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Posts Tagged ‘Cause of action’

Approaches to Damages in Trade Secret Cases

In Damages, Practice articles, Reasonable Royalty, Unjust enrichment on October 20, 2010 at 7:59 pm
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Once a trade secret lawsuit progress beyond the preliminary injunction stage, the key battleground usually shifts to damages.  Assessing damages can be particularly difficult in a trade secret case because of the problematic uncertainty in measuring the value of trade secrets.  Marc Pensabene and Christopher Loh summarized some of the flexible approaches that plaintiffs and defendants might pursue in arguing for and against trade secrets damages calculations.

From the plaintiff’s perspective, the authors offer the following aggressive approaches (not all of which have been accepted by California courts):

  • In calculating lost profits, argue that the amounts should include not only lost sales that were diverted from the plaintiff to the defendant, but also losses attributable to price erosion or to increased costs cause by the misappropriation, such as the costs of an advertising campaign to recoup market share stolen by defendant
  • Argue for provable future profits, overhead costs, general and administrative expenses, lost profits on reorder or spare parts or other natural follow-on items
  • Ask the court to calculate plaintiff’s lost profits by applying the defendant’s profit margins to the plaintiff’s lost sales
  • In seeking unjust enrichment, if the defendant does not incorporate the trade secret into a product but rather uses it to promote its existing products or to develop new and different products, ask for a portion from those products
  • If plaintiff is unable to prove lost profits or unjust enrichment, seek development costs (so-called “head-start” damages), the diminution of the value of the plaintiff’s business or stock, or a reasonable royalty based either on the actual royalties that have been paid to the plaintiff, or a hypothetical royalty that the litigants would have negotiated at the time of the misappropriation Read the rest of this entry »
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Benefits of Adding Claims Under the Computer Fraud & Abuse Act in Trade Secret Misappropriation Cases

In Uncategorized on October 7, 2010 at 9:03 am
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David Smith has written a useful article discussing the Benefits of Trade Secret Misappropriation Claims Under the Computer Fraud & Abuse Act (“Benefits“), and comparing these claims to those under the Uniform Trade Secrets Act (“UTSA”).  The CFAA, 18 U.S.C. § 1030, is a federal statute outlawing “theft and destruction of data, hacking, use of viruses, theft of passwords and extortionate threats to damage computers.”  SeeBenefits at 1. The CFAA now allows a civil right of action.  See 18 U.S.C. § 1030(g).  The author points to the following three benefits of a CFAA cause of action in a trade secrets dispute:

  • Federal Question Jurisdiction: “The CFAA provides for federal question subject matter jurisdiction, which then allows a plaintiff to bring appropriate state law claims under the court’s supplemental jurisdiction.” Benefits at 1.  Smith points to the benefits of nationwide service of process in trade secrets disputes.  Id. He notes that this “benefit [nationwide service of process] cannot be downplayed because often in complex trade secret litigation the plaintiff resides in one state, the defendant resides in a different state, and both the evidence of trade secret theft and key witnesses are in different states around the country. Litigating this type of case in state court might require filing motions and proceedings in multiple jurisdictions throughout the country in order to depose key witnesses and obtain necessary evidence. Nationwide service of process avoids this entire situation and saves substantial amounts of time.” Id. (citing Liccardi, The Computer Fraud and Abuse Act: A Vehicle for Litigating Trade Secrets in Federal Court, 8 J. MARSHALL REV. INTELL. PROP. L. 155 (Fall 2008) at 13-14). Read the rest of this entry »

Northern District Holds No Cause of Action Exists for Misappropriation of “Ideas”

In Motion to Dismiss, Preliminary Injunction on August 28, 2010 at 6:30 am
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The Northern District held that no cause of action exists for “misappropriation of business ideas”.  Interserve, Inc. v. Fusion Garage PTE. Ltd., No. C 09-5812 RS (PVT), 2010 WL 3339520 (N.D. Cal. Aug. 24, 2010) (slip op.).

