Altavion, Inc. v. Konica Minolta System Laboratory, Inc. , 226 Cal. App. 4th 26 ( 2014 )

Filed 5/8/14
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FIVE
ALTAVION, INC.,
Plaintiff and Respondent, A134343
A135831
v.
KONICA MINOLTA SYSTEMS (San Mateo County
LABORATORY INC., Super. Ct. No. CIV467662)
Defendant and Appellant.
Trade secret protection “ ‘promotes the sharing of knowledge, and the efficient
operation of industry,’ ” by “ ‘permit[ting] the individual inventor to reap the rewards of
his labor by contracting with a company large enough to develop and exploit it.’
[Citation.]” (DVD Copy Control Assn., Inc. v. Bunner (2003) 31 Cal. 4th 864, 878 (DVD
Copy Control).) Trade secret law allows the inventor to disclose an idea in confidential
commercial negotiations certain that the other side will not appropriate it without
compensation. “[T]he holder of the secret, [may] disclose information he would
otherwise have been unwilling to share, and [this] permits business negotiations that can
lead to commercialization of the invention or sale of the idea, serving both the disclosure
and incentive functions of [intellectual property] law.” (Lemley, The Surprising Virtues
of Treating Trade Secrets as IP Rights (2008) 61 Stan. L.Rev. 311, 336-337, fns.
omitted.)
Appellant and defendant Konica Minolta Systems Laboratory, Inc. (KMSL) is a
research and development subsidiary of a multinational corporation that, among other
* Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is
certified for publication with the exception of parts VII.A., VII.B., and VII.D.
1
things, manufactures multifunction printers (also known as multifunction peripherals)
(MFP’s) and other devices with printing, scanning, and copying functionalities.
Respondent and plaintiff Altavion, Inc. (Altavion), is a small company that invented a
process for creating self-authenticating documents through the use of barcodes that
contain encrypted data about the contents of the original documents. The trial court
concluded that KMSL misappropriated trade secrets disclosed by Altavion during
negotiations aimed at exploiting Altavion’s technology. The negotiations were subject to
a nondisclosure agreement and centered around the possibility of embedding Altavion’s
invention in one of KMSL’s MFP’s. During the negotiations, the invention was
described as Altavion’s “digital stamping technology” (DST). After the negotiations
failed, Altavion discovered KMSL had filed for patents encompassing Altavion’s DST.
Altavion brought suit and, following a bench trial, the trial court found KMSL
misappropriated Altavion’s trade secrets—both Altavion’s DST concept as a whole and
specific DST design concepts. The court awarded Altavion damages, prejudgment
interest, and attorney fees.
On appeal, KMSL contends it was improper for the trial court to base its ruling on
misappropriation of Altavion’s DST concept as a whole, and any other trade secrets the
court found misappropriated were not adequately identified in the court’s decision.
KMSL further contends Altavion’s DST was not protectable as a trade secret, either as a
combination secret or as particular design concepts, because ideas and design concepts
are not protectable trade secrets. Moreover, KMSL contends Altavion did not show the
ideas were kept secret or had independent economic value. KMSL also challenges the
trial court’s award of damages, prejudgment interest, and attorney fees. We reject
KMSL’s contentions and affirm the trial court’s judgment.
BACKGROUND
From the voluminous record in the present case we set forth only those facts
relevant to resolution of the issues on appeal. We recite the facts in the manner most
favorable to the judgment and resolve all conflicts and draw all inferences in favor of
respondent Altavion. (SCI California Funeral Services, Inc. v. Five Bridges Foundation
2
(2012) 203 Cal. App. 4th 549, 552-553; see also Pool v. City of Oakland (1986) 42 Cal. 3d
1051, 1056, fn. 1.) Conflicts in the evidence are noted only where pertinent to the issues
on appeal. (Pool, at p. 1056, fn. 1; SCI California Funeral Services, Inc., at p. 553.)1
Altavion’s DST
Dr. Ali Moussa is the President and founder of Altavion. He founded Altavion in
2000 with the goal of developing DST to enable the self-authentication of digital and
paper documents.2
Altavion’s DST was designed to encode the content of an original document into a
small (maximum 1" x 1") barcode (also called a “stamp”) printed on the document. In
order to create the barcode, a scanned version of the original document would be divided
into cells and the pixel-level data about each cell would be represented in the barcode in a
highly compressed form. By comparing the data encrypted in the barcode with a
subsequent version of the document, Altavion’s DST would show whether and where the
1 Our review of the record was made considerably more difficult by the parties’ failure
to adhere to the rules governing factual summaries on appeal. The record consists of
54 volumes of reporter’s transcripts and 16 volumes of appendices. Together, these
materials comprise more than 8,000 pages. (See Western Aggregates, Inc. v. County of
Yuba (2002) 101 Cal. App. 4th 278, 290 [“duty to adhere to appellate procedural rules
grows with the complexity of the record”].) Despite the record’s size, the parties have
provided citations only to page numbers, although the rules require citation “to the
volume and page number of the record where the matter appears.” (Cal. Rules of Court,
rule 8.204(a)(1)(C); see also SCI California Funeral Services, Inc. v. Five Bridges
Foundation, supra, 203 Cal.App.4th at p. 552, fn. 1.) Moreover, KMSL did, at best, a
poor job of complying with its obligation to fairly summarize the facts in the light
favorable to the judgment (Western Aggregates, Inc., at p. 290), and Altavion frequently
failed to support its factual assertions with adequate citations to the record (Cal. Rules of
Court, rule 8.204(a)(1)(C)).
2 Although KMSL raises issues on appeal regarding the trial court’s use of the phrase
DST, that was a term repeatedly used by KMSL itself in internal project documents. For
example, a Spring 2004 “[KMSL] Digital Stamping Technology Proposal” repeatedly
used the phrase “digital stamping technology” (and often “Altavion” DST) and the
abbreviation DST. Similarly, the phrase and/or abbreviation were used in two 2004
evaluations of Altavion’s software and a July 2005 KMSL technology plan, among other
KMSL documents. Moreover, counsel for KMSL used the phrase at trial. Further, the
phrase appears repeatedly in Altavion’s second amended and operative complaint.
3
document had been altered by searching for alterations at the pixel-level. Because the
barcode would permit the document to be authenticated without involvement of a third
party, Altavion claimed its DST would create “self-authenticating” documents.
Altavion’s DST was implemented by software programmed to execute the algorithms
necessary to perform the various barcode creation and authentication functions.3
Altavion’s barcode, and especially its color barcode, could contain far more data
in a small space than existing barcodes. Grayscale or color barcodes, as compared to
black and white barcodes, represent data with higher density, enabling more data to be
represented in a given area. However, the development of a color barcode presented a
distinct technical challenge because over time the colors on a printed barcode are subject
to degradation, which can inhibit read back of the data contained in the barcode.
Altavion resolved this problem by using “color reference cells” to aid in reconstruction of
the encoded data. The company’s implementation of the approach was unique, in that
Altavion’s barcode employed multiple reference cells for each color, and by an averaging
process a range of values could be determined to represent each color.
3 In an internal project proposal, KMSL described Altavion’s DST as follows:
“Altavion has answered these technology challenges by developing the only known
technology which provides document authentication checking via an embedded stamp
and additionally adds tamper location discovery or integrity checking for an unauthentic
document. The Altavion document authentication solution falls into the category of
Digital Stamping and is applied to the pixelized rendering of a digital document, not the
content in its raw data form. With Altavion’s [DST], it is now possible to take a digital
document and place a visible [two]-Dimensional barcode or digital stamp of authenticity
on the document. Encoded in this machine readable stamp are various types of
information including authenticity data, integrity data, and administrative data. By
placing a digital stamp on a digital document, the party administering the stamping
process inherently claims that the documents are considered authentic at the time of
stamping and thereafter. And through the use of DST the party administering the
stamping process now has a mechanism via the digital stamp to verify that the document
is authentic or not, and if unauthentic be able to locate where the document had been
altered.”
