In a rare decision focusing on trade secret law, a New York court held that a corporation providing online tax preparation services cannot receive trade secret protection for its online content because it is "publicly exhibited on the website and [thus] not secret." Midsummer Financial Products, Inc. v. Rapid Filing Services LLC, Case 600425/06, (NY Sup. Ct. July 12, 2006) (Freedman, J.).

Midsummer Financial Products provides online tax preparation services. The company collects client data, processes and converts the data to tax forms using third-party software, and then electronically submits the tax returns to the IRS. Rapid Filing Services is a competing online tax preparation service established by a former employee of Midsummer who supervised Midsummer’s online tax program for seven months.

Midsummer sought a temporary restraining order against Rapid Filing Services, claiming that the defendants misappropriated the following trade secrets: (1) its specific style of asking questions to complete tax forms, (2) third-party software used to transfer data from the client’s online tax questionnaire to tax forms, (3) its advertising slogans, (4) the look and functionality of its website, and (5) its domain name, "24hourtaxrefund.com," which Midsummer contended was virtually identical to Rapid’s domain name, "rapidtaxrefund.com."

Under New York law, a trade secret is a formula, pattern, device or compilation of information which is used in one’s business and which provides an opportunity to obtain an advantage over competitors who do not know or use it. In order to receive trade secret protection, a plaintiff must allege that it employed precautionary measures to protect the allegedly exclusive knowledge of the process at issue.

In granting the defendant’s motion to dismiss, the court found that Midsummer’s tax preparation methods were not protectable as trade secrets. The court further held that to receive trade-secret protection, Midsummer must prove that "it employed precautionary measures to protect the allegedly exclusive knowledge of the process at issue." In examining three of the five alleged trade secrets, the court noted that Midsummer"s "online content including the questions it asks customers, advertising slogans, and the website’s ‘general look and functionality’ are not trade secrets because they are publicly exhibited on the website and [thus] not secret." The court also noted that Midsummer’s domain name was not infringed in any manner since the "domain names contain different terms, ‘24 hour’ and ‘rapid,’ and they are purely descriptive and thus not proprietary." Even the corporation’s method for processing client data was not protectable because it used "publicly available third-party software for which it pays a license" the court stated, adding that the company could "not receive trade secret protection for software that it did not develop."

The court vacated a temporary restraining order, denied a preliminary injunction and granted the defendant’s motion to dismiss the complaint, finding that Midsummer had provided no evidence to prove that the "defendants engaged in wrongful conduct or that the assets allegedly misappropriated constitute trade secrets." The court also awarded the defendant actual expenses incurred from the dispute.

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