Plaintiff Interserve, Inc. and Fusion Garage collaborated in an attempt to bring to market a tablet computer, which they intended to call the “CrunchPad.”  Id. *1.  Shortly before the parties had planned to announce that the product would soon be released, defendant Fusion Garage advised plaintiffs that it would proceed on its own, and market a tablet computer under the name “joojoo” instead. Id. Plaintiffs brought suit, alleging that they are co-owners of the joojoo.  Id. They sought a preliminary injunction requiring defendant to sequester all proceeds it obtains from selling the product. Id. Defendant opposed the motion for preliminary injunction, and moved to dismiss the complaint, including a claim for misappropriation of “business ideas”. Id. Read the rest of this entry »

Eastern District of California Rejects UTSA Preemption of Contractual Nondisclosure Claim

In Preemption on August 6, 2010 at 5:35 pm
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Since the opinion in  Court of Appeal decision in K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc., 171 Cal. App. 4th 939, 954 (2009), defendants have successfully demurred to common law-based causes of action, arguing that the UTSA preempts them.  In this next case, Removable Media Solutions v. AAR Mobility Systems, 2010 WL 3034219 (E.D. Cal. July 28, 2010) (slip op.), defense counsel takes it one step further, arguing that the statute preempts a contract claim.  This is despite the language of the statute that expressly excludes preemption of “contractual remedies, whether or not based upon misappropriation of a trade secret“.

Plaintiff Removable Media Solutions, Inc. (“RMSI”) previously sought to sell a telecommunications device to the California National Guard. RMSI sought the assistance of defendant AAR Manufacturing, Inc., (“AAR”) in this endeavor. The California National Guard eventually elected to retain the services of AAR but not RMSI in producing the device, and AAR subsequently sold similar devices to other states.

RMSI’s claims alleged that AAR breached a non-disclosure agreement. AAR sought summary judgment on both.  The court denied the motion as to the non-disclosure agreement.

AAR’s sole argument for summary judgment on this claim was that it was preempted by the Uniform Trade Secrets Act, as by California, and in particular by Cal. Civ. Code § 3426.7. In pertinent part, this statute provides that:

(a) Except as otherwise expressly provided, this title does not supersede any statute relating to misappropriation of a trade secret, or any statute otherwise regulating trade secrets.

(b) This title does not affect

(1) contractual remedies, whether or not based upon misappropriation of a trade secret,

(2) other civil remedies that are not based upon misappropriation of a trade secret, or

(3) criminal remedies, whether or not based upon misappropriation of a trade secret.

“Undaunted by the statute’s explicit statement that it does not affect contractual remedies, AAR argues that the statute preempts for breach of the non-disclosure agreement. This assault on the plain language of the statute fails.”

The Court wrote:

Courts have held that except for the three exemptions noted in subsection (b), the statute implicitly “preempts common law claims that are based on misappropriation of a trade secret.” Ali v. Fasteners for Retail, Inc., 544 F.Supp.2d 1064, 1070 (E.D.Cal.2008) (internal quotation marks omitted); see also K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc., 171 Cal.App. 4th 939, 954 (2009), Accuimage Diagnostics Corp. v. Terarecon, Inc., 260 F.Supp.2d 941, 954 (N.D.Cal.2003) (holding that this interpretation was implied by Cadence Design Systems, Inc. v. Avant! Corp., 29 Cal.4th 215, 224 (2002)).

AAR’s argument that this implicit preemption extends to contract claims invokes a gross misreading of the caselaw. AAR quotes the statement from Digital Envoy, Inc. v. Google, Inc., 370 F.Supp.2d 1025 (N.D.Cal.2005) that “all state law claims based on the same nucleus of facts as the trade secrets claim are preempted under California’s UTSA.” Id. at 1034.FN4 AAR argues that notwithstanding the statute’s explicit saving of contract claims, courts have stated that “common law claims” arising out of the same operative facts as a trade secret claims are preempted, and that contract claims are common law claims, so contract claims must be preempted.