4
Altavion’s Relationship With KMSL
KMSL is a research and development company that develops technologies for its
parent company, Konica Minolta Business Technologies, Inc., which, among other
things, manufactures products including MFP’s that can copy, scan, and print
documents.4 Some of the KMSL personnel involved in the events underlying this case
include KMSL’s president, Hiroshi Tomita, former consultant Paul Cattrone, computer
scientist Dr. Wei Ming, and software engineer Vivek Pathak. Tomita handled the
business negotiations with Altavion; Cattrone was hired in February 2004 to manage the
digital stamping project; Ming helped evaluate Altavion’s DST; and Pathak was hired in
September 2004 to help develop KMSL’s own DST.
Altavion was introduced to KMSL through William Zivic, a salesman employed at
the time by Minolta Business Solutions. Although the terms of the agreement are
unclear, in July 2003 Altavion and KMSL entered into a nondisclosure agreement
(NDA), in which the companies agreed that any confidential information disclosed during
their subsequent negotiations would be kept confidential.5 Prior to discussions with
Altavion, KMSL had no digital stamping projects in progress or products in development.
Indeed, Tomita admitted “the first consideration [he] had ever given to [DST] was
brought about by [his] discussions with Altavion.”
4 Altavion’s second amended and operative complaint named as defendants KMSL;
sales, support, and service company Konica Minolta Business Solutions U.S.A., Inc.;
parent company Konica Minolta Business Technologies, Inc.; Konica Minolta
Technology Center, Inc.; Konica Minolta Holdings, Inc.; and former KMSL consultant
Paul Cattrone. Defendants Konica-Minolta Holdings, Inc., and Cattrone were voluntarily
dismissed before trial, and the trial court found Altavion proved its misappropriation
claim against only KMSL. Thus, KMSL is the only defendant involved in this appeal. It
also should be noted there was a merger between Konica Corporation and Minolta Co.,
Ltd., in October 2003. Altavion began its relationship with a Minolta company, but, for
convenience, all references in this decision will be to KMSL.
5 The trial court rejected Altavion’s claim for breach of the NDA because, although the
evidence showed an NDA was executed and the parties agreed to protect confidential
information, Altavion failed to present evidence of all the material terms of the NDA.
KMSL does not dispute on appeal the trial court’s finding that the parties agreed to
protect confidential information.
5
KMSL’s interest in Altavion’s DST was in developing technology for
authenticating printed documents, rather than for documents that remain only in a digital
environment. For a variety of reasons, it is more difficult to authenticate printed
documents than electronic documents (an issue known as the “closed loop problem”).
For example, an expert for KMSL at trial explained that problems can arise in the
printing, storage, and scanning processes that make it more difficult to authenticate a
paper document with a stamp.
In a December 15, 2003 letter to Moussa, Tomita wrote, “At [KMSL] we are
studying using your unique technology for digital stamping for possible use in multiple
applications in current and future products and for jointly developing it further for even
better utilization.” The parties sought to negotiate terms by which Altavion’s DST could
be embedded in a KMSL MFP. Altavion and KMSL discussed the possibility of a pay-
per-stamp revenue model.
KMSL consultant Cattrone assesssed evaluation software provided by Altavion
and authored a report entitled “Altavion Digital Stamping Software Evaluation.” The
report concluded, “Altavion is the first available solution for creating a machine readable
authentication barcode which can be later used to not only authenticate the document, but
on false authenticity locate the areas within the document where tampering or alteration
has occurred.” In reporting the testing results, the report stated, “In all cases, the
verification software was able to successfully authenticate unaltered digital documents.
For most cases, when a document was found to be altered and not authentic, the software
was able to successfully identify the areas within the document—graphic or text—which
had been tampered with.” The report also identified further areas for evaluation and
stated that Altavion’s technology “does contain a number of problems and functional
anomalies in its current implementation in both the stamp creation and integrity checking
software components.”
A February 27, 2004 KMSL project development planning report (February 2004
planning report) articulated KMSL’s project development strategy employing Altavion’s
DST. It stated, “This project will develop a Digital Stamping solution for use as a
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Konica-Minolta document authentication security technology. The solution will be built
as two SDKs—Digital Stamp Creation SDK and Digital Stamp Authentication &
Integrity Check SDK.[6] Both SDKs will be built around a digital stamping core
functionality component. Altavion will provide the core functionality component as they
have a patent pending digital stamping technology which can create and verify authentic
documents as well as discover tamper locations in unauthentic documents. With
Altavion technology a small amount of essential data extracted from the image is
required and can be encoded into a digital stamp as small as ½" x ½". [KMSL] will drive
the development of Altavion’s core technology to provide Konica[-]Minolta with a
solution that satisfies the basic requirements for creation and verification of a digitally
stamped document.” It also stated, “By developing [an] SDK around Altavion’s digital
stamping core technology, Konica-Minolta will develop competing patentable
technologies and marketable products which work to close the Printer/Scanner Loop to
provide document authenticity and integrity validation regardless of digital or print
form.”
The February 2004 planning report distinguished Altavion’s digital stamping
process from a process patented by a competitor, Canon Inc., stating “The amount of data
required to authenticate and verify integrity with the Altavion method is their key
differentiating technology. Where as the Canon patent reduces the original document
size in its approach to embed 2D barcodes, the Altavion solution does not apply any
transformation to the original document as the stamp can be generated as small as ½" x
½".” The February 2004 planning report also included a “[p]atent application plan,”
indicating that “a patent could be filed which describes an Altavion technology based
6 Cattrone explained in his testimony that an “SDK” is a “Software Development Kit.”
He testified that KMSL sought an SDK from Altavion that would have allowed KMSL
“to integrate [KMSL] technologies on top of Altavion’s core technology.” In particular,
KMSL was “interested in utilizing Altavion’s digital-only core technology and having it
produced in a such a way that we could write software that helped close the loop around
it, technologies that wrapped around it to extend the security technology to paper and . . .
allow for a closed loop workflow to occur.”
7
method for creating self-authentic[ating] with embedded integrity data documents which
can be authenticated from digital or print form.”
In an April 1, 2004 e-mail, KMSL proposed to pay Altavion a fee for development
of an SDK for a KMSL machine and further development of Altavion’s grayscale and
color barcodes. In e-mail communications on April 21 and 22, KMSL and Altavion
discussed the possibility of a $400,000 fee, although it was contingent on an evaluation of
Altavion’s software. On April 27 and May 11, KMSL paid a total of $50,000 to Altavion
for new evaluation software. The new software addressed some of the issues raised and
enhancements requested in Cattrone’s evaluation of the previous version of the software.
On August 31, 2004, KMSL and Altavion executed a memorandum of
understanding (MOU), which stated that KMSL “will continue to recognize that
Altavion’s unique implementation of [DST] is Altavion’s own intellectual property and
will continue to protect [it].” Unbeknownst to Altavion, even before execution of the
MOU, KMSL had already begun filing a series of patent applications encompassing
Altavion’s DST.7 Specifically, on June 28 and August 9, 2004, KMSL filed patent
applications for color barcode producing methods, with KMSL’s Ming listed as the
inventor on the June application and Ming and Tomita listed as inventors on the August
application. Both applications described a method “to keep the integrity or authenticity
of the color barcode” through the use of color reference cells in the barcode. KMSL
ultimately filed 24 United States DST patent applications, and eight United States patents
were issued. The patents and applications identified varying combinations of Tomita,
Ming, Cattrone, and Pathak as inventors.
The trial court ultimately found that KMSL “had no idea, interest or information
about DST . . . or use of bar codes prior to their dealings with” Altavion. Among other
things, the trial court rejected as unreliable the meager evidence that Tomita and Ming
7 There was testimony at trial that Moussa told KMSL that Altavion had applied for
patents on its DST, although in fact it had not, as Ming discovered during a patent search.
