Antitrust Law Daily Wrap Up, RICO—D. Me.: All claims but RICO proceed against former licensee for reverse engineering software, (Feb 5, 2016)

By Peter Reap, J.D., LL.M.

All of the claims brought by Workgroup Technology Partners against its former licensee, Anthem, including violation of the Maine Uniform Trade Secrets Act (“MUTSA”) and the Computer Fraud and Abuse Act (“CFAA”) withstood WellPoint’s motion to dismiss, with the exception of a claimed violation of the federal RICO statute, the federal district court in Bangor, Maine, has decided (Workgroup Technology Partners, Inc. v. Anthem, Inc., February 3, 2016, Woodcock, J.).

Workgroup develops, owns, and licenses business application software that automates a range of business processes, including claims recovery and subrogation for health insurance companies. This includes software known as iAutomate Recovery CaseManager (“iAutomate”). This software automates the process of analyzing health insurance claims data and pursues subrogation recovery opportunities against third parties.

According to Workgroup, in approximately 2012, its former licensee Anthem replaced iAutomate with its own “in-house” subrogation claim identification and recovery solution, a legacy product owned by Anthem known as “Subro 2000.” According to Workgroup, Anthem devised a scheme to misappropriate the valuable and proprietary intellectual property and trade secrets in iAutomate that made it superior to Subro 2000, and to build them into the rewritten version of Subro 2000. To carry out this scheme, Workgroup claims that Anthem hired a Workgroup competitor, to reverse engineer the valuable and proprietary intellectual property and trade secrets in iAutomate, which Anthem wanted to misappropriate, and then incorporate into a .NET version of Subro 2000. Before the court was Anthem’s motion to dismiss.

RICO claim. In Count V, Workgroup alleged that Anthem violated the RICO statute by engaging in a “pattern of racketeering activity” with Cognizant “by causing or participating in repeated acts of wire fraud.”

Anthem argued that Workgroup’s claim should be dismissed “because the predicate acts of ‘racketeering’ that Workgroup alleges are specifically authorized by the Contract. The court rejected this contention. Here, Workgroup claimed that, without Workgroup’s permission and contrary to its confidentiality agreements, Anthem devised a scheme to defraud Workgroup and commissioned Cognizant to access Workgroup’s iAutomate program, with the express purpose of reverse engineering iAutomate and expropriating the software for Anthem’s own use and benefit and that in order to perform its mission, Cognizant “transmit[ted] by means of wire . . . in interstate or foreign commerce, more than a thousand fraudulent logins to the iAutomate web-based application server in furtherance of [Anthem’s] scheme to defraud Workgroup.” These allegations were sufficient to state a claim of racketeering based on wire fraud, the court explained.

Next, Anthem argued that Workgroup failed to allege a “pattern” of racketeering activity. The First Circuit noted that the Supreme Court has “identified two methods for establishing continuity”; there is the “closed-ended” approach and the “open-ended” approach, the court observed. Giuliano v. Fulton, 399 F.3d 381, 387 (1st Cir. 2005). Under the closed-ended approach, continuity “is established by showing ‘a series of related predicates extending over a substantial period of time’ that ‘amount to’ a threat of continued criminal activity.” The First Circuit listed a number of factors to consider when determining whether a broad, continuous pattern of criminal activity exists: (1) whether there were single or multiple victims; (2) whether the defendant’s acts were limited to a single scheme or multiple schemes; (3) the duration of the scheme; and (4) whether the scheme had a singular, fixed objective and finite end point or whether it threatened to continue indefinitely.

Here, Workgroup failed to allege that the alleged scheme had more than one victim; it alleged that the duration of the efforts against Workgroup ran only four to five months—from May through September 2013, according to the Complaint. Further, there is no allegation of multiple schemes or that Anthem and its partner in the scheme intended to repeat their performance. Instead, it appeared that the object of the effort was solely Workgroup and its software program, iAutomate. A four to five month enterprise with one victim was not enough under the closed-end approach, the court held.

Nor did Workgroup allege enough facts to fit within the “open-ended” approach. To fit under that method, a plaintiff must allege that the “racketeering acts themselves include a specific threat of repetition extending indefinitely into the future [or] . . . are part of an ongoing entity’s regular way of doing business.” The Complaint did not claim that there was any threat of repetition or that the acts are part of Anthem’s regular way of doing business. Thus, the RICO claim was dismissed for failure to state a pattern of racketeering.

MUTSA claim. Comparing the allegations in the Complaint to the MUTSA definition of “misappropriation,” Workgroup alleged sufficient facts to fit within the statutory definition, the court held. Based on the allegations in the Complaint, Anthem had reason to know that Workgroup considered its iAutomate software program a trade secret and yet Anthem proceeded to violate the confidentiality provisions of its agreement with Workgroup, extract iAutomate’s secrets, and use them to its commercial benefit.

To constitute a “trade secret,” “the information must: (1) derive ‘independent economic value, actual or potential, from not being generally known [or] readily ascertainable’; and (2) be ‘the subject of efforts that are reasonable under the circumstances to maintain its secrecy.’” A fair reading of the Complaint confirmed that Workgroup’s software program had an independent economic value from not being generally known and that Workgroup attempted to protect that information from dissemination through the contract provisions. The court was satisfied that Workgroup alleged sufficient facts to place its software program within the statutory definition of a trade secret. The Complaint generally alleged that Workgroup took time, money, and effort to develop the software program, and there are numerous contractual provisions—ranging from restricted use access to Anthem’s promise to maintain the information as confidential—whereby Workgroup attempted to protect the information from disclosure. Thus, Workgroup alleged sufficient facts to withstand dismissal of the MUTSA claim.

CFAA claim. Anthem’s first argument was that Workgroup alleged that Anthem accessed its own computers and therefore there can be no CFAA violation. However, the language of the statute does not restrict the definition of “computer” to a computer not owned by the transgressor, the court noted. The language in Workgroup’s cited subsections is simply “a protected computer,” “any computer,” and “a computer”—not “a computer not owned by the accessor.”

Furthermore, the CFAA recognizes two kinds of illegal access: (1) unauthorized access and (2) access that exceeds authorized access. Exceeding access appeared to cover the situation where, as here, it was alleged that the accessor initially had the right to access the computer but went into an unauthorized part of the computer to obtain “proprietary information that goes beyond any authorized use,” according to the court.

Anthem’s second argument was that Workgroup failed to allege a loss cognizable under the CFAA. However, Workgroup’s alleged loss of its contract with Anthem, the transfer of the information in its software program without compensation to Anthem, and the reduction in value and commercial viability of the Workgroup iAutomate software program, all are losses within the First Circuit’s interpretation of the term, the court reasoned. Thus, the motion to dismiss the CFAA claim was denied.

The case is No. 2:15-cv-00002-JAW.

Attorneys: Jeffrey T. Piampiano (Drummond Woodsum) for Workgroup Technology Partners Inc. Aaron Stafford Oakley (Hogan Lovells US LLP) for Anthem Inc.

Companies: Workgroup Technology Partners Inc.; Anthem Inc.

Cases: RICO MaineNews