Misappropriation of Trade Secrets in Wireless Trading Sent Back For Trial on Unjust Enrichment

Case: Ajaxo, Inc. v. E*Trade Group, Inc., No H026757, H027383 (Cal. 6th App. Dist. 12/21/05)

The One Sentence Summary: The court affirmed findings that defendants E*Trade and Everypath took plaintiff Ajaxo's trade secret computer program for wireless Internet access and trading, affirmed a jury verdict for breach of a non-disclosure agreement by E*Trade, and remanded for further damages trial on the trade secret unjust enrichment claims against both defendants.



California Court of Appeal Holdings:

• The trial court properly admitted evidence that E*Trade had invested in Everypath, the company that used Ajaxo's technology. The evidence was relevant to motive for misappropriation, and denial of a motion for new trial on this issue was proper.
• The trial court properly allowed testimony that Ajaxo's principal, Sing Koo, had spoken to the FBI about unauthorized entry into Ajaxo's computer system. The evidence was relevant to explain Ajaxo's actions and was not more prejudicial than probative.
• In arguing that there was no substantial evidence to support the jury's verdict of misappropriation, defendants failed to summarize the trial court record accurately and therefore waived the issue.
• The jury properly relied on circumstantial evidence of misappropriation, and this evidence was not trumped by the direct evidence of defendants' denials of misappropriation.
• There was substantial evidence to support the jury's verdict of $1.29 million in unjust enrichment against E*Trade for breach of the non-disclosure agreement (NDA). The amount awarded by the jury was close to the evidence of the cost of development and the amount that E*Trade was willing to pay for the technology.
• The trial court properly found that Ajaxo was the prevailing party for an award of attorneys' fees under the NDA because it received a substantial verdict although it had sought more.
• The trial court improperly granted non-suit against Ajaxo on damages for Ajaxo's trade secret misappropriation claim. As to E*Trade, the same evidence that allowed an award of damages for breach of the NDA should have allowed the jury to consider damages for misappropriation of Ajaxo's trade secret. As to Everypath, the jury should have been allowed to consider evidence that it was unjustly enriched by misappropriation of the trade secret.
• The trial court properly denied Ajaxo's request for attorneys' fees incurred by its prior counsel absent evidence detailing their services and their qualifications.
• There was substantial evidence supporting the jury's finding that Everypath willfully and maliciously misappropriated Ajaxo's trade secrets by acquiring them from E*Trade, and that its management ratified the actions by turning a "blind eye" to evidence of misappropriation.
  
  

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Patent Claims for New Use of Existing Product in Treating Sunburn Were Valid

Case: Perricone v. Medicis Pharmaceutical Corp., No. 05-1022, 05-1023 (Fed Cir. 12/20/05)

The One Sentence Summary: Patent claims for a skin cream were anticipated by a prior art reference showing the use of the ingredients, but claims for a new use of the cream in treating sunburn were valid and not anticipated.


What They Were Fighting About: The district court granted summary judgment for defendant in a patent infringement dispute involving methods of treating sunburn or skin damage with creams containing Vitamin C in fat soluble form.

Federal Circuit Holdings:

• The district court properly held that claims of one of the two patents at issue were invalid due to non-statutory or obviousness-type double patenting because the inventions were so alike that granting both patents would extend the life of the patents.
• While it was possible that plaintiff could have avoided the double patenting invalidity by filing a terminal disclaimer, plaintiff had not done so in the time after the district court held the patent was invalid due to double patenting.
• Disclosure of ascorbyl palmitate as an ingredient in a list in a prior art reference was anticipating. There was no need for the prior art to discuss the benefits or advantages over other items in the list.
• The prior art's disclosure of a range of concentrations that entirely included the patent's claim anticipated the claim.
• The panel reversed the finding of anticipation as to claims calling for application of the cream to treat skin sunburn. This specific use of the cream was not disclosed by prior art discussing application to skin, and was a patentable new use of an existing product.
• The district court did not err in denying attorneys' fees to defendants by finding that the case was not exceptional.
  

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Destroying Evidence Did Not Allow Entry of Unlimited Default Damages in Trade Secret Case

Case: Electronic Funds Solutions v. Murphy, No G031778 (Cal. 4th App. Dist. 12/14/05)

The One Sentence Summary: Entry of default and a $24 million trade secret judgment as a discovery sanction for destroying evidence was reversed because the complaint stated only damages "in excess of $50,000."



Appellate Court Holdings:

• Compensatory damages on default could not exceed the $50,000 amount pled in the complaint.
• The service of a statement of damages did not increase the amount that could be awarded upon entry of default.
• Plaintiffs gave adequate notice of punitive damages, but the award of punitive damages had to be reconsidered in light of the reversal of the compensatory damages.
• The complaint failed to plead a cause of action for misappropriation of trade secrets where plaintiffs failed to allege efforts to keep the information secret.
• The defendants could have tortiously interfered with contracts that they entered on behalf of plaintiff by interfering after they withdrew from plaintiff's company.
• Tortious interference with prospective economic advantage was adequately pled when the complaint alleged an independent wrong of mispresentations to disrupt plaintiff's business.
• Because defendants had no management authority as officers of plaintiff, they owed no fiduciary duties.
• An unjust enrichment remedy could not be received under Business and Professions Code § 17200.
• Taking the goodwill of a business did not allow a conversion cause of action.
• Loss of profits was the proper measure of damages rather than the estimated market value of the destroyed business.
• Treble damages could not be awarded because the complaint did not state a cause of action for misappropriation of trade secrets.
• The terminating sanction did not violate defendants' due process rights.
  
