Management & Engineering Technologies International, Inc. v. Information Systems Support, Inc. , 490 F. App'x 30 ( 2012 )

FILED
NOT FOR PUBLICATION JUL 23 2012
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
MANAGEMENT AND ENGINEERING No. 10-17784
TECHNOLOGIES INTERNATIONAL,
INC., a Texas corporation, D.C. No. 4:06-cv-00077-JMR
Plaintiff - Appellee,
MEMORANDUM *
v.
INFORMATION SYSTEMS SUPPORT,
INC., a Maryland corporation,
Defendant - Appellant,
and
ROSS ROMEO,
Defendant.
MANAGEMENT AND ENGINEERING No. 10-17888
TECHNOLOGIES INTERNATIONAL,
INC., a Texas corporation, D.C. No. 4:06-cv-00077-JMR
Plaintiff - Appellant,
v.
INFORMATION SYSTEMS SUPPORT,
* This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
INC., a Maryland corporation,
Defendant - Appellee,
and
ROSS ROMEO,
Defendant.
Appeals from the United States District Court
for the District of Arizona
John M. Roll, District Judge, Presiding
Argued and Submitted April 20, 2012
San Francisco, California
Before: SCHROEDER, THOMAS, and GRABER, Circuit Judges.
Information Systems Support, Inc. (ISS), appeals the judgment entered
against it after a jury trial. We affirm in part, vacate in part, and remand for further
proceedings. In a cross-appeal, Management and Engineering Technologies
International, Inc. (METI), challenges the denial of its motions for exemplary
damages and attorney fees. We affirm. Because the parties are familiar with the
factual and procedural history of this case, we need not recount it here.
I
We review de novo the district court’s denial of ISS’s motion for judgment
as a matter of law. We will uphold the jury’s verdict so long as “there is evidence
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adequate to support the jury’s conclusion, even if it is also possible to draw a
contrary conclusion.” EEOC v. Go Daddy Software, Inc., 581 F.3d 951, 963 (9th
Cir. 2009) (internal quotation marks omitted); see also Hangarter v. Provident Life
& Accident Ins. Co., 373 F.3d 998, 1005 (9th Cir. 2004). A general verdict may
stand if the court is “able to construe a general verdict as attributable to a theory
submitted to the jury that was viable.” Webb v. Sloan, 330 F.3d 1158, 1166-67
(9th Cir. 2003).
The evidence was sufficient to support METI’s theory that its profit margin,
as well as its general and administrative expense rates, constituted trade secrets
under Ariz. Rev. Stat. § 44-401(4). METI’s president testified that METI carefully
guarded this confidential financial information by (1) keeping printed versions of
its financial information in a vault at its corporate offices, (2) password protecting
its electronic documents so that the files were accessible only to those who had
signed a non-disclosure agreement, and (3) stamping a “confidential, non-
disclosure” notice on every page of every government contract proposal. He
further testified that this confidential financial information would have been
economically valuable to a competitor like ISS seeking to out-compete METI in a
bid for a lucrative contract. METI’s expert witness Mark Peterson confirmed the
value of this information. Thus, sufficient evidence supported the conclusion that
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METI’s profit margin, as well as its general and administrative expense rates, were
economically valuable and reasonably safeguarded. See Ariz. Rev. Stat. § 44-
401(4); see also Enterp. Leasing Co. of Phoenix v. Ehmke, 3 P.3d 1064, 1068
(Ariz. Ct. App. 1999) (“The threshold determination [of] whether to protect
information as a trade secret . . . depends upon the nature of the information and
the circumstances surrounding its secrecy and the maintenance thereof.”).
METI also presented direct and inferential evidence sufficient to support its
assertion that ISS misappropriated these particular trade secrets. See Ariz. Rev.
Stat. § 44-401(2). Just before his departure from METI to join ISS, employee Ross
Romeo downloaded thousands of confidential financial documents onto multiple
flash drives. Romeo used some of this information in a PowerPoint presentation
delivered to ISS staff at an executive planning meeting. ISS saved this
presentation on its shared network and continued to reference the information in
later strategy discussions. ISS then later sold all of its assets, including the
computers containing METI’s profit margin and expense rates, to a larger firm that
participated in a bid against METI.
Thus, sufficient evidence supported the jury’s finding that ISS
misappropriated METI’s trade secrets. Although ISS argues in the alternative that
it simply possessed, but did not use or disclose METI’s trade secrets, the jury was
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not required to believe this rendition of the facts, and we may not substitute our
view of the evidence for that of the jury’s. See Pavao v. Pagay, 307 F.3d 915, 918
(9th Cir. 2002); see also Go Daddy Software, 581 F.3d at 961.
