DejaVuAI v. Kapustin is a case from the Western District of Washington that began as a claim of breach of fiduciary duty and became a case about the misappropriation of trade secrets under the Defend Trade Secrets Act (DTSA). At issue here was a motion to convert a temporary restraining order against the defendant into a preliminary injunction.
Fyodor Kapoustine (known as “Kapustin” in the case caption) and Johnny Kessler began their business relationship by forming 1st1 Technologies LLP, which used image-recognition software invented by Kapoustine. They eventually decided to create a new corporate entity that cut Kapoustine’s cords of ownership at the prototype stage, with subsequent iterations assigned to their newly formed company, DejaVuAI. When Kessler and Kapoustine had a public falling out, Kessler fired Kapoustine from his salaried position at DejaVuAI, but retained his seat on the company’s board of directors.
Kessler alleged that Kapoustine, while still a director, began to solicit clients and employees of the corporation in the hopes of poaching them. So, DejaVuAI sued and obtained a temporary restraining order (TRO) prohibiting Kapoustine from such conduct. When Kapoustine later resigned from the board of directors of DejaVuAI (so that his conduct no longer was a breach of his fiduciary duty as a company director), the company sought to convert the temporary restraining order into a preliminary injunction.
Kapoustine’s defense was that he did not misappropriate any trade secrets because he owned the technology himself. The Western District of Washington disagreed, pointing out that the operating agreement acknowledged the defendant as the technology’s inventor but also distinguished between his rights to the prototype and the new company’s rights to future iterations. What’s more, the text of the agreement expressly stated that any further solutions for, and updates to, the prototype would be owned by the DejaVuAI entity.
Additionally, the parties entered into a separate licensing agreement stipulating that DejaVuAI would own any improvements or updates to the prototype and had a perpetual term with no right of termination, except upon the company’s dissolution.
Lastly, the parties entered into an even more explicit agreement governing Kapoustine’s improvements to the original software: a “proprietary information and invention assignment agreement” (PIIAA). The PIIAA between Kapoustine and DejaVuAI again enshrined the concept that ownership of the prototype was distinct from ownership of its later iterations and improvements.
In the first of two somewhat desperate defenses, the defendant claimed he never signed the license agreement and suggested that the plaintiff forged his signature. (Footnote: Don’t rely on a defense that requires a handwriting expert.) The court said this defense strained credulity given the other agreements that Kapoustine admitted to have signed, which clearly contemplated the license agreement being part of his corporate role.
Another unusual defense was defendant’s contesting his own immigration status. By arguing that he could not have been a legitimate employee, Kapoustin tried to argue that his work could not have been the product of an employee’s work made for hire. The court noted that there was no precedent suggesting that it could invalidate or approve a petition for immigration status in a trade secret dispute.
The court issued the preliminary injunction. Kapoustine was enjoined from selling, marketing, and developing the software that he was the first to invent. He was also prevented from disparaging DejaVuAI and soliciting its employees while the case grinds on. (I would imagine that employees would not be eager to follow him after this decision, indicating he’s likely to be held liable for infringing the trade secrets of their current employer.)
What seemed like a simple case of the defendant failing to read what he signed turned into a drawn-out litigation full of unforced blunders, like calling into question his own immigration status. Because the devil lies in the details, it would have been worthwhile to consider the details more carefully before signing on the dotted line.
