UNITED STATES DISTRICT COURT WESTERN DISTRICT OF TEXAS AUSTIN DIVISION BIDPRIME, LLC, ) ) Plaintiff, ) ) vs. )Case No. 1 18-CV-478-RP ) SMARTPROCURE, INC., ) JEFFREY RUBENSTEIN, ) MARC DIGERONIMO, ) ) Defendants. ) ____________________________________) TRANSCRIPT OF TEMPORARY RESTRAINING ORDER PROCEEDINGS BEFORE THE HONORABLE ROBERT PITMAN TUESDAY JUNE 12, 2018, 1:58 P.M. FOR THE PLAINTIFF: SANTOSH ARAVIND, ESQ. STEPHANIE KOVER, ESQ. FOR THE DEFENDANT: JASON S. BOULETTE, ESQ. Proceedings recorded by mechanical stenography, transcript produced using computer aided transcription. ____________________________________________________________ ____________________________________________________________ P a m e l a J . A n d a s o l a , C S R / R M R / F C R R FEDERAL OFFICIAL COURT REPORTER 355 EAST CESAR E. CHAVEZ BLVD. SAN ANTONIO, TEXAS 78210 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 1 of 150 2 I N D E X P A G E ARGUMENTS: PAGE By Mr. Boulette 6 By Mr. Aravind 60 By Mr. Boulette 88 By Mr. Boulette 105 By Ms. Kover 115 TIME CALCULATIONS: BY MR. BOULETTE: 01:05:21 BY MR. ARAVIND: 00:43:51 BY MR. BOULETTE: 00:28:58 BY MS. KOVER: 00:20:09 Total: 02:38:20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 2 of 150 3 AFTERNOON SESSION, JUNE 12, 2018 ***** (The following proceedings were had in open court with all parties present at the hour of 1:58 p.m.) ***** THE CLERK: Court calls A:18-CV-478, BidPrime, LLC versus SmartProcure, Inc. and others, for Hearing on Motion for Temporary Restraining Order. MR. ARAVIND: Good afternoon, Your Honor. Santosh Aravind and Stephanie Kover for BidPrime, LLC. With us is Stephen Hetzel from BidPrime as well as Luis Garcia our paralegal. THE COURT: All right, good afternoon. MR. BOULETTE: Your Honor, I'm here with -- Jason Boulette -- I'm here with Mr. Mike Marin and Steven Garrett. We actually represent all three defendants but for technical reasons the only person appearing right now is SmartProcure. The other two defendants intend to file 12(b)2 motions, so we just didn't want to waive that. THE COURT: Okay. Thank you very much. So let's start -- well, first I'll tell you I have read the motion and response and I think things are still trickling in, even during lunch, so I may not be up to speed beyond whatever was filed in the last hour, but I have read 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 3 of 150 4 your materials, well briefed on both sides. Before I begin, let me ask what -- what we consider this hearing to be. It's obviously not a n ex parte TRO. Is this sort of a TRO with notice and in anticipation of a later injunction hearing? Or are we already, given the state of the pleadings in this case, going to call this the preliminary injunction hearing? Mr. Aravind, do you have a -- MR. ARAVIND: Your Honor, when we filed our Complaint last week we advised the Court we had filed it, indicated that we were in the process of serving the defendants. At that time you issued an order saying that this was a TRO hearing. We have since made notice. Mr. Boulette's firm is representing the defendants. So I think at this point we're prepared to proceed on a temporary restraining order hearing with notice with the idea that eventually we will be seeking a preliminary and then a permanent injunction. THE COURT: Okay. Is that your understanding, Mr. Boulette? MR. BOULETTE: Yes, Judge, it is. THE COURT: Okay, very good. So, as opposed to instances where I do need a little more background and would benefit from sort of you setting up the stage, frankly because of my familiarity with 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 4 of 150 5 the facts in the case I think I would be best served by just doing some direct questioning. And that may be disappointing if you have very interesting PowerPoints for me. And this is certainly not prejudicing you if at any time you want to launch into your PowerPoint, but I really do sort of want to get into the meat of the matter, and I think that would be most helpful to me, and so, if you will indulge me, I'll do that. And I'm going to do it -- Mr. Boulette, if you want to take the stand -- not take the stand. MR. BOULETTE: The podium. THE COURT: The podium, please. You can take the stand if you want. MR. BOULETTE: I'd rather not, Judge. THE COURT: So I just want to sort of ask a number of directed questioning so I can just figure out where to start. First of all, do you have any meaningful disagreement with any of the factual allegations that are contained in the Petition with regard to -- because, frankly, in your response there have been a number of concessions in terms of what you are -- the conduct of your client. And so I want to see what is