At trial, Moussa explained he had doubts that applying for patents was the best strategy
for Altavion, as compared to protecting the company’s ideas as trade secrets.
8
independently developed the DST concepts reflected in KMSL’s patents. KMSL does
not dispute those findings on appeal.
In September 2004, shortly after execution of the MOU, KMSL hired software
engineer Pathak to work on the digital stamping project and, specifically, to develop
“closed loop technologies.” Pathak had access to the evaluation software provided by
Altavion. In a September 17 e-mail to Tomita, Cattrone said he had “asked [Pathak] to
analyze the Altavion software and think about ways in which we can achieve similar
results with the focus on a closed loop digital stamp.” He also wrote, “[Pathak]
understands and knows well that there are many ways to achieve similar Altavion’esque
results within the digital domain.” The e-mail also asserted there were problems in the
relationship with Altavion. For example, Cattrone opined, “It is unlikely that we will get
a digital stamping SDK from Altavion in the near future—our signing of the MOU meant
nothing to [Moussa].”
KMSL and Altavion reached an impasse in their negotiations in the fall of 2004.
The parties were unable to agree on the terms for KMSL’s payment of a development fee
to Altavion, or the scope of an SDK to be provided to KMSL.
The Present Lawsuit
In October 2006, Moussa learned about KMSL’s patent filings. In November
2007, Altavion filed the present lawsuit. In the second amended and operative complaint
(Complaint), Altavion sued KMSL, Cattrone, and four other Konica Minolta entities (see
fn. 4, ante). Altavion alleged causes of action for trade secret misappropriation, breach of
the NDA, and a variety of other torts. KMSL filed a cross-complaint alleging (among
other things) fraud based on Moussa’s false statements that he had applied for patents.
By the time of trial, the only remaining Altavion causes of action were for breach
of the NDA and for misappropriation of Altavion’s trade secrets. The trial court issued a
tentative statement of decision in July 2011 and a final statement of decision (FSOD) in
November. The court ruled in favor of KMSL on Altavion’s claim for breach of the
NDA and in favor of Altavion on KMSL’s fraud claim. Neither of those two claims is at
issue on appeal.
9
The court found in favor of Altavion and against KMSL (but not against the other
Konica Minolta defendants) on Altavion’s misappropriation claim. The trial court
awarded damages of $1 million and prejudgment interest of $513,400, for a total of
$1,513,400. After further proceedings, the trial court awarded attorney fees to Altavion
in the amount of $3,297,102.50, as well as amounts for expert fees and costs. The court
also awarded costs to three of the Konica Minolta companies that had not been found
liable for misappropriation.
DISCUSSION
I. Summary of Trade Secret Law
In 1984, the Legislature “adopted without significant change” the Uniform Trade
Secrets Act (UTSA) (Civ. Code, § 3426 et seq.).8 (DVD Copy Control, supra, 31 Cal.4th
at p. 874; Cadence Design Systems, Inc. v. Avant! Corp. (2002) 29 Cal. 4th 215, 221;
Trade Secrets Practice in Cal. (Cont.Ed.Bar 2d. ed. 2013) § 1.2, p. 1-2.) Nearly all states
have adopted the UTSA; although there are some variations, case law applying UTSA
enactments in other states is generally relevant in applying California’s UTSA. (K.C.
Multimedia, Inc. v. Bank of America Technology & Operations, Inc. (2009)
171 Cal. App. 4th 939, 955; Trade Secrets Practice in Cal., at p. 1-2.)
The UTSA “creates a statutory cause of action for the misappropriation of a trade
secret.” (Brescia v. Angelin (2009) 172 Cal. App. 4th 133, 143.) The statute defines a
trade secret as “information, including a formula, pattern, compilation, program, device,
method, technique, or process, that: [¶] (1) Derives independent economic value, actual
or potential, from not being generally known to the public or to other persons who can
obtain economic value from its disclosure or use; and [¶] (2) Is the subject of efforts that
are reasonable under the circumstances to maintain its secrecy.” (§ 3426.1, subd. (d).)9
8 All further undesignated statutory references are to the Civil Code.
9 Prior to the 1984 enactment of the UTSA, California had followed the Restatement of
Torts definition of a trade secret. (Vacco Industries, Inc. v. Van Den Berg (1992)
5 Cal. App. 4th 34, 49.) Although it is not identical, the UTSA definition is similar to the
common law definition. (See Vacco Industries, Inc., at p. 50 [“[b]y its adoption of the
10
“Trade secret misappropriation occurs whenever a person: (1) acquires another’s trade
secret with knowledge or reason to know ‘that the trade secret was acquired by improper
means’ (§ 3426.1, subd. (b)(1)); (2) discloses or uses, without consent, another’s trade
secret that the person ‘[u]sed improper means to acquire knowledge of’ (id.,
subd. (b)(2)(A)); (3) discloses or uses, without consent, another’s trade secret that the
person, ‘[a]t the time of disclosure or use, knew or had reason to know that his or her
knowledge of the trade secret was’ (a) ‘[d]erived from or through a person who had
utilized improper means to acquire it’ (id., subd. (b)(2)(B)(i)), (b) ‘[a]cquired under
circumstances giving rise to a duty to maintain its secrecy or limit its use’ (id.,
subd. (b)(2)(B)(ii)), or (c) ‘[d]erived from or through a person who owed a duty to the
person seeking relief to maintain its secrecy or limit its use’ (id., subd. (b)(2)(B)(iii)); or
(4) discloses or uses, without consent, another’s trade secret when the person, ‘[b]efore a
material change of his or her position, knew or had reason to know that it was a trade
secret and that knowledge of it had been acquired by accident or mistake’ (id.,
subd. (b)(2)(C)).” (DVD Copy Control, supra, 31 Cal.4th at p. 874.)
In DVD Copy Control, the California Supreme Court outlined the purposes
underlying the protections provided by trade secret law. The court explained, “ ‘[t]he
basic logic of the common law of trade secrets recognizes that private parties invest
extensive sums of money in certain information that loses its value when published to the
world at large.’ [Citation.] Based on this logic, trade secret law creates a property right
‘defined by the extent to which the owner of the secret protects his interest from
disclosure to others.’ [Citation.] In doing so, it allows the trade secret owner to reap the
fruits of its labor [citation] and protects the owner’s ‘moral entitlement to’ these fruits
[citation]. As such, ‘trade secrets have been recognized as a constitutionally protected
intangible property interest.’ [Citation.]” (DVD Copy Control, supra, 31 Cal.4th at
p. 880.) As we noted at the outset of this decision, “ ‘Trade secret law promotes the
sharing of knowledge, and the efficient operation of industry; it permits the individual
[UTSA], California effectively adopted the common law definition”].) Therefore, cases
decided prior to 1984 are relevant in applying the UTSA.
11
inventor to reap the rewards of his labor by contracting with a company large enough to
develop and exploit it.’ [Citation.]” (Id. at p. 878.) “Trade secret law also helps
maintain ‘standards of commercial ethics . . . .’ [Citation.] . . . By sanctioning the
acquisition, use, and disclosure of another’s valuable, proprietary information by
improper means, trade secret law minimizes ‘the inevitable cost to the basic decency of
society when one . . . steals from another.’ [Citation.] In doing so, it recognizes that
‘ “good faith and honest, fair dealing, is the very life and spirit of the commercial
world.” ’ ” (Id. at p. 881.)
II. Standard of Review
We review for substantial evidence the trial court’s finding that KMSL
misappropriated Altavion’s trade secrets. (Morlife, Inc. v. Perry (1997) 56 Cal. App. 4th
1514, 1521 (Morlife); Vacco Industries, Inc. v. Van Den Berg, supra, 5 Cal.App.4th at
p. 50.) “ ‘ “When a finding of fact is attacked on the ground that there is not any
substantial evidence to sustain it, the power of an appellate court begins and ends with the
determination as to whether there is any substantial evidence contradicted or
uncontradicted which will support the finding of fact.” ’ ” (Boeken v. Philip Morris, Inc.