To the extent that Digital Envoy held that “all claims” are preempted, it plainly referred to “all claims” argued to be preempted in that case, i.e., claims for unfair competition and unjust enrichment. Id. at 1035 (“California’s statute. preempts Digital’s claims for unfair competition and unjust enrichment.”). Digital Envoy and other cases have explicitly recognized that § 3426.7 does not preempt contract claims. Id. (§ 3426.7 “explicitly states that claims based upon breach of contract … are not preempted by the statute.”); see also First Advantage Background Servs. Corp. v. Private Eyes, Inc., 569 F.Supp.2d 929, 936 (N.D.Cal.2008), HiRel Connectors, Inc. v. United States, No. CV 01-11069, 2006 U.S. Dist. LEXIS 93332 (C.D.Cal. July 18, 2006) (“Plaintiff’s claim for breach of contract is not preempted by California’s Uniform Trade Secrets Act.”). While few California courts have spoken to the scope of this statute, at least one state court has allowed a claim for breach of a non-disclosure agreement to proceed in parallel with a claim for misappropriation of trade secrets. Glue-Fold, Inc. v. Slautterback Corp., 82 Cal.App. 4th 1018, 1021 (2000). Although Glue-Fold did not discuss possible preemption of the contract claim, this may well be because the issue was so clear as to require no discussion.

Although this conclusion should be obvious, the court has exhaustively searched cases citing § 3426.7, finding no cases providing even implicit support for AAR’s theory. AAR’s motion is therefore denied as to this claim.

Id. **4-5.

Senior District Judge Lawrence K. Karlton wrote the opinion.

By CHARLES H. JUNG

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Morrison & Foerster Wins $9.36 Million in Compensatory Damages and $1.525 Million in Punitive Damages in Trade Secrets Trial

In Verdicts on August 6, 2010 at 8:23 am
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A San Francisco Superior Court jury granted $1.525 million in punitive damages Friday to Technology Information Group, adding to the $9.36 million in compensatory damages it awarded to the company a day earlier in a trade secrets dispute with its former employees and a competitor. As reported in law360.com, the “jury found San Francisco-based FusionStorm, three of its executive officers and three former TIG employees who were hired by FusionStorm liable for breach of fiduciary duty, breach of loyalty, misappropriation of trade secrets and other causes of action . . . .”

The complaint alleged that the improper conduct began while the former employees still worked at TIG’s Tampa, Fla., offices. The former employees were accused of trying to lure away other of TIG’s employees and customers to FusionStorm, which was then setting up in the area. TIG filed its lawsuit in 2007 and won a temporary restraining order that enjoined FusionStorm from soliciting additional TIG employees and from conducting business with certain customers, MoFo said.

The jury verdict comes after a five-week trial.  FusionStorm was represented by Orrick Herrington & Sutcliffe LLP.  TIG was represented by Morrison & Foerster LLP.  The docket may be viewed here.

By CHARLES H. JUNG

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Sixth District Reverses Grant of Summary Adjudication of UTSA Claim on Equitable Estoppel Grounds

In California Appellate Opinions, Statute of Limitations on July 29, 2010 at 5:47 pm
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In Insyst Ltd. v. Applied Materials, Inc., 2010 WL 2892712 (Cal. Ct. App. Jul. 22, 2010) (unpublished), the California Sixth District Court of Appeal reversed the trial court’s grant of summary adjudication of plaintiff’s misappropriation of trade secrets cause of action.  The trial court granted summary adjudication based on the lapse of the statute of limitations.  The Court of Appeal reversed on equitable estoppel grounds.  Defendant “effectively concedes that in its motion it presented no evidence of plaintiff’s conduct after December 2002 apart from the filing of the complaint on July 30, 2004. Instead, in its reply defendant simply challenged plaintiff to present evidence of its diligence, arguing that plaintiff made no showing of diligence. This is not how a party should be able to obtain a summary adjudication.”

By CHARLES H. JUNG

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