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Zs Associates, Inc., et al. v. Synygy

May 23, 2011

ZS ASSOCIATES, INC., ET AL.
v.
SYNYGY, INC.



The opinion of the court was delivered by: O'neill, J.

MEMORANDUM

Plaintiffs ZS Associates, Inc. and ZS Associates International, Inc.*fn1 have filed a three count complaint against defendant Synygy, Inc., alleging (1) defamation; (2) commercial disparagement; and (3) violation of the Lanham Act. Synygy moves to dismiss the complaint. Presently before me are Synygy's motion to dismiss, ZS's response and Synygy's reply. For the following reasons, I will grant in part and deny in part Synygy's motion.

BACKGROUND

ZS and ZSAI are sales and marketing consulting firms. They provide to their clients, among other things, "incentive compensation services" which include "consulting, administration and software services." Compl. ¶ 7. Synygy is ZS's competitor in the IC services marketplace.

In August 2007, Synygy filed a seven count complaint against ZS.*fn2 On August 5, 2009, Synygy amended its complaint, naming ZSAI and Novo Nordisk as additional defendants and adding ten counts to the original seven.*fn3 On August 6, 2009, Synygy released the following statement in the form of a press release:

Synygy Inc., the largest and most experienced provider of sales performance management (SPM) solutions, today announced it has filed a lawsuit against ZS Associates of Evanston, IL, alleging copyright infringement, misappropriation of intellectual property, and theft of trade secrets.

The complaint, filed in the District Court of Eastern Pennsylvania, alleges that ZS Associates and its affiliate, ZS Associates International, knowingly and improperly copied and misappropriated components of Synygy's sales compensation software and other intellectual property, and in addition, intentionally hired former Synygy employees, despite knowing about the existence of their non-compete agreements with Synygy, to gain access to confidential information acquired during their tenure with Synygy.

Synygy seeks relief including: C judgment that ZS infringed Synygy's copyrights C injunction that prohibits ZS from continued use of Synygy's software and other intellectual property C injunction from luring and/or hiring employees of Synygy or its affiliates C judgment for actual and compensatory damages for loss of revenue, profit, and company valuation C punitive damages for acts of willful infringement "Synygy created the market for sales compensation management (SCH) software and services more than 18 years ago," said Mark A.

Stiffler, Synygy president and CEO. "We have invested many years and a lot of money in product development, which led to Synygy creating the SCM software that has propelled our success year after year. Our intellectual property is a very valuable asset and we are firmly committed to protecting it," he said. "The lawsuit we filed today contends that ZS knowingly copied our software and other confidential information with the intent to use our intellectual property in direct competition with us. Our position is that ZS continues to use our software and other confidential information, causing us to lose substantial revenue, profit, and company valuation, while they profit from its use," continued Stiffler. "There is no way we can fully recover what we have lost from what we contend was deliberate and malicious misconduct, but we urge the Court to restrain ZS from continuing to infringe on our intellectual property and to award Synygy damages as the Court deems appropriate."

About Synygy Synygy is the largest and most experienced provider of sales performance management (SPM) software and services. Synygy's SPM solutions include: sales compensation (incentive compensation, rewards and recognition, and total compensation); sales communications (web portals, reports and dashboards, and analytics, alerts, and answers); sales goals (territories and channels, forecasting and pipeline analysis, and objectives and quotas); and sales processes (reviews, recruiting and training, data repository and data processes, and workflow processes). Based in Chester, Pennsylvania, with extensive operations in Europe and Asia, Synygy has achieved 18 continuous years of success. www.synygy.com Approximately one year later, ZS and ZSAI filed this lawsuit, contending that the press release set forth above was defamatory, commercially disparaging and in violation of the Lanham Act. See Compl. ¶¶ 15-41 (Count I: defamation); ¶¶ 42- 49 (Count II: commercial disparagement); ¶¶ 50-58 (Count III: Lanham Act Violation).

STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss all or part of an action for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Typically, "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations," though plaintiff's obligation to state the grounds of entitlement to relief "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the allegations in the complaint are true (even if doubtful in fact)." Id. (citations omitted). The complaint must state "'enough facts to raise a reasonable expectation that discovery will reveal evidence of' the necessary element." Wilkerson v. New Media Tech. Charter Sch. Inc., 522 F.3d 315, 321 (3d Cir. 2008), quoting Twombly, 550 U.S. at 556. The Court of Appeals has recently made clear that after Ashcroft v. Iqbal, --- U.S. ---, 129 S. Ct. 1937, 1955, 173 L. Ed. 2d 868 (2009), "conclusory or 'bare-bones' allegations will no longer survive a motion to dismiss: 'threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.' To prevent dismissal, all civil complaints must now set out 'sufficient factual matter' to show that the claim is facially plausible." Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009), quoting Iqbal, 129 S. Ct. at 1949. The Court also set forth a two part-analysis for reviewing motions to dismiss in light of Twombly and Iqbal: "First, the factual and legal elements of a claim should be separated. The District Court must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions. Second, a District Court must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a 'plausible claim for relief.'" Id. at 210-11, quoting Iqbal, 129 S. Ct. at 1950. The Court explained, "a complaint must do more than allege the plaintiff's entitlement to relief. A complaint has to 'show' such an entitlement with its facts." Id., citing Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234-35 (3d Cir. 2008). "Where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged--but it has not 'show[n]'--'that the pleader is entitled to relief.'" Iqbal, 129 S. Ct. at 1949.

DISCUSSION

Synygy moves to dismiss all three counts. I will address each argument in turn.

I. Fair Report Privilege

First, Synygy argues that the statements contained in its press release are subject to the

fair report privilege and therefore the defamation and commercial disparagement claims must be dismissed. ZS disagrees.

In Pennsylvania, a plaintiff claiming defamation bears the burden of proving: (1) the defamatory character of the communication; (2) its publication by the defendant; (3) its application to the plaintiff; (4) the understanding by the recipient of its defamatory meaning; and (5) the understanding by the recipient of it as intended to be applied to the plaintiff. Tucker v. Fischbein, 237 F.3d 275, 281 (3d Cir. 2001), citing 42 Pa. Cons. Stat. Ann. § 8343(a). In order to make out a claim for commercial disparagement, the plaintiff must establish: "(1) the statement is false; (2) the publisher either intends the publication to cause pecuniary loss or reasonably should recognize that publication will result in pecuniary loss; (3) pecuniary loss does in fact result; and (4) the publisher either knows that the statement is false or acts in reckless disregard of its truth or falsity." Pro Golf Mfg., Inc. v. Tribune Review Newspaper Co., 809 A.2d 243, 246 (Pa. 2002). Synygy does not contend that the complaint inadequately alleges either claim.

Instead, Synygy invokes the fair report privilege as a bar to ZS's claims. The fair report privilege, as recognized by Pennsylvania courts, is contained in section 611 of the Restatement (Second) of Torts. See Medico v. Time, Inc., 643 F.2d 134, 138 (3d Cir. 1981) (predicting that the Pennsylvania Supreme Court would adopt section 611); Hanish v. Westinghouse Broadcasting Co., 487 F. Supp. 397 (E.D. Pa. 1980) (discussing the adoption of the fair report privilege). Section 611 provides "[t]he publication of defamatory matter concerning another in a report of an official action or proceeding or of a meeting open to the public that deals with a matter of public concern is privileged if the report is accurate and complete or a fair abridgement of the occurrence reported."

ZS argues as a preliminary matter that the fair report privilege should not apply to non-media defendants such as Synygy. The Pennsylvania Supreme Court has not decided this question. See Medico, 643 F.2d at 138 n.9 ("Although Pennsylvania, as far as we can tell, has not delineated the availability of the privilege, in light of the identity of defendant Time, Inc., we need not decide at this time whether Pennsylvania would allow non-media defendants to claim the fair report privilege.").

Even assuming that the privilege applies to non-media defendants generally,*fn4 I find that the privilege is inapplicable to Synygy in this ...


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