(2005) 127 Cal. App. 4th 1640, 1658.) “[W]e presume that the record contains evidence to
sustain every finding of fact. [Citation.] It is the appellant’s burden to demonstrate that it
does not.” (Ibid.) An appellant who challenges a trial court’s factual determination
following a nonjury trial “must marshal all of the record evidence relevant to the point in
question and affirmatively demonstrate its insufficiency to sustain the challenged finding.
[Citation.]” (Yield Dynamics, Inc. v. TEA Systems Corp. (2007) 154 Cal. App. 4th 547,
557 (Yield Dynamics).)
We review the trial court’s damages award for substantial evidence. (Morlife,
supra, 56 Cal.App.4th at p. 1528.) The trial court’s attorney fee award “will not be
overturned in the absence of a manifest abuse of discretion, a prejudicial error of law, or
necessary findings not supported by substantial evidence.” (Yield Dynamics, supra,
154 Cal.App.4th at p. 577.)
12
III. Were Altavion’s Trade Secrets Adequately Identified?
“It is critical to any [UTSA] cause of action—and any defense—that the
information claimed to have been misappropriated be clearly identified. Accordingly, a
California trade secrets plaintiff must, prior to commencing discovery, ‘identify the trade
secret with reasonable particularity.’ (Code Civ. Proc., § 2019.210; see Lemley, The
Surprising Virtues of Treating Trade Secrets as IP Rights[, supra,] 61 Stan. L.Rev. [at
p.] 344 [plaintiff should be required to ‘clearly define[] what it claims to own, rather than
(as happens all too often in practice) falling back on vague hand waving’].)” (Silvaco
Data Systems v. Intel Corp. (2010) 184 Cal. App. 4th 210, 221 (Silvaco), disapproved on
another ground in Kwikset Corp. v. Superior Court (2011) 51 Cal. 4th 310, 337.)10
“[U]ntil the content and nature of the claimed secret is ascertained, it will likely be
impossible to intelligibly analyze the remaining” elements that constitute the cause of
action. (Id. at p. 220.) The trade secret must be described “with sufficient particularity to
separate it from matters of general knowledge in the trade or of special knowledge of
those persons who are skilled in the trade, and to permit the defendant to ascertain at least
the boundaries within which the secret lies.” (Diodes, Inc. v. Franzen (1968)
260 Cal. App. 2d 244, 253 (Diodes); accord, Brescia v. Angelin, supra, 172 Cal.App.4th at
p. 144 [noting that Code Civ. Proc., § 2019.210 was intended to codify Diodes];
Advanced Modular Sputtering, Inc. v. Superior Court (2005) 132 Cal. App. 4th 826, 835;
Imax Corp. v. Cinema Technologies, Inc. (9th Cir. 1998) 152 F.3d 1161, 1164-1165;
Computer Economics, Inc. v. Gartner Group, Inc. (S.D.Cal. 1999) 50 F. Supp. 2d 980,
984-985.)
As explained in Computer Economics, Inc. v. Gartner Group, Inc., supra,
50 F.Supp.2d at page 985, the rule requiring a plaintiff to describe its trade secrets before
the commencement of discovery serves several purposes: it discourages the filing of
10 Section 2019.210 of the Code of Civil Procedure provides, “In any action alleging the
misappropriation of a trade secret under the [UTSA] . . . , before commencing discovery
relating to the trade secret, the party alleging the misappropriation shall identify the trade
secret with reasonable particularity subject to any orders that may be appropriate under
Section 3426.5 of the Civil Code.”
13
meritless claims, prevents plaintiffs from using the discovery process to uncover the
defendant’s trade secrets, assists the trial court in framing the scope of discovery, and
“enables defendants to form complete and well-reasoned defenses, ensuring that they
need not wait until the eve of trial to effectively defend against charges.” (Accord,
Perlan Therapeutics, Inc. v. Superior Court (2009) 178 Cal. App. 4th 1333, 1343; Brescia
v. Angelin, supra, 172 Cal.App.4th at p. 144; Advanced Modular Sputtering, Inc. v.
Superior Court, supra, 132 Cal.App.4th at pp. 834, 836.)
KMSL contends the trial court’s judgment must be reversed because both Altavion
and the court failed to identify with sufficient particularity the trade secrets KMSL
misappropriated. Each claim must be analyzed separately.
A. Altavion Did Not Fail to Adequately Identify Its Trade Secrets.
The cases discussed above and the cases KMSL relies upon on appeal relate to a
plaintiff’s obligation to identify the allegedly misappropriated trade secrets with
sufficient particularity for purposes of discovery and trial. (See Silvaco, supra,
184 Cal.App.4th at pp. 221-222; Perlan Therapeutics, Inc. v. Superior Court, supra,
178 Cal.App.4th at pp. 1343-1352; Advanced Modular Sputtering, Inc. v. Superior Court,
supra, 132 Cal.App.4th at pp. 834–836; Diodes, supra, 260 Cal.App.2d at p. 253; Imax
Corp. v. Cinema Technologies, Inc., supra, 152 F.3d at pp. 1164-1167; Agency
Solutions.Com, LLC v. TriZetto Group, Inc. (E.D.Cal. 2011) 819 F. Supp. 2d 1001, 1017-
1018; Bunnell v. Motion Picture Ass’n of America (C.D.Cal. 2007) 567 F. Supp. 2d 1148,
1155; IDX Systems Corp. v. Epic Systems Corp. (W.D.Wis. 2001) 165 F. Supp. 2d 812,
816-817.) In the present case, Altavion identified the allegedly misappropriated trade
secrets pursuant to Code of Civil Procedure section 2019.210 in a third amended
identification (Amended Identification) dated May 20, 2009. On August 27, 2010,
Altavion served KMSL with an “Outline of Trade Secrets Misappropriated by
Defendants” (Outline), which was admitted at trial as exhibit 1032. In the Outline,
Altavion identified and detailed aspects of eight trade secrets (numbered 1B, 1C, 2, 4, 7,
11, 12, & 15). After the presentation of Altavion’s case at trial, the trial court granted
KMSL’s motion for nonsuit as to misappropriation of trade secrets 7 and 11.
14
On appeal, KMSL asserts “no trade secret was sufficiently identified to permit
[KMSL] to present a meaningful defense.” However, KMSL presents no reasoned
argument with citations to authority (Badie v. Bank of America (1998) 67 Cal. App. 4th
779, 784-785) that Altavion’s Amended Identification or Outline were overly vague or
otherwise failed to describe the allegedly misappropriated information with “sufficient
particularity” to separate it from matters of general knowledge and to permit KMSL to
ascertain “at least the boundaries within which the secret lies.” (Diodes, supra,
260 Cal.App.2d at p. 253; see also Advanced Modular Sputtering, Inc. v. Superior Court,
supra, 132 Cal.App.4th at pp. 835-836.) Instead, KMSL argues the trade secrets
identified by Altavion were not the same as the trade secrets the trial court found
misappropriated in the FSOD. In particular, KMSL focuses on the fact that, in
identifying its trade secrets, Altavion largely did not use the phrase that was used by the
trial court—DST—and specifically did not use the phrase in any of the numbered trade
secrets still at issue at the conclusion of the trial. KMSL asserts, “[i]nstead, the lists
described a multitude of specific algorithms and process steps that Altavion claimed
could be used to create barcodes or authenticate documents and which were allegedly
implemented in its software.” Arguing the trade secrets as described in the FSOD differ
from those identified by Altavion is not, however, a claim that Altavion failed to comply
with its statutory obligation to adequately identify its trade secrets either before or during
trial. KMSL has not shown any error in that respect.
