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Agency Solutions.Com, LLC Gsa D.B.A. Healthconnect Systems v. the Trizetto Group

September 12, 2011

AGENCY SOLUTIONS.COM, LLC GSA D.B.A. HEALTHCONNECT SYSTEMS, PLAINTIFF,
v.
THE TRIZETTO GROUP, INC.,
DEFENDANT.



Doc. # 5

MEMORANDUM OPINIONAND ORDER ON PLAINTIFF'S MOTION FORPRELIMINARY INJUNCTION

This is an action in diversity by plaintiff Agency Solutions.Com, LLC dba Health Connect Systems ("HCS") against defendant The TriZetto Group, Inc. ("TriZetto") for misappropriation of trade secrets pursuant to California Civil Code § 3426 et seq. In the instant motion, HCS seeks a preliminary injunction to prevent TriZetto from marketing a computer software product called "Enrollment Manager" on the ground that Enrollment Manager incorporates trade secrets belonging to HCS. For the reasons that follow, HCS's motion for preliminary injunction will be denied. The parties do not dispute that diversity jurisdiction exist pursuant to 28 U.S.C. § 1332. Venue is proper in this court.

FACTUAL BACKGROUND

I. The April 2009 Strategic Alliance Agreement

HCS is a company that makes and markets software for brokers and underwriters of health insurance plans and policies. In the jargon of the insurance business, HCS's focus is on computer programs that service the needs of the "front-end" where individuals and businesses seek individual or group insurance policies or plans offered by brokers and underwriters representing one or more insurance companies. TriZetto is a company that develops and markets software that services the administrative needs of the insurance companies themselves. Such software is termed "back-end" software. HCS, prior to any relationship to TriZetto, was the developer and marketer of a program called "Quote," which is used by brokers to input buyer-specific information and retrieve rate quotes from various insurance providers. Pertinent to this action, TriZetto developed and markets a software programs called Facets®, which is widely used by major health insurance providers such as Blue Cross, etc. for back-end administrative purposes. TriZetto's development and marketing of the Facets® program preceded any relationship with HCS.

On April 9, 2009, the parties executed the Strategic Alliance Agreement (the "Agreement"), the purpose of which was to develop what is referred to in the Agreement as the "Integrated Solution." The Integrated Solution was to be marketed to the public under the name "QuoteToCard," sometimes referred in documents as "QTC" or "Q2C." According to HCS's complaint, the parties issued a joint press release on May 18, 2009, describing Quote2Card as a product that "will integrate [TriZetto's] Facets® and QNXTTM enterprise and administration platforms with HealthConnect's broadly adopted broker portal and sales automation tools to provide payers and brokers a complete end-to-end solution for sales and service processes, including prospecting, rating and quoting, underwriting, enrollment, billing, membership and customer service." Complaint at ¶ 12.

The Agreement anticipates that the cooperative effort between the parties will produce a number of work products, primarily in the form of computer programs. The Agreement delineates what work product will belong to which party and what the duties of the parties are in the protection of each other's intellectual property interests. The Agreement also anticipates the relationship between the parties when the time comes to market and maintain the Integrated Solution to and for potential customers. A copy of the Agreement is provided at Exhibit A of Declaration of Peter Everett in Support of Motion for Preliminary Injunction. Provisions of the agreement that appear to be significant to the court's consideration of HCS's motion for injunction are summarized as follows:

A. Duration and Termination of the Agreement

The Agreement establishes that the initial term of the Agreement is five years. Thereafter the Agreement could be extended by mutual agreement for sequential terms of two years. The Agreement provides specific agreed-upon reasons for termination that include (1) termination for cause (i.e. breach), (2) change in corporate control, (3) insolvency of either party, (4) failure to meet specified performance targets, and (4) where there is a failure of the parties to reach agreement on sequential development plans that are due at specified times.

The Agreement provides that upon termination of the Agreement, each party must immediately cease use of the intellectual property and confidential information of the other and shall return to the other party, or destroy, existing copies of confidential information or intellectual property of the other party except as specified. The Agreement also provides that upon termination of the Agreement, TriZetto would cease to market or sell the Integrated Solution as well as any programs belonging to HCS that TriZetto was authorized to market under the Agreement. Although there is disagreement as to whether the termination of the Agreement was for one of the listed permissible reasons, there is no dispute that TriZetto terminated the Agreement effective May 2, 2011.