  

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KaZaA User Who “Sampled” and Kept 30 Downloaded Tunes Must Pay $22,500 in Statutory Copyright Damages

Case: BMG Music v. Gonzales (7th Cir. 12/9/05 - No. 05-1314)

The One Sentence Summary: Downloading and keeping copyrighted songs was not a fair use, and summary judgment of the minimum amount of statutory damages per song was proper.



Seventh Circuit Holdings:

• Downloading copyrighted songs onto a computer hard disk was not a fair use despite a claim that the defendant was only sampling the songs.


• There was no basis to reduce the amount of statutory damages below the minimum amount of $750 per work. Although 17 U.S.C. § 504(c)(2) allows a reduction of damages if the defendant was not aware that the work was copyrighted, this reduction is not available if the works were marked with notice of copyright. The works downloaded by defendant were marked with notice on the originals, even if the data that defendant downloaded was not, so an innocent infringer defense was not available.


• The grant of summary judgment against the defendant for an award of the minimum statutory damage of $750 for each of 30 copyrighted works was proper. There was no factual question for resolution by a jury where infringement was established and the plaintiff sought only the minimum statutory damage award per work. The defendant was not entitled to a jury trial to seek jury nullification of the minimum amount of statutory damages.

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Grant of Rights to "Winnie the Pooh" Upheld Over a Disney-Funded Challenge by Author's Heir

Case: Milne v. Stephen Slesinger Inc., No. 04-57189 (9th Cir. 12/8/05)


The One Sentence Summary: The Sonny Bono Copyright Term Extension Act of 1998 (“CTEA”) did not invalidate a 1983 agreement to revoke and re-issue the original grant of rights to the "Winnie the Pooh" characters.


What They Were Fighting About: In 1930, the author of the "Winnie the Pooh" books granted exclusive rights in the United States to the predecessor of defendant Stephen Slesinger, Inc. (SSI). The 1976 Copyright Act gave a right of termination to the author's heirs. With the bargaining power created by that right of termination, the authors' heirs reopened negotiations with SSI. In 1983, SSI and the heirs entered into a new agreement revoking the earlier assignment and making a new assignment for greater royalties. Plaintiff Claire Milne, the granddaughter of the author, challenged the 1983 agreement in this litigation (which was funded by Disney) based upon the provisions of the CTEA. The district court granted judgment on the pleadings to defendant SSI, holding that the 1983 agreement was valid. The Ninth Circuit affirmed.

Ninth Circuit Holdings:

• The 1983 agreement to terminate the 1930 license was valid, and was not an "agreement to the contrary" in the meaning of 17 U.S.C. § 304(c)(5). Section 304(c)(5) states that “[t]ermination . . . may be effected notwithstanding any agreement to the contrary, including an agreement to make a will or to make any future grant.” 17 U.S.C. § 304(c)(5).
• The legislative history indicates that Congress intended to allow parties to revoke prior licenses or assignments and negotiate new agreements rather than simply requiring that all pre-1978 grants be terminated.
• Upholding the 1983 license agreement here would not create a "parade of horrors." As the court observed:

  The strength of a proposed parade of horrors, however, lies “in direct proportion to (1) the certitude that the provision in question was meant to exclude the very evil represented by the imagined parade, and (2) the probability that the parade will in fact materialize.” Harmelin v. Michigan, 501 U.S. 957, 986 n.11 (1991) (Scalia, J., concurring). The application of these factors here shows that Clare’s imagined parade will never march forward.
  

• There was no requirement for a "moment of freedom" between the original grant and the renewed grant.
  
  

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A Claim for "a" Phosphate Is Not Infringed By a Mixture of More Than One Phosphate

Case: Norian Corp. v. Stryker Corp. , No. 05-1172 (Fed. Cir. 12/6/05)


The One Sentence Summary: The word "a sodium phosphate" meant a single phosphate rather than a mixture of more than one phosphate where the narrow term "consisting of" was used, and broader scope was surrendered during prosecution of the patent.


What They Were Fighting About: The patent claimed a cement kit for setting bones with a "kit consisting of . . . a solution consisting of water and a sodium phosphate" The defendant used a mixture of phosphates rather than a single phosphate. The district court found that "a sodium phosphate" was singular, and defendant did not infringe. The Federal Circuit affirmed.

Federal Circuit Holdings:

• The district court properly construed a claim for a "kit consisting of . . . a solution consisting of water and a sodium phosphate" to exclude products containing a solution made from a mixture of different sodium phosphates.
• Although the words "a" or "an" can sometimes mean "one or more", the specification and prosecution history can show the term was used to mean only one. This is particularly true when the narrow term "consisting of" precedes "a" or "an". "Consisting of" is narrower in scope than "comprising."
• The specification supported a single solute interpretation where it included a chart of solutions made only with single solutes.
• The prosecution history supports a narrow interpretation because the applicant had to amend the claim to use the narrow term "consisting of".
• The surrender of scope in the prosecution history is not limited to the specific prior art that the applicant sought to avoid. Everything surrendered is gone, even if a narrower argument would have distinguished the prior art at issue.
• Because applicant narrowed its claims during prosecution, prosecution history estoppel prevents application of the doctrine of equivalents.
  
  

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Advertising Injury Insurance Policy Did Not Cover Trade Secret Claims

Case: Hayward v. Centennial Ins. Co., No. 03-17378 (9th Cir. 12/5/05)


The One Sentence Summary: An insurance policy covering "advertising injury" did not create a duty to defend a suit alleging trade secret misappropriation and wrongful solicitation of a competitor's customers.


Ninth Circuit Holdings:

• Under California law, alleged wrongful solicitation of customers using trade secret information from a former employee was not an "advertising injury" covered by insurance. The court followed the California Supreme Court's decision in
  Hameid v. National Fire Insurance of Hartford, 71 P.3d 761 (Cal. 2003)
  
  

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