B. The Trial Court Did Not Err in Its Identification of the Misappropriated Trade
Secrets.
The heart of KMSL’s claim on appeal is that it was improper for the trial court to
base its ruling on misappropriation of Altavion’s “DST,” and that, otherwise, the trial
court failed to adequately identify the trade secrets it found had been misappropriated.
A trial court’s statement of decision must explain “the factual and legal basis for
its decision as to each of the principal controverted issues at trial.” (Code Civ. Proc.,
§ 632.) It will be deemed adequate “if it fairly discloses the determinations as to the
ultimate facts and material issues in the case.” (Central Valley General Hospital v. Smith
15
(2008) 162 Cal. App. 4th 501, 513.) “Where [a] statement of decision sets forth the factual
and legal basis for the decision, any conflict in the evidence or reasonable inferences to
be drawn from the facts will be resolved in support of the determination of the trial court
decision.” (In re Marriage of Hoffmeister (1987) 191 Cal. App. 3d 351, 358; accord,
Estate of Young (2008) 160 Cal. App. 4th 62, 75-76.) “[F]indings of fact are liberally
construed to support the judgment.” (Estate of Young, at p. 76.) If the statement of
decision “does not resolve a controverted issue, or if the statement is ambiguous and the
record shows that the omission or ambiguity was brought to the attention of the trial court
. . . , it shall not be inferred on appeal . . . that the trial court decided in favor of the
prevailing party as to those facts or on that issue.” (Code Civ. Proc., § 634; see also
SFPP v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal. App. 4th 452, 462.)
1. The Trial Court’s Analysis
In the FSOD the trial court frequently used the umbrella term DST to refer to the
whole of Altavion’s barcode technology. The court explained Altavion’s DST was a
method of creating “a self-authenticating paper document, through the use of a digital
stamp (which is also self-authenticating). It is ‘unique,’ according to [Altavion], in that it
could detect alterations as well as show where the alterations had occurred in the
document.” The court further explained: “A digital stamp is a type of bar code. DST is
data represented as an image. [¶] [Altavion’s] bar code is not a miniature image of the
entire document nor does it digitize all data in an entire document, called ‘compression.’
Rather, it is the ‘thumbprint’ of the document, a form of essential data, which can be used
to self-authenticate the document as a true and correct copy of the original document.
Part of this process is that the technology ‘grids’ the subject document into squares, and
then selects reference information to create the barcode. [¶] According to Moussa,
[Altavion’s] bar code has three main components: (1) Textual Data, which is the text in
the bar code; (2) Statistical Data, which keeps the bar code within one inch by one inch in
size . . . , and (3) Reference Data. [¶] [Altavion’s] technology allegedly does two things:
(1) Authentication, i.e., Has the document been altered? and (2) Integrity, i.e., Where has
the document been altered?” The court also explained that, in 2002, Altavion created
16
grayscale and color barcodes, which could hold more information than black and white
barcodes at the same size. Altavion sought to partner with KMSL to embed Altavion’s
DST in one of KMSL’s MFP’s.
Prior to analyzing the evidence of misappropriation, the trial court acknowledged
the parties had different purposes in developing DST. It explained that Altavion’s “focus
is a self-authenticating bar code that takes ‘thumbprint’ details from a document for
purposes of double-checking document integrity and showing where (if anywhere) the
document has been altered.” On the other hand, KMSL’s “focus is a bar code . . . to
preserve document integrity such that the document itself is preserved, so that the
document text and images are not distorted by copying, scanning, printing, age or fading
over time. The bar code is to preserve the document, including its text and images (and
colors).” Nevertheless, the court reasoned that “taking the idea of one person and using
that same idea for another purpose does not make it the second person’s ‘new’ idea.”
The trial court ultimately found KMSL misappropriated Altavion’s DST,
especially through KMSL’s patents. The court stated, KMSL “used one or more trade
secrets of [Altavion] in attempting to create [KMSL’s] own DST. Further the Court finds
that, at the very least, [11 specified patents and patent applications] disclose or use a
trade secret (or component part of a trade secret) of Altavion.” The trial court described
the secret information provided by Altavion to KMSL as “information . . . regarding its
DST technology.” In addition to finding KMSL misappropriated Altavion’s DST
concept as a whole, it is also clear, as detailed below, the trial court found KMSL
misappropriated particular design concepts identified in Altavion’s Amended
Identification and Outline, especially aspects of trade secrets 1B, 1C, 2, and 12.
2. Misappropriation of Altavion’s DST as a Combination of Design Concepts
As explained above, the trial court found KMSL misappropriated Altavion’s DST
concept as a whole, both by using Altavion’s DST in developing KMSL’s own DST and
17
by disclosing aspects of Altavion’s DST in 11 of KMSL’s patents and patent
applications.11
At the outset, we reject any contention that Altavion’s DST concept on the whole
was inherently not protectable as a trade secret. Because (as explained in part IV.B.2.,
post) the detailed design concepts underlying Altavion’s DST were undisclosed, a finding
of trade secret appropriation could be based on misappropriation of Altavion’s DST
concept as a whole. That is so because, even if some or all of the elements of Altavion’s
design were in the public domain and thus unprotectable, the combination was a
protectable trade secret if it was secret and had independent economic value (see part
IV.C., post). For example, in Rivendell Forest Products v. Georgia-Pacific (10th Cir.
1994) 28 F.3d 1042, 1043, the plaintiff lumber business alleged a competitor
misappropriated a software system that permitted the plaintiff to provide special customer
services and manage distribution. The 10th Circuit concluded the trial court erred in
requiring “that the software system be examined bit by bit with the further requirement
that Rivendell demonstrate protectability of its elements or some of them rather than the
protectability of the software system as a whole.” (Id. at p. 1045.) The court explained,
“the doctrine has been established that a trade secret can include a system where the
elements are in the public domain, but there has been accomplished an effective,
successful and valuable integration of the public domain elements and the trade secret
gave the claimant a competitive advantage which is protected from misappropriation.”
(Id. at p. 1046; see also Harvey Barnett, Inc. v. Shidler (10th Cir. 2003) 338 F.3d 1125,
1130 [reversing a district court’s grant of summary judgment because it looked at the
components of the plaintiff’s infant swimming program “in isolation, rather than as a
whole, in determining that [plaintiff] does not possess a trade secret”]; 3M v. Pribyl (7th
Cir. 2001) 259 F.3d 587, 595-596; Integrated Cash Mgmt. Serv. v. Digital Transactions
(2d Cir. 1990) 920 F.2d 171, 174; Imperial Chem. Indus. Ltd. v. National Distillers &
11 As explained in part IV.B., post, although KMSL misappropriated the whole of
Altavion’s DST concept, it did not misappropriate the underlying source code, which was
never revealed to KMSL.
18
Chem. Corp. (2d Cir. 1965) 342 F.2d 737, 742.) Similarly, Altavion’s implementation of
DST was potentially protectable as a “combination of characteristics and components”
(3M v. Pribyl, at p. 595), regardless of whether particular design concepts separately
qualified for protection as trade secrets.