II
The district court did not abuse its discretion in admitting the testimony of
Mark Peterson, METI’s expert witness. At the time of trial, Peterson was the Chief
Executive Officer of his own intellectual property consulting company and had
more than two decades of experience valuing intellectual property in damages
litigation and for licensing transactions. Peterson thus satisfied the threshold
requirements provided in Rule 702 of the Federal Rules of Evidence. See Daubert
v. Merrell Dow Pharm., Inc., 509 U.S. 579, 597 (1993); see also Primiano v. Cook,
598 F.3d 558, 564 (9th Cir. 2010) (“Shaky but admissible evidence is to be
attacked by cross examination, contrary evidence, and attention to the burden of
proof, not exclusion.”).
III
We conclude that the evidence supports the jury’s decision to award METI
damages under a reasonable royalty theory of liability. Arizona law permits a
complainant to recover damages for misappropriation under this theory “by
imposition of liability for a reasonable royalty” resulting from “a misappropriator’s
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unauthorized disclosure or use of a trade secret.” Ariz. Rev. Stat. § 44-403(A).
Here, the jury awarded damages because it found that METI had suffered a harm
when ISS used its trade secrets for strategic planning purposes. We have no cause
to disturb the application of this liability theory.
We conclude, however, the evidence does not support the amount of
damages that the jury awarded to METI. Although, as we have discussed, the
evidence was sufficient to support a trade secret theory founded on the
misappropriation of confidential financial information, that theory was not the sole
basis upon which METI claimed damages. METI also relied on trade secret
theories that failed as a matter of law because they rested on public information.
See Ehmke, 3 P.3d at 1069 (“[M]atters that are public knowledge are not
safeguarded as trade secrets.”) (citing Kewanee Oil Co. v. Bicron Corp., 416 U.S.
470, 475 (1974)).
In particular, METI contended that its employee roster was a trade secret,
but testimony at trial revealed that the roster was neither classified nor the subject
of any particular effort to safeguard its secrecy. Indeed the identities and positions
of the employees on the roster were generally known to those working at the
government facility, and only a fraction of those listed were METI employees.
The employee roster was therefore not a trade secret under Ariz. Rev. Stat. § 44-
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401(4). Similarly, METI’s ranking by Carnegie Mellon’s Capable Maturity Model
Integration program did not constitute a trade secret. The Carnegie Mellon
program is an industry-wide “process improvement” model. METI’s ranking in
this program was available to the public and easily accessible through an internet
search. Cf. Wright v. Palmer, 464 P.2d 363, 366 (Ariz. Ct. App. 1970) (A trade
secret must be “of such a character that it would not occur to persons in the trade
with the knowledge of the state of the art”).
At trial, Peterson did not apportion value among the legally valid and the
legally invalid alleged trade secrets. Rather, he testified about the hypothetical
negotiated price that ISS would have paid for all of the information alleged to be
trade secrets. Peterson also specifically conceded that an adjustment of the
damages amount would be required if some of the trade secret theories were
legally insufficient. Accordingly, the evidence was insufficient to support the
amount of the jury’s damages award. Cf. Harper v. City of Los Angeles, 533 F.3d
1010, 1028-29 (9th Cir. 2008) (upholding jury award “[u]nless the amount is
grossly excessive or monstrous, clearly not supported by the evidence, or based
only on speculation or guesswork”) (internal quotation marks omitted). We are
therefore compelled to vacate the damages award and remand the matter for further
proceedings.
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IV
The district court did not err in denying METI’s motion for exemplary
damages pursuant to Ariz. Rev. Stat. § 44-403(B). Arizona law provides that a
court may award exemplary damages if willful and malicious misappropriation
occurred. The district court decided not to make such an award here, stating that
“[t]he jury declined to grant punitive damages . . . and the Court will not take this
opportunity to do so.” Contrary to METI’s argument, we do not construe this
comment to mean the district court applied an incorrect evidentiary standard. Cf.
Yeti by Molly Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1111-12 (9th Cir.
2001) (holding that the district court erred by refusing to consider motion for
exemplary damages on basis that jury had decided not to award punitive damages).
Nor do we conclude that the district court erred in denying METI’s motion for
attorney fees under Ariz. Rev. Stat. § 44-404. Like Arizona’s provision regarding
damages awards, this statute is permissive and METI offers no credible arguments
about how the district court might have abused its discretion in denying the fee
request.
AFFIRMED in part; VACATED in part; and REMANDED. The
parties shall bear their own costs on appeal.
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