San Francisco, Calif. – (April 25, 2014) – In a blow to neighborhood social network Nextdoor.com, Inc. (http://www.nextdoor.com) and its venture fund Benchmark Capital (http://www.benchmark.com), a federal judge has rejected the company and the venture fund’s bid to dismiss a trade secret lawsuit to related to its first launch neighborhood in Menlo Park.
The decision, issued this week by U.S. District Court Judge Edward Chen in the Northern District of California, means that Fatdoor founder Raj Abhyanker who is suing the company for allegedly stealing trade secrets will be able to proceed with his claims in federal court. Abhyanker is represented by his law firm LegalForce RAPC Worldwide (http://www.legalforcelaw.com).
The ruling marks a major setback for Nextdoor.com, Inc. and Benchmark Capital, which are accused of developing software that misappropriated trade secrets of Abhyanker and Fatdoor. Abhyanker emphasized that he made significant efforts to transform the Lorelei neighborhood of Menlo Park into an “ideal neighborhood to test a neighborhood social network” including “manual efforts to establish connections between residents to overcome a lack of interest” by going door to door and establishing connections for the original Nextdoor (later Fatdoor) website developed by Abhyanker in 2006.
Chen relied on his decision through an admission made by Nextdoor CEO and Co-founder Nirav Tolia to Abhyanker in which Tolia said that he and Benchmark first tested a prototype of Nextdoor in the Lorelei neighborhood, and that good response allowed them to “pivot” their failing sports-related website, Fanbase.com, to Nextdoor.com. The judge agreed that this showed that Nextdoor.com used the Lorelei Trade Secret and that the Lorelei Trade Secret had economic value, two elements of trade secret misappropriation. Chen noted that small probability that Nextdoor.com would have chosen the Lorelei neighborhood to prototype its website without relying on Abhyanker’s trade secrets: Lorelei is one of hundreds of neighborhoods in the Bay area, Nextdoor.com is based in San Francisco, and all of the individuals who worked on the Nextdoor concept live in San Francisco, which is more than 20 miles to the north of Menlo Park. In contrast, the Lorelei neighborhood was less than a quarter mile from Abhyanker’s offices in 2006.
In the same ruling this week, Chen acknowledges that Nextdoor.com outbid Abhyanker, and purchased the nexdoor.com domain for $58,000, exactly one month after Abhyanker disclosed his $50,000 bid to Benchmark partner Kevin Harvey. However, Chen held that the bidding history is not a trade secret because Abhyanker disclosed whatever bids he made to the bid recipient. Abhyanker acknowledged that the bid recipient was under no obligation to protect the confidentiality of his bid. Chen reasoned that since the bid receipt is under no obligation to keep bids confidential, it stands to reason that the recipient could have disclosed and likely did disclose the bid to competing bidders to maximize his profit. On this issue, the Court ruled in Nextdoor.com’s favor.
While the current dispute between Abhyanker and Benchmark remains a civil issue related to trade secret theft, Chen recently made a ruling in which a Silicon Valley executive was put in jail in a case that became a criminal case related to trade secrets. (see: http://www.sfgate.com/
business/article/Executive-s- conviction-upheld-in-trade- secrets-4739243.php). An adverse ruling by a jury in this dispute would put a damper and may cause a closure of legendary Silicon Valley venture capital fund Benchmark Capital, whose lucky string of investments have included companies such as eBay, Twitter, Uber, and most recently Nextdoor and Snapchat.
A full copy of the Order by Federal Judge Edward Chen of the Northern District of California on April 23, 2014 can be read here.
The case is scheduled for a federal jury trial in San Francisco starting on December 1, 2014.