KMSL’s primary argument on this point is that DST “was never identified [by
Altavion] as a misappropriated trade secret” and the trial court’s finding that KMSL
misappropriated Altavion’s DST means the court found “[KMSL] misappropriated
something else that wasn’t on the trial list.” The thrust of the argument is that the trial
court’s finding of misappropriation of Altavion’s DST was not “fair” and frustrated
KMSL’s right to “ ‘mount a defense.’ ” It is true Altavion’s Amended Identification and
Outline did not identify “DST” as a combination trade secret, but it is disingenuous for
KMSL to suggest it was unaware what the trial court meant in referring to Altavion’s
DST. As we noted earlier (fn. 2, ante), the parties regularly used the phrase “DST”
during negotiations and during the litigation to describe the technology KMSL sought to
obtain from Altavion. The Complaint alleges, in paragraph 13 of the general allegations,
that Altavion “has created and perfected a novel set of digital document security platform
technologies, which are the first of their kind to provide the dual functionality of
document authentication via the use of novel stamp embedding techniques and document
integrity assessment via novel tamper detection techniques. [Altavion’s] proprietary
digital document security platform technologies are collectively referred to as Digital
Stamping Technology (‘DST’ or ‘DST Platform’).” Paragraphs 48 and 49 of the
misappropriation cause of action explained that Altavion’s “DST Platform” and “DST
Solutions Suite” were “collectively referred to as ‘Trade Secrets,’ ” and alleged the
defendants “misappropriated portions of [Altavion’s] DST Trade Secrets by obtaining
such Trade Secrets from Dr. Moussa and [Altavion] during discussions, negotiations,
meetings and other communications.” Accordingly, it is unmistakable the trial court used
the phrase DST to refer to Altavion’s secret barcode technology, taken as a whole, and
there can be no question that KMSL understood what the trial court referred to in using
the phrase DST.
19
Although the Amended Identification and the Outline did not list “DST” as a
misappropriated trade secret, KMSL does not explain in what ways the concepts the court
identified as Altavion’s DST differ from the trade secret concepts identified by Altavion
that were the subject of the proceedings in the case. KMSL does not show “Altavion’s
DST” as described in the FSOD differs from the digital stamping concepts described in
Altavion’s Complaint, Amended Identification, or Outline. Neither does KMSL show
“Altavion’s DST” as described in the FSOD differs from the digital stamping concepts
that were the subject of evidence and argument presented at trial.12 In particular, KMSL
has not demonstrated how it was prejudiced by the trial court’s finding it misappropriated
the “forest” of Altavion’s DST as opposed to individual “trees” referenced in Altavion’s
Amended Identification and Outline. It is difficult to imagine what additional evidence
KMSL could have presented to show it did not misappropriate Altavion’s DST concept
as a whole, since such misappropriation could be established by the evidence that KMSL
made use of Altavion’s DST in developing its own DST and DST patents.13
KMSL denies this is “a debate about semantics.” However, absent a failure of
proof supporting the trial court’s findings, and absent legal authority and reasoned
12 KMSL characterizes Altavion’s Amended Identification and Outline as describing “a
multitude of specific algorithms and process steps that Altavion claimed could be used to
create barcodes or authenticate documents and which were allegedly implemented in its
software.” By comparison, as noted previously, the trial court stated that Altavion’s DST
was a method of creating “a self-authenticating paper document, through the use of a
digital stamp (which is also self-authenticating).”
13 On appeal, KMSL does not argue there was no substantial evidence supporting the
trial court’s finding that KMSL did not independently develop the digital stamping
concepts reflected in its patents. And KMSL does not dispute that use of Altavion’s trade
secrets to further its own development would constitute misappropriation. (See PMC,
Inc. v. Kadisha (2000) 78 Cal. App. 4th 1368, 1383 [“[e]mploying the confidential
information in manufacturing, production, research or development, marketing goods
that embody the trade secret, or soliciting customers through the use of trade secret
information, all constitute use” (italics added)].) Thus, even if the patents did not
ultimately disclose Altavion’s DST in all its particulars, KMSL’s use of Altavion’s DST
on the whole to further its own DST development and craft its patents and patent
applications was a proper basis for a misappropriation finding.
20
analysis why the trial court’s findings deprived KMSL of a fair trial, KMSL has failed to
show the trial court’s determination it misappropriated Altavion’s DST concept as a
whole was reversible error. (See Cal. Const., art. VI, § 13 [“[n]o judgment shall be set
aside, or new trial granted, in any cause, . . . for any error as to any matter of procedure,
unless, after an examination of the entire cause, including the evidence, the court shall be
of the opinion that the error complained of has resulted in a miscarriage of justice”];
Century Surety Co. v. Polisso (2006) 139 Cal. App. 4th 922, 963 [“[n]or will this court act
as counsel for appellant by furnishing a legal argument as to how the trial court’s ruling
was prejudicial”]; see also Cassim v. Allstate Ins. Co. (2004) 33 Cal. 4th 780, 800.)
3. Misappropriation of Particular Design Concepts Underlying Altavion’s DST
In any event, the trial court adequately identified the particular DST design
concepts misappropriated by KMSL. KMSL asserts the FSOD “does not find—and
given the absence of any evidence could not have found—that any alleged trade secret on
Altavion’s trial list meets the statutory definition of a ‘trade secret.’ ” KMSL is
mistaken. Although the FSOD does not analyze each aspect of trade secrets 1B, 1C, 2, 4,
12, and 15 and identify whether each of those aspects was misappropriated by KMSL, the
FSOD does identify specific aspects of the identified trade secrets that were
misappropriated by KMSL.14
In the FSOD, the trial court described KMSL’s patent applications and patents and
then found, “at the very least . . . Patent ‘769 (and related Patent Application ‘224),
Patent ‘855 (and related Patent Application ‘229), Patent ‘865 (and related Patent
Application ‘563), Patent Application ‘608, Patent Application ‘621, Patent Application
‘035, and Patent Application ‘138 disclose or use a trade secret (or component part of a
trade secret) of Altavion.”15
14 It is clear the trial court did not find that all aspects of the trade secrets were
misappropriated, because several of Altavion’s numbered trade secrets reference
algorithms the court found were never disclosed to KMSL.
15 For purposes of consistency, we continue to use the parties’/trial court’s format of
referring to the patent or patent application number by its last three numeric digits.
21
The FSOD describes Patent Application ‘608 as a method to preserve the integrity
of barcode colors through the use of color reference cells, demonstrating the trial court
found KMSL misappropriated Altavion’s idea for using color reference cells to preserve
the integrity of the colors of the barcode.16 Patent Application ‘608 describes “an
apparatus and a method to keep the integrity or authenticity of the color barcode. Such is
accomplished by the color information portion of the color barcode representing the color
information about what colors are used for color tiles of data portion of the color barcode
and an apparatus and a method for producing and reproducing such color barcode.” The
FSOD also describes KMSL’s Patent Application ‘347 and related Patent ‘817, which
also relate to color barcodes using color reference cells, including color averaging.
Altavion’s trade secrets 1B, 2, and 12 relate to its process for creating a color barcode
with color reference cells and color averaging.
The trial court’s findings also reflect its determination that KMSL’s patent
applications and patents misappropriated other aspects of Altavion’s DST design,
including at least the process steps of scanning a page to locate blank space available to
locate a barcode (Patent ‘769 and related Patent Application ‘224; Patent Application
‘035); partitioning the image of a document into a grid of cells (Patent ‘865 and related
Patent Application ‘563); using compression to encode data representing a document’s
contents in a digital stamp (Patent Application ‘035; Patent ‘769 and related Patent
Application ‘224; and Patent ‘855 and related Patent Application ‘229); and, in detail,
using a barcode to authenticate a document by detecting alterations and indicating the
locations of the alterations (Patent Application ‘621 and Patent Application ‘035).17 In
16 In its Outline, Altavion stated that “[c]reating a color barcode by employing color
reference cells” was not a trade secret 1B “element” for which it claimed
misappropriation; but, in trade secret 12, it claimed as a misappropriated secret its
“[s]ystem and method for creating a novel high density color 2D barcode employing
color ‘reference cells’ to diminish the effects of color decay or degradation on
recognizing and reading back color barcode content.”