contested at this point and what is not. MR. BOULETTE: Yes, is the short answer. Would 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 5 of 150 6 you like me to try to paraphrase? THE COURT: Sure. Sure. MR. BOULETTE: So I think the point of contentions are a few. One, the terms of service that have been put in front of the Court are not the terms of service that were actually in effect when the conduct complained of occurred. And we can provide the Court -- in fact, we just -- that was the thing that happened over lunch. So we put in, before the Court, the Terms of Service that actually control, which don't say any of the things that the new ones did. Like, they obviously changed the Terms of Service in anticipation of this lawsuit. So the old Terms of Service that control don't have any of the language that the new ones do. So that's one big thing. THE COURT: That's important. Thank you. MR. BOULETTE: Two, we have unredacted copies of emails from the customers giving us their log-in credentials. Now we redacted them because we thought the plaintiffs had done a -- (Whereupon, the reporter interrupted and asked the party to repeat the last comment.) MR. BOULETTE: -- they did a solid -- which might not be courtroom talk -- but they did right by not naming 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 6 of 150 7 those people. So I have unredacted copies for in-camera inspection if Your Honor is interested. THE COURT: I am. In fact, before I even got their reply I had been curious about the utility of those attachments. MR. BOULETTE: We wanted to be clear that we intended to make that point but we didn't want to name -- and, likewise -- thank you. May I approach? THE COURT: Please. MR. BOULETTE: Those are actually unredacted copies of G, H and I. MR. ARAVIND: Jason, excuse me, do you have a copy for us? MR. BOULETTE: No, because the second part -- I'm happy to show you the customer pieces. The second thing that's unredacted up there are the customers we've had contacting us in response to the plaintiff's libel that are saying: I'm now not going to do business with you because you are a crook. So we redacted the identifying information in our filing because we didn't want to out those customers, but included in what you have are the unredacted copies of those communications we've received from our customers since this filing. So I'm happy to show you the log-ins. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 7 of 150 8 THE COURT: To be clear, for the record then, the -- let's take them one at a time. There are purported emails from two separate customers, the nature of which is inquiring sort of what the plaintiffs could do that you can't, or vice versa, and giving their log-in information for your use to answer that question. Is that a fair characterization? MR. BOULETTE: It's as we put forward in Mr. Rubenstein's declaration. The first two exhibits, G and H, are customers who have talked to us about how -- whether or not we need BidPrime's data, is really the question. In other words, is your coverage as good? So they hand us log-in credentials to go look. THE COURT: Okay. So these are not -- MR. BOULETTE: That's the first two. THE COURT: Let me interrupt you there because that's not much more helpful than what it was before, because this simply identifies those customers but it doesn't do what I need this exhibit to do and that is to give the background to the discussions that led to -- MR. BOULETTE: And I apologize, I don't have that. What I have is -- so there are verbal conversations, as Mr. Rubenstein testified, happened between him and his customers. So these are in his cus -- let's use Customer One. He's talking to Customer One. Customer One says right 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 8 of 150 9 now I'm using BidPrime and you. I'm thinking about just using you. Can you tell me that your coverage is as good? Now, keep in mind -- you've read the papers -- there had been a prior discussion of us actually buying data from BidPrime. So he says. THE COURT: That's when they gave you the trial period that they then revoked your privileges so you had to find another way. Those privileges expired in any event. MR. BOULETTE: The privileges expired, but, candid, that's not why they're talking to a customer and using a customer's log-in. May I respond? THE COURT: Sure. MR. BOULETTE: So when they're talking with the plaintiff, the data they see as they're talking doesn't actually look right. And one of the concerns is: What are you showing me versus what a customer would actually see? If I'm going to buy data from you, I want to see what they're actually going to see. And now we have a customer saying: I don't