B. Intellectual Property Rights Granted

Under Section 4 of the Agreement, the Parties granted to each other limited licenses to the use of each other's software for the limited purposes of: (1) development of interfaces and functionality required for the Integrated Solution; (2) integration of software between systems; (3) hosting software of the other Party for the purpose of demonstrating the functionality of the Integrated Solution to potential customers, subject to no-copy and no-backup restrictions; and (4) for other marketing activities where potential client access is controlled by TriZetto. With regard to source code, the Agreement provides for limited access by each party to the other party's software or source code in complementary paragraphs that are worded as follows

At [one Party's] reasonable request, subject to the terms and conditions of this Agreement, [the other Party] agrees to provide [the requesting Party] limited access to review the discrete components of the [requested Party's] Software Source Code for the sole purpose for the development of each Interface in accordance with the applicable Development Plan, where the [requesting Party] is responsible for the development of such Interface or the [other Party] has requested assistance in the development of such interface and access to the [other Party's] software is necessary for such development. In addition, at [one Party's] reasonable request, subject to the terms and conditions of this agreement, [the other Party] agrees to provide [the requesting Party] limited access to the use of the configuration resources necessary for, and for the sole purpose of, the development of each Interface in accordance with the applicable Development Plan, where the [requesting Party] is responsible for the development of such Interface or [the other Party] has requested assistance in the development of such Interface and access to the configuration resources is necessary for such development.

Agreement at ¶¶ 4.2, 4.3. In addition, the Agreement places the following Restrictions under Section 4: Neither party shall (i) copy, (ii) modify, (iii) reverse engineer, decompile, disassemble or re-engineer or otherwise create or attempt to create or assist others to create the Source Code of the software of the other party, or its structural framework; or (iv) use the other party's software in whole or in part for any purpose, except as expressly provided under this Agreement. In addition to the confidentiality provisions contained herein, neither party shall cause or permit the display, loan, publication, distribution, transfer of possession (whether by sale, exchange, gift, operation of law, or otherwise), sublicensing or other dissemination of the other party's software, in whole or in part, to any third party, including, but not limited to consultants, subcontractors, systems integrators providing services to such party without the other party's prior written consent, except as expressly permitted under this Agreement.

Agreement at ¶ 4.4.

C. Intellectual Property Rights Reserved

Pursuant to Section 8 of the Agreement, Each party reserved to itself property rights that were owned by it according to parallel Agreement language that provided:

All property rights, title and ownership rights, including worldwide ownership of the Intellectual Property Rights in and to the [Party's] Marks, the [Party's] software and HCS Independent Carrier Services*fn1 including derivative works thereof or materials or technology related thereto, whether developed by [either party] or any third party, and all Confidential information provided by [one Party to another] hereunder shall at all times remain vested in [the originating Party] and its licensors, except as otherwise provided herein. All proprietary rights, title and ownership rights, including worldwide ownership of the Intellectual Property Rights in and to Interfaces under the Development Plans by [one Party] shall be owned by [that Party]. The Development plan shall specify which interfaces shall be considered to be developed by [the respective Parties]. Except for the right to use the [marks and/or licenses of one Party] pursuant to Section 4, [the other Party] is granted no Intellectual Property Rights under this Agreement.

Agreement, ¶¶8.1, 8.2. As to jointly developed intellectual property, the Agreement provides:

Notwithstanding Sections 8.1 and 8.2, all proprietary rights, title and ownership rights, including worldwide ownership of the Intellectual Property Rights in and to any jointly developed Interfaces shall be owned jointly by TriZetto and HCS. In addition all proprietary rights, title and ownership rights, including worldwide ownership of the Intellectual Property Rights, in and to any jointly developed software that provides customers with new functionality and which is not deemed to be a Derivative Work of either party, shall be owned jointly by TriZetto and HCS. The Development Plans shall specify what is to be considered jointly developed by TriZetto and HCS. With respect to any jointly owned Intellectual Property Rights, each party disclaims any obligation to render an accounting to the other party for any profits earned (other than pursuant to this Agreement). Agreement ¶ 8.4.

D. Exclusivity

Section 6 of the Agreement provides that TriZetto is to be the exclusive marketing agent for the QuoteToCard product. Subsection 6.3(a) provides:

Neither HCS nor TriZetto will enter into a joint venture, partnership or other business arrangement with any Sales Automation Vendor to develop, sell, or promote any product providing functionality that is competitive with the functionality offered by the Integrated solution.

II. Plaintiff's Conceptual Model and Allegations of Misappropriation

(Note: arrows represent flows of compatible data between program components.)

A. Plaintiff's Conceptual Model

QUOTE "Quote" is HCS's system designed for front-end use by brokers and agents to complete the sale and sign-up of buyers for healthcare plans.

"TO" is a collection of interfaces (Plaintiff alleges eight interface subroutines or programs that are at

TO issue in this action). The interfaces transmit inputs or data between the "Quote" side and the "Card Side" "QTC Manager" refers to the eight "TO" interfaces plus a "post-enrollment program" and other unspecified non-interface programs that, together,

QTC Manager were collectively referred to as the "Quote-to-Card

Manager".

"CARD" represents TriZetto's product, FACETS®, an administrative program used by more than 140 health

CARD insurers for administration of their insurance plans. Both

"Quote" and "Card" represent software applications that pre-existed the Agreement.