17 The trial court also pointed out that KMSL’s Patent Application ‘138 and Patent ‘865
actually include pictures of an Altavion barcode. Although the image of the barcode
22
language very much echoing Altavion’s DST, Patent Application ‘035 (entitled “Method
and Apparatus for Authenticating Printed Documents”) describes how a printed
document bearing an authentication barcode is self-authenticating because when scanned
the document’s contents may be “compared to the authentication data to determine if any
part of the printed document has been altered since it was originally printed (i.e. whether
the document is authentic) and what the alterations are. A printed document bearing
authentication barcode is said to be self-authenticating because no information other than
what is on the printed document is required to authenticate its content.” Altavion’s trade
secrets 1B, 1C, and 2 relate to these processes.18
Accordingly, contrary to KMSL’s assertions on appeal, the FSOD does identify
particular DST design concepts that the trial court found were misappropriated.19
itself was not protectable because it had not been kept secret (see part IV.B.1., post), the
inclusion of the image is circumstantial evidence that the more detailed information
included in the patents and patent applications was obtained from Altavion.
18 There is no indication the trial court found KMSL misappropriated trade secret 4,
which is a method for processing forms, particularly test forms. Neither is there any
indication the court found KMSL misappropriated trade secret 15, which involves
Altavion’s algorithm for generating a color barcode and highly technical details related to
that process.
19 KMSL asserts in its reply brief that the trade secrets discussed in Altavion’s brief on
appeal “differ from those presented at trial” because at various places Altavion cites to its
Amended Identification (prepared during discovery to comply with Code Civ. Proc.,
§ 2019.210), rather than to its Outline presented at the time of trial. (See part III.A.,
ante.) The Outline omits certain numbered trade secrets included in the Amended
Identification and disclaims reliance on certain aspects of other secrets as a basis for
Altavion’s misappropriation claim. Nevertheless, the numbered trade secrets in the
Outline otherwise correspond to the same numbered trade secrets in the Amended
Identification, which includes a more detailed narrative regarding the alleged secrets than
the Outline. KMSL does not attempt to demonstrate that any of the particular
misappropriated trade secret concepts the trial court identified in the FSOD were not
included in the Outline; neither does KMSL provide any citations to authority for its
apparent suggestion that it is improper to refer to the Amended Identification to clarify
the corresponding numbered trade secrets in the Outline. In light of the obvious
correlation between the two documents, such a conclusion would be senseless in the
present case.
23
4. Conclusion Regarding Adequacy of the FSOD
The degree of specificity required in the identification of misappropriated trade
secrets in a statement of decision depends on the nature of the case. (See Diodes, supra,
260 Cal.App.2d at p. 253 [“[n]o more comprehensive rules for pleading can be generally
enunciated because no inclusive definition of trade secrets is possible”]; Burroughs
Payment Systems, Inc. v. Symco Group, Inc. (N.D.Cal., May 14, 2012, C-11-06268 JCS)
2012 WL 1670163, p. *14 [“question of whether a trade secret has been adequately
identified depends, at least to some degree, upon the nature of the trade secret alleged”].)
Ultimately, the trial court’s specification needed to be clear enough to “fairly disclose” its
determinations (Central Valley General Hospital v. Smith, supra, 162 Cal.App.4th at
p. 513) and allow for meaningful review of its decision. Because the trial court found
that KMSL misappropriated Altavion’s DST concept as a whole, and also identified
particular trade secret ideas that were misappropriated by KMSL in its patents and patent
applications, the trade secret identification in the FSOD was adequate.20
IV. Did Altavion’s DST Design Concepts Constitute Protectable Trade Secrets?
As noted previously, the UTSA defines a “ ‘[t]rade secret’ ” as “information,
including a formula, pattern, compilation, program, device, method, technique, or
process, that: [¶] (1) Derives independent economic value, actual or potential, from not
being generally known to the public or to other persons who can obtain economic value
from its disclosure or use; and [¶] (2) Is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy.” (§ 3426.1, subd. (d).)
“ ‘Information’ has a broad meaning under the [UTSA].” (Trade Secrets Practice
in Cal., supra, § 1.4, p. 1-5; see also Forro Precision, Inc. v. International Business
20 Although KMSL asserts broadly that insufficient evidence supports the court’s
misappropriation findings, KMSL only provides reasoned argument that Altavion’s DST
design concepts are not protectable as trade secrets as a matter of law, and that Altavion’s
DST concept had been disclosed to others (see part IV.B., post). KMSL does not present
reasoned argument challenging the court’s findings that KMSL’s patents and patent
applications incorporate aspects of the design concepts described in trade secrets 1B, 1C,
2, and 12.
24
Machines Corp. (9th Cir. 1982) 673 F.2d 1045, 1057.) “The definition of trade secret is
. . . unlimited as to any particular class or kind of matter and may be contrasted with
matter eligible for patent or copyright protection, which must fall into statutorily defined
categories.” (1 Milgrim on Trade Secrets (2013) Definitional Aspects, § 1.01, p. 1-4.)
“[A] trade secret may consist of any formula, pattern, device or compilation of
information which is used in one’s business, and which gives him an opportunity to
obtain an advantage over competitors who do not know or use it. It may be a formula for
a chemical compound, a process of manufacturing, treating or preserving materials, a
pattern for a machine or other device or list of customers [citations].” (Sinclair v.
Aquarius Electronics, Inc. (1974) 42 Cal. App. 3d 216, 221, italics omitted.)
A. Ideas Are Protectable as Trade Secrets.
As explained below (part IV.B., post), the trade secret information at issue in the
present case is principally comprised of the design concepts underlying Altavion’s DST.
In the words of the trial court, “the issue is whether [KMSL’s] ideas set forth in the
patents and patent applications are founded upon and disclose any trade secret ‘ideas’ [it]
learned from [Altavion].” Because the trade secret information at issue in this case is a
set of ideas rather than a set of products or specific formulae, it is important to address
KMSL’s assertion in its brief on appeal that “[g]eneralized ideas and inventions are
protectable by patents and thus cannot be trade secrets.”
Although KMSL fails to provide a citation for that assertion, KMSL proceeds to
quote language in Silvaco drawing a distinction between patent law and trade secret law.
Silvaco explained, “The sine qua non of a trade secret . . . is the plaintiff’s possession of
information of a type that can, at the possessor’s option, be made known to others, or
withheld from them, i.e., kept secret. This is the fundamental difference between a trade
secret and a patent. A patent protects an idea, i.e., an invention, against appropriation by
others. Trade secret law does not protect ideas as such. Indeed a trade secret may consist
of something we would not ordinarily consider an idea (a conceptual datum) at all, but
more a fact (an empirical datum), such as a customer’s preferences, or the location of a
mineral deposit. In either case, the trade secret is not the idea or fact itself, but
25
information tending to communicate (disclose) the idea or fact to another. Trade secret
law, in short, protects only the right to control the dissemination of information.”
(Silvaco, supra, 184 Cal. App. 4th 210 at pp. 220-221.)21
In isolation, the statement “[t]rade secret law does not protect ideas as such”
(Silvaco, supra, 184 Cal.App.4th at p. 220) is easily misunderstood. In fact, Silvaco
plainly does not hold that secret ideas are not protectable under trade secret law, and
KMSL cites no authority for its apparent claim that the definition of “information” in
section 3426.1, subdivision (d), excludes patentable ideas. The court in Sinclair v.