know. Which way should I go? Should I use you only? Should I use you and them? What do you think? And, candidly, what Rubenstein's thinking is, I'll go look, if I need to, I'll buy from them. And the analogy in fact, without waiving any 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 9 of 150 10 privileges, the analogy my client gave me was if you are going in to review a restaurant, you don't tell them that's why you are there. I don't want to see what they're going to show me, I want to see what my customer will receive if I buy from them. And that's why we went to the trouble of getting Dominique -- I forget his last name -- the fellow that runs their database. And there are these what they call publish lists. So a bot goes out and gets data -- remember all these companies are scraping data. Everybody -- and they'll go out and get it. Now if that bot is on the publish list, what it then does is drop that data into a text file that is published to the customers. This bot was told don't do that. You're going to go over here and you're not going to publish that data to anyone. In fact, the only two people that will ever see it are -- it's going to drop into -- the developer would test. So the developer would run the bot and test it. The developer did it -- the developer is a third party by the way -- the developer would or would not receive data and then destroy it, say bot works; give the bot back and say, here, it works. My client would then run the bot and the only place that that data would go is to Mr. Rubenstein. It 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 10 of 150 11 didn't go anywhere else. THE COURT: And your client would never have gotten the permission of the plaintiff to do that if they had been transparent about what they were doing, would they? MR. BOULETTE: I don't know that, Your Honor. THE COURT: Well that's -- MR. BOULETTE: No. No. No. THE COURT: Let me try to convince you. Because twice they made up false names to try to secretly do it and then they got somebody who did have access to arguably exceed their access for your purposes -- now -- so you have as much said that you're doing it for a commercial purpose already. MR. BOULETTE: No. THE COURT: Well, you are responding to a client, a potential client, saying: We've got our competitor and if you will just give them your log-in because we obviously can't get -- have the access because they wouldn't give it to us, you give us your log-in because you've got it, and we'll go in there so that we can have a competitive advantage knowing -- MR. BOULETTE: No. THE COURT: Let me finish. If you didn't -- you just said you were trying to answer the question of whether or not you could do something 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 11 of 150 12 better than they could. MR. BOULETTE: Yes. THE COURT: That's the definition of a competitive advantage. So you used their log-in -- I'll let you answer -- MR. BOULETTE: -- that's okay. THE COURT: -- you are using somebody -- somebody who has access so that you can potentially take their business away -- MR. BOULETTE: No. THE COURT: -- from the other side. Then correct me. MR. BOULETTE: So several things. Can I get the new Terms of Service, because in keeps coming up and it's clear Your Honor's head is in this commercial-use thing. That was one of the new additions that was added for purposes of this lawsuit. Prior to -- and, in fact, those changes didn't come Into effect until June 3rd, until after all the behavior in this lawsuit. So I would like to direct Your Honor to a couple of key pieces. Now, plaintiffs didn't include this in their initial response and we had to go way back to get it and we think it's significant. THE COURT: That just came over in lunch. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 12 of 150 13 MR. BOULETTE: Well, we just found it this morning and last night, so may I approach? THE COURT: Sure. MR. BOULETTE: So this is -- and it's been filed, you've got a copy -- I think I already gave you a copy so I'm going to hold on to this. I do want to return to Your Honor's question. I'm not trying to run from your question. I do want to define the rules. If you look, these Terms of Service are dated September 15th. All right? And you can tell the date on the Wayback Machine by going to the top and you'll see like -- where did it go -- did I lose it, Steven? It was on the first page. The thing that gives me the date. Okay. So the upper right-hand corner, it says -- like it says November 15th. THE COURT: Yes. MR. BOULETTE: But we've included two sets of Terms of Service, some that have been in effect in November of 2017, some that were in effect in September of 2017. The reason for that is when this -- when the trial account is created for SmartProcure, the September ones are the ones in effect and, candidly, for everyone else -- meaning the Terms of Service that were actually in play back then are these. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 13 of 150 14 Now, they update them on November 15th. Now what you'll notice is nowhere in here is anything about not using a fake name, don't use it for commercial purposes, none of those restrictions exist. They're not present. That's significant for a couple of reasons. It means plaintiff has been exposing its database -- which I want to be clear about this -- is public data. There is no trade secret here. It is all public data. This is the Citizens Association case that Judge Yeakel decided five years ago. THE COURT: Well, that's a very separate issue that I've got issues with too, but let's set that aside. MR. BOULETTE: But at the time that all of these users have access, unrestricted, and we've got their FAQs, their advertisements and emails. These Terms of Service do not in any shape or form limit what a customer can do with that. So the idea that they had a trade secret in something they were giving away to everyone is preposterous or even a property interest. There is nothing there. Now, May 3rd -- it's my belief. I don't know this yet because we haven't had discovery -- but it's my belief that on May 3rd they had already become aware of what we're doing. They know. And so what do they do? They change the Terms of Service. This is exactly what the cases worried about people doing. The reason you can't turn Terms of Service 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 14 of 150 15 into a CFAA medusa is people can do exactly what was done here. You've been using my site. I'm going to change the terms. Now what you are doing is improper. Now notably they put it in the back of that. I don't have it memorized. On paragraph 12 of the May 3rd -- so what they did attach says if you are a current user, this doesn't go into effect for thirty days so everybody in this case is a current user. Customer Number One is a current user. Customer Number 2 is a current user. Mr. Rubenstein is a current user. SmartProcure is a current user. Everybody is a current user. What they said was on May 3rd, come June 3rd, we're going to change the rules of the game. Nothing in this case happened after May 31st, so the evidence they put before the Court in Terms of Service is evidence that shows it doesn't apply. So, candidly, my client -- although this is not what they were doing -- was free to go in there and pull whatever data it wanted for any purpose because they haven't restricted it, which isn't shocking because it's public data to begin with. THE COURT: Then let's shift to that argument then. It's public data but it's public data that is compiled in such a manner that people are willing to pay for it. The whole business model here is not that these are -- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 15 of 150 16 that this is just information that is not otherwise accessible, it's that we've gone out and done the hard work for you. MR. BOULETTE: Yes. THE COURT: That's -- you're not saying that the trade secret can't be just a compilation of otherwise public data, are you? MR. BOULETTE: I'm not, but that's not what we took and that's not what they are accusing us of taking. And while there are references in the Petition that I can't make sense of, to like source code and stuff, I don't think there's any actual contention that we took source code. In fact, one of the objections that we made to the affidavit is that the affidavit is wholesale conclusory. (Whereupon, the reporter interrupted and instructed the speaker to slow down and repeat the last statement.) MR. BOULETTE: The affidavit is wholesale conclusory. It says: You stole confidential information of proprietary data. What? Because what I think they mean is: You took a bid that sits on a website somewhere. That's all. I didn't take your database. THE COURT: Well then let me ask you this: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 16 of 150 17 What -- what was your client admittedly doing when they were responding to the customer's inquiry? What was -- what were they doing? MR. BOULETTE: Assessing whether to buy their data. THE COURT: And how -- well -- MR. BOULETTE: So -- this is your original question that I promised I will answer and I haven't yet. So if I go back and Customer One is talking to you and says, Look, I want to just use you. I can't do that unless it's as good. They say their data is comprehensive. They say it's timely. Is yours as good? I don't know, I would have to look. THE COURT: Well, let me just stop you right there. Why couldn't the customer who had the log-in go in and with the proper access say: I can now see what they offer. I can see what you offer. And I can make my best decision? Instead, they're going to a competitor and saying, I'll give you my log-in information and give you free reign so that you can go in there and see how they do what they do and then come back to me and tell me whether or not you can do it better. MR. BOULETTE: And I can respond directly to it. I want to break it into two parts. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 17 of 150 18 Under the CFAA -- because there's some things there that are concerning me about just where everyone's headed. There -- it's not what my client did, but there would be nothing wrong with exactly that, with saying exactly those things, because those Terms of Service are not in play -- THE COURT: Got it. MR. BOULETTE: -- so we are under a trade secret. THE COURT: Let's talk trade secret. MR. BOULETTE: So now we just nixed the CFAA and look over here at trade secret, this is why the bot comes into the picture. There are -- I actually don't know how many are in their database. I have no idea. But there are -- we put some of our numbers in for our bid database -- or rather for our purchase-order database. It's hundreds of thousands of files. So simply saying, Well, do you have this one? Okay, they have it. Do you have it? Is an exercise in futility. There is no way to assess the caliber of data when you're talking about hundreds of thousands of records, except through a bot. So what you end up doing is you say, All right. I think they -- they shifted. Like if you add up the number of files we pulled down -- like I was reading through their Complaint. If you add that up, I think it's like 20,000. It's like 10,000 here and 10,000 over Memorial Day, so I now 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 18 of 150 19 have a sample of 20,000. So what you do with that and what, in fact, they did with it, you drop it into a text file -- which is all the bot does -- which I think they submitted something today showing that -- you then slap it into an Excel sheet and now you scroll. I can see how many gaps there are. I can see -- now, I'm not looking at individual pieces of data. And keep in mind, the undisputed evidence is I never stuck it my database. There is no way to make competitive use of hundreds of thousands of files. You have to put it in a database that you are trying to sell. So what the client is doing is seeing: How complete is it? Does it look right? Is this good data? Because this is what I would be giving my customer. And what I'm seeing are lots of gaps and lots of not-completed fields, which means the data has error. And I feel good about my own data that I've done that to and what I can now say is I'm not going to buy that. I'm not going to pay $1.5 million for data that's not as good as the data I already have. So if you -- at no point am I'm taking how you gather your data and at no point am I taking how you display your data. I don't care how you display your data. I don't care how you arrange your data. And, in fact, the way your 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 19 of 150 20 data is actually arranged is based upon my search input. It's not anything you do. It's my search. Now, the way you manage your database, the way you control search algorithms, the way you run the website, that's all you. I didn't take any of that. And those are the value differentiators, and that's where this case looks like a lot like Citizens , is if you look at those value differentiators, that's where people make their money. How complete is the base? How good is the search tool? What are you charging? That's it. I don't take any of that, none of it. Instead, I'm looking at data, good, bad, indifferent, and it's in a file that is not being published to anyone. It is not being merged. It is not being used for any commercial purpose. I am not trying to sell it to anyone. I am deciding: Do I need to pay you $1.5 million to get your data, which are discussions they had had. THE COURT: That's not what you were doing because you had already decided you weren't going to do that. MR. BOULETTE: That had not been decided. No. No. No. No. That -- well, depends on -- I'm not sure how to read the pleadings on this point but if you just read the communications, where it leaves off is: We'll talk. And what Mr. Rubenstein has testified to in his declaration is they had one more conversation after that where they simply 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Case 1:18-cv-00478-RP Document 21 Filed 06/21/18 Page 20 of 150