade secrets. Nutzz claimed that Vertrue used three pieces of confidential information in violation of the confidentiality clause (which was governed by Connecticut law): (1) Nutzz's customer information; (2) Nutzz' benefit provider list; and (3) Nutzz's trackside marketing plan. (1) The court held that there was a reasonable likelihood that the customer information would be excluded from the contract's definition of confidential information (which excluded information obtained from a source other than Nutzz on a non-confidential basis) because even though Nutzz pre-populated certain fields on the Vertrue hosted website, the method was primarily used for the convenience of the consumer, not for Nutzz to pass confidential information to Vertrue. (2) The court found that the benefit provider list was likely not confidential because Nutzz advertised such retailers on its website. (3) The court found that Nutzz failed to produce evidence demonstrating that Vertrue ever used, or planned to use, any kind of trackside marketing. In addition, the court held that Nutzz failed to demonstrate irreparable injury with regard to its misappropriation of trade secrets claim because (1) damages were quantifiable (i.e., the number of members who jumped from Nutzz to Vertrue were ascertainable and calculable); (2) the court could impose a constructive trust upon Vertrue's program to compensate Nutzz; and (3) any harm resulting from Vertrue's sudden termination of the contract was unrelated to the alleged misappropriation of trade secrets. Thus, the court denied Nutzz's motion for preliminary injunction. Authored by: R. Christian Walker 302-888-6974 rwalker@morrisjames.com