The crux of Plaintiff's allegations of misappropriation of trade secrets is that TriZetto coded a substantial portion of the functionality of the QTC Manager using HCS's "trade secrets and know-how." In particular, HCS alleges that all eight of the "TO" programs and the "QTC Manager" program were coded by TriZetto and embody HCS's trade secrets. In this model the "QTC Manager" represents the programming efforts of both parties and embodies HCS's "Trade Secrets and Know-How."

B. TriZetto's Conceptual Model

TriZetto presents a competing conceptual model that emphasizes the sharpness of the boundary between what TriZetto owns and what HCS owns:

OWNED AND HOSTED BY HCS OWNED AND HOSTED BY TriZetto The essence of TriZetto's argument is that ownership of the intellectual property relating to the Integrated Solution is signified by who wrote the code for the software and whose server hosts that code. Thus, in the diagram above, what HCS describes as the "TO" function becomes two sets of interfaces; some owned by HCS and hosted on their servers and some owned by TriZetto and hosted on their servers. For example, TriZetto alleges that "addProtoGroup," one of the eight interface programs, consists of software developed by HCS and hosted on HCS's servers and of software developed and coded by TriZetto and hosted on TriZetto's servers. Thus, in TriZetto's conceptual approach, all software, and therefore all rights, are owned by one party or the other. TriZetto claims ownership of its interface software and of that portion (shaded) of the Integrated Solution called the "Q2C Manager" which is later referred to as the proposed product, "Enrollment Solution."

C. HCS's Allegations

As mentioned, HCS's allegations center mainly around the eight "TO" interface programs. These programs are numbered and named for reference purposes thus:

Interface 1: "addProtoGroup

Interface 2: "updateProtoGroup"

Interface 3: "terminateProtoGroup"

Interface 4: "rateLoad"

Interface 5: "TriggerQTC"

Interface 6: "EnrollQTCFamily"

Interface 7: "EnrollQTCMultiFamily"

Interface 8: "GetQTCFamily"

The generalized allegation leveled at TriZetto by HCS is that:

In drafting the code for the "To" interfaces and other software components, [TriZetto] relied extensively on HCS's trade secrets and know-how about automated sales programs for individual/family and small business health insurance plans. In fact, as noted elsewhere, [TriZetto] solicited HCS's trade secrets and other proprietary knowledge regarding several components critical to that portion of the software, including to ensure that the Card platform could exchange data properly with HCS's Quote application. In particular, [TriZetto] sought and obtained HCS's proprietary information and knowledge about rating, enrollment and underwriting processes, and the workflow necessary to transmit data to and from a sales automation system like HCS's Quote application. Complaint, ¶ 26.

Most of the "Trade Secrets"*fn2 that HCS alleges TriZetto misappropriated are set forth in Appendix 1 of HCS's Complaint which is available as "Exhibit "C" to Plaintiff's Request to Seal Documents" (hereinafter, "Exhibit C"). Exhibit C consists of a list of 26 Trade Secrets, each of which is labeled with a general, rather non-descriptive categorical title. Each labeled Trade Secret is coupled with a narrative that purports to describe what the trade secret is, how it wascommunicated to TriZetto, and how it was incorporated or used by TriZetto. The "Trade Secrets are grouped under four categories; "Conception and Design," "Workflow Processes and Flows," "Rating and Underwriting," and "Miscellaneous." Rather than summarize each of the 26 Trade Secrets, the court will quote one "representative Trade Secret" from each of the first three categories mentioned above in its entirety in order to illustrate the common themes that crop up in each of the narratives that describe the 26 "Trade Secrets."

The first is Trade Secret numbered "1" and is under the general heading of "Conception and Design:"

On or around mid-April 2009, HCS's Daniel Masciopinto and others from HCS met with representatives from [TriZetto] at a two day in person meeting at TriZetto's offices in Phoenix, AZ to "kick off" the initial development of QuoteToCard. Per the agenda of this meeting, several topics were discussed and Mr. Masciopinto co-led several discussions including "Technical design session: Review interfaces . . ." and "Technical session . . . enrollment flows and interfaces." During this meeting, HCS attended each of the sessions and orally disclosed know-how and proptietary understanding directly related to these topics, including process flow issues and a review of the interfaces that would be needed and built. As a result of these disclosures, the parties agreed "on high level flows for new group set up and member enrollment" and "identified necessary interfaces for Q2C 1.0." and agreed upon a "Definition of list of BRDs needed for QTC

1.0." (BRD's refer to Business Requirement Documents and are used as development plan documents utilized by [TriZetto] to build QTC Manager and the interfaces and other software components incorporated therein). Three of the "To" interfaces conceived in this meeting were Interface 1 "addProtoGroup", Interface 2 "updateProtoGroup," and interface 3 "terminateProtoGroup." The information orally disclosed by HCS at this meeting was also incorporated into the "Overview Requirements -- End to End Solution" development plan document used by the parties in the development plans as evidenced by the Document Version History where it notes "Expand content and address from early review at Phoenix on-site."

The second example is numbered Trade Secret # 9, "Process Flow Diagram." It is listed in the category labeled ...


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