Source Code Was Not a Trade Secret When Plaintiff Failed to Establish Its Value

Case: Yield Dynamics, Inc. v. TEA Sys. Corp. (Cal. 6th App. Dist. No. H029604 8/23/07)

The One Sentence Summary: A trial court's judgment in favor of defendants on a trade secret dispute was affirmed where plaintiff failed to establish that the sections of source code taken had independent economic value.


What They Were Fighting About: Defendant had sold plaintiff computer programs for making silicon chips. After a falling out, defendant left plaintiff's company and created a new computer program that incorporated parts of the program sold to plaintiff. After a bench trial, the trial court entered judgment for defendant, finding that plaintiff had failed to establish that its source code was a trade secret and failed to show damages from defendant's alleged breaches of contract.

California Court of Appeal Holdings:

• Argumentative and improper objections to the trial court's proposed statement of decision after a bench trial were not sufficient to modify the standard of review on appeal.
• The trial court properly concluded that plaintiff had failed to prove that the source code taken by defendants was a trade secret because plaintiffs did not prove that the code had independent economic value. Plaintiff did not prove the quality or value of the code taken by defendants. The vague testimony presented by plaintiff that some programmers would find the code to be helpful was not sufficient. Plaintiff failed to prove the percentage of code taken by defendants which would have been useful in determining value.
• The trial court properly rejected plaintiff's unjust enrichment claim when plaintiff failed to present evidence of the value of the code taken.
• Plaintiff's claim for breach of the asset transfer agreement under which defendant sold the code was not established where plaintiff failed to show damages.
• Plaintiff's claim for breach of defendant's non-compete contract failed where plaintiff failed to show that defendant's new program competed with plaintiff's products.
• Plaintiff failed to show breach of a contract for assignment of inventions in the absence of any showing that plaintiff made a timely demand for assignment.
• Defendant did not breach a confidentiality agreement by using code that defendant had originally written.
• Plaintiff failed to prove fraud because it failed to show that defendant never intended to perform its promises to transfer the code.
• Plaintiff failed to prove unfair competition by failing to present evidence of any consumer confusion from defendant's product.
• The trial court properly awarded attorneys' fees to defendant under the contract.
  
• In assessing the presence of "bad faith" for a claim for attorneys' fees under the trade secret statute, the trial court should not have excluded a declaration of plaintiff's motive for bringing trade secret claims. However, the contract gave the court the authority to make its award of attorneys' fees.
• Plaintiff failed to request a hearing on its motion for terminating sanctions and thus could not complain on appeal.