Key Points

  • The Second Circuit reversed the dismissal of SS&C's Defend Trade Secrets Act claims against Arcesium and remanded the case to the Southern District of New York.
  • The panel held that the district court engaged in impermissible fact-finding when it credited Arcesium's interpretation of its own internal emails, which SS&C had incorporated by reference, over SS&C's allegations.
  • The court held that sharing software with licensees under confidentiality and non-disclosure agreements does not defeat the reasonable-measures element of a trade secret claim.
  • The court declined to adopt a general specificity rule for pleading trade secrets, requiring only that the complaint put the defendant on notice of the bases for the claim.
  • The panel adopted a broad definition of use under the DTSA that includes relying on a trade secret to assist or accelerate research or development.

A federal appeals court on Tuesday revived SS&C Technologies' lawsuit accusing Arcesium LLC of using trade secrets from SS&C's Geneva portfolio accounting software to build a competing product. The court held that the trial judge had improperly credited Arcesium's account of its own internal emails at the pleading stage.

A three-judge panel of the U.S. Court of Appeals for the Second Circuit reversed the dismissal of claims that SS&C and Advent Software Inc. brought under the Defend Trade Secrets Act, the 2016 federal law that lets companies sue over misappropriated trade secrets. Circuit Judge Sack wrote the opinion for the panel, which also included Circuit Judges Livingston and Carney.

The ruling sends the case back to the Southern District of New York. Along the way, the panel declined to adopt a general specificity rule for pleading trade secrets, requiring only enough detail to put a defendant on notice, and it held that software shared with licensees under confidentiality agreements can still qualify as a trade secret.

Advent developed Geneva, which consolidates firm-wide data for asset managers and hedge funds, and in 2015 signed a five-year Hosted Reseller Agreement with Arcesium, a financial technology firm. The agreement let Arcesium sublicense Geneva to its customers but barred it from using Geneva to build competing products. SS&C acquired Advent later in 2015.

While it had access to Geneva, Arcesium developed its own portfolio accounting software, Trinity, in less than three years, the opinion recounts; Advent had spent decades on Geneva. On June 18, 2020, Arcesium's chief executive said a transition away from Geneva would take "12 months, at minimum." Eight months later, according to the complaint, Arcesium was implementing Trinity at a client.

The agreement expired in January 2020. After SS&C moved to end Arcesium's remaining rights to serve existing Geneva customers, Arcesium sued SS&C for breach of contract and antitrust violations. According to the opinion, a discovery exchange in that earlier case revealed that Arcesium may have used Geneva trade secrets.

The complaint cites internal Arcesium emails, including one in which a senior development executive told the technical team not to describe Trinity's requirements by referencing "what Geneva does." SS&C also alleges that a second project, called Nautilus, drew on Geneva's integration layer and data model so that Arcesium could keep reaching Geneva after its license expired.

Judge Timothy M. Reif of the U.S. Court of International Trade, sitting by designation, granted Arcesium's motion to dismiss in December 2024. He found that SS&C had adequately alleged that it owned trade secrets in Geneva but not that Arcesium misappropriated them. Arcesium had attached internal email threads and a declaration from its head of technology to its motion.

Judge Sack wrote that the trial court could consider those emails because SS&C had incorporated them by reference, meaning the complaint relied on them and a court may treat them as part of it. But a defendant's own writings cannot simply be accepted as true, the panel held. Quoting the circuit's decision in Pearson v. Gesner, Judge Sack wrote that such documents "may reflect the defendant's version of contested events or contain self-serving, exculpatory statements that are unlikely to have been adopted by the plaintiff."

The panel identified what it called "a more fundamental error." Judge Sack wrote: "By comparing Arcesium's explanations of the email chain to the allegations levied in SS&C's complaint and concluding that Arcesium has the better interpretation, the district court engaged in impermissible fact-finding."

The district court had reasoned that when a document contradicts a complaint, the document controls. Judge Sack wrote that the emails did not contradict SS&C's allegations; instead, "Arcesium's interpretation of and explanation for the documents differ from SS&C's." He added that while the circuit has let trial judges consult incorporated documents on a motion to dismiss, "we have never allowed them to take on the role of the jury when doing so."

On whether Arcesium had used the secrets, the panel noted that the circuit had "never attempted to define what constitutes 'use' under the DTSA." It adopted a broad definition drawn from the Third Circuit, under which use includes "relying on the trade secret to assist or accelerate research or development." The panel concluded that the sum of SS&C's allegations, "that Arcesium, in direct contravention of its contractual requirement, employed Geneva trade secrets to develop and market its own product," was enough to state a claim.

Arcesium had also argued that SS&C never adequately pleaded a trade secret, because every licensed user can access the executable version of Geneva. The panel rejected that reading of the statute's requirement that owners take "reasonable measures" to keep information secret, saying it feared it "would create a near-blanket rule that any information shared with a third party cannot be a trade secret." It agreed with the Ninth Circuit that sharing secrets does not defeat a claim "so long as the information was provided on an understanding of confidentiality."

The panel also rejected Arcesium's argument that the complaint described only broad categories of information. "But we have never imposed a 'general specificity rule' for adequately pleading the existence of a trade secret," Judge Sack wrote. "We decline to impose one today." A complaint suffices, the court held, if it puts the defendant on notice of the basis for the claim, as SS&C's did by explaining what each component of Geneva does.

The panel said its ruling did not resolve the merits. Its opinion "should not be read to opine on the ultimate merits of SS&C's claims, or to suggest a correct reading—one way or the other—of these emails," Judge Sack wrote, adding that "misappropriation must eventually be proven."

Lawyers for SS&C included Stephen Fishbein of Allen Overy Shearman Sterling US LLP. Arcesium was represented by James J. Pastore Jr. of Debevoise & Plimpton LLP.

The panel remanded the case to the district court for further proceedings. Because it reinstated the complaint, the panel did not decide whether Judge Reif erred in denying SS&C's motion to vacate the judgment and amend its complaint, calling those issues moot.