Aquarius Electronics, Inc., supra, 42 Cal. App. 3d 216, explained the overlap between
trade secret law and patent law as follows: “[A]lthough a trade secret may be a device or
process which is patentable, patentability is not a condition precedent to the classification
of a trade secret. Thus, it has been said that a trade secret may be a device or process
which is clearly anticipated in the prior art or one which is merely a mechanical
improvement on a machine or device. Novelty and invention are not requisite for a trade
secret as they are for patentability [citation]. In harmony with these precepts, it has been
held that a trade secret in the broad sense consists of any unpatented idea which may be
used for industrial and commercial purposes [citation].” (Id. at p. 222, italics added,
citing Painton & Company v. Bourns, Inc. (2d Cir. 1971) 442 F.2d 216, 222; accord,
Rigging Internat. Maintenance Co. v. Gwin (1982) 128 Cal. App. 3d 594, 613; see also
Kewanee Oil Co. v. Bicron Corp. (1974) 416 U.S. 470, 491 [“extension of trade secret
protection to clearly patentable inventions does not conflict with the patent policy of
disclosure”]; Sketchley v. Lipkin (1950) 99 Cal. App. 2d 849, 854 [“owner of an
unpatented device is by legal principles protected against the piracy of his invention
21 Because the nature of the intellectual property protected by patent and trade secret law
is different, the legal protections are different as well. As explained in Cadence Design
Systems, Inc. v. Avant! Corp., supra, 29 Cal.4th at page 222, “the patent owner acquires a
limited term monopoly over the patented technology, and use of that technology by
whatever means infringes the patent. The owner of the trade secret is protected only
against the appropriation of the secret by improper means and the subsequent use or
disclosure of the improperly acquired secret. There are various legitimate means, such as
reverse engineering, by which a trade secret can be acquired and used. [Citation.]”
26
because it is his own by virtue of being the original product of his mind”]; AvidAir
Helicopter Supply, Inc. v. Rolls-Royce (8th Cir. 2011) 663 F.3d 966, 973 [“[t]rade secret
protection does not shield an idea from ‘infringing’ other uses of the idea; instead it
protects valuable information from being misappropriated despite reasonable efforts to
keep it secret”]; Gabriel Technologies Corp. v. Qualcomm, Inc. (S.D.Cal., Dec. 12, 2011,
08CV1992 AJB MDD) 2011 WL 6152240, p. *5 [court agreed that “a unique approach to
a problem can constitute a process that is a protectable trade secret provided that the
approach process is sufficiently described”].)22
An inventor who fails to obtain a patent for a patentable idea incurs significant
risks. The secret may leak, or other circumstances may arise that frustrate the inventor’s
right to obtain a patent. (Kewanee Oil Co. v. Bicron Corp., supra, 416 U.S. at p. 490;
Painton & Company v. Bourns, Inc., supra, 442 F.2d at p. 224.) Nevertheless, the “long-
standing principle” is “that an inventor who chooses to exploit his invention by private
arrangements is entirely free to do so, though in so doing he may thereby forfeit his right
to a patent.” (Painton & Company, at p. 225; see also ibid. [“inventor ‘may keep his
invention secret and reap its fruits indefinitely’ ”]; Sinclair v. Aquarius Electronics, Inc.,
supra, 42 Cal.App.3d at p. 223 [“although a trade secret does not give its owner any
monopoly and once contracted away is subject to being copied, the inventor is entirely
free to keep his idea secret and not to divulge it to the general public”]; Learning Curve
Toys, Inc. v. PlayWood Toys, Inc. (7th Cir. 2003) 342 F.3d 714, 727 (Learning Curve)
[stating it is “irrelevant that [PlayWood] did not seek to patent its concept”].) Indeed, as
a leading scholar has observed, because a “substantial number of patents” are invalidated
by the courts, resulting in disclosure of an invention to competitors with no benefit,
22 Although a secret idea need not be patentable to qualify for trade secret protection
(see Sinclair v. Aquarius Electronics, Inc., supra, 42 Cal.App.3d at p. 222 [“[n]ovelty and
invention are not requisite for a trade secret as they are for patentability”]; see also Yield
Dynamics, supra, 154 Cal.App.4th at p. 562; 13 Witkin, Summary of Cal. Law (10th ed.
2005) Equity, § 82, p. 377), “[i]f an invention has sufficient novelty to be entitled to
patent protection, it may be said a fortiori to be entitled to protection as a trade secret.”
(1 Milgrim on Trade Secrets, supra, § 1.08[1], p. 1-468.69, fns. omitted.)
27
“many businesses now elect to protect commercially valuable information through
reliance upon the state law of trade secret protection.” (1 Milgrim on Trade Secrets,
supra, § 1.01[2][a], p. 1-36.)23
In conclusion, it is clear that if a patentable idea is kept secret, the idea itself can
constitute information protectable by trade secret law. In that situation, trade secret law
protects the inventor’s “right to control the dissemination of information” (Silvaco,
supra, 184 Cal.4th at p. 221)—the information being the idea itself—rather than the
subsequent use of the novel technology, which is protected by patent law (Cadence
Design Systems, Inc. v. Avant! Corp., supra, 29 Cal.4th at p. 222). In other words, trade
secret law may be used to sanction the misappropriation of an idea the plaintiff kept
secret. (See, e.g., Learning Curve, supra, 342 F.3d at p. 721 [misappropriation of
“concept” for noise-producing toy railroad track]; Contour Design, Inc. v. Chance Mold
Steel Co. (D.N.H., Jan. 14, 2010, 09-CV-451-JL) 2010 WL 174315 [misappropriation of
ergonomic mouse “concept”].) This is consistent with the proposition that “The sine qua
non of a trade secret . . . is the plaintiff’s possession of information of a type that can, at
the possessor’s option, be made known to others, or withheld from them, i.e., kept
secret.” (Silvaco, at p. 220)
23 See also, e.g., Lemley, The Surprising Virtues of Treating Trade Secrets as IP Rights,
supra, 61 Stan. L.Rev. at p. 313 (“while we have other laws that encourage inventions,
notably patent law, trade secrecy offers some significant advantages for inventors over
patent protection”); id. at pp. 331, 338-339; Halligan, Protecting U.S. Trade Secret Assets
in the 21st Century (Sept./Oct. 2013) Westlaw, 6 No. 1 Landslide 12, p. *13 (“Recent
judicial decisions in patent law have weakened patent protection. In contrast, trade
secrets have flourished with broad protection and expansive remedies for trade secret
misappropriation under U.S. law.”); Schwartz, The Corporate Preference for Trade
Secret (2013) 74 Ohio St. L.J. 623, 624, fns. omitted (“A new invention can often be
legally protected in one of two ways, patent or trade secret. So, which to choose? The
choice is important, as each method has its strengths and weaknesses. Patents offer
strong protection and a positive ‘signal’ to outsiders, but they are costly, require
extensive disclosure and expire after twenty years. Trade secret offers weak protection,
as it provides no defense against reverse engineering or independent invention, but it
costs nothing to obtain, avoids disclosure and can last forever.”).
28
B. Design Concepts Underlying Altavion’s DST Constitute Protectable
“Information.”
As explained in greater detail post, the information at issue in the present case can
readily be divided into three tiers of specificity and secrecy. The least specific and least
secret level of information is Altavion’s general idea for a barcode allowing for self-
authentication of documents with identification of alterations. This level of information
is not a protectable trade secret because the general idea was disclosed to other
companies without the benefit of an NDA. At the other extreme, the most specific and
secret level of information is Altavion’s algorithms and source code that execute
Altavion’s DST.24 Such information is unquestionably protectable by trade secret law,
but it could not form the basis for Altavion’s misappropriation claim because Altavion
did not share its algorithms and source codes with KMSL.
The middle tier of information is comprised of the design concepts that underlie
Altavion’s DST, many of which might be evident to a software end user. There is no
evidence such information was disclosed to anyone other than KMSL, pursuant to an
NDA, and, thus, misappropriation of these secret design concepts (separately and in
combination) provide a basis for Altavion’s claim.
1. Altavion’s General DST Idea Was Not Secret.
Secrecy is an essential characteristic of information that is protectable as a trade
secret. (Ruckelshaus v. Monsanto Co. (1984) 467 U.S. 986, 1002; DVD Copy Control,
supra, 31 Cal.4th at p. 881; Silvaco, supra, 184 Cal.App.4th at pp. 220-221; see also
Lemley, The Surprising Virtues of Treating Trade Secrets as IP Rights, supra, 61 Stan.
L.Rev. at pp. 342-344.) KMSL contends Altavion failed to show it made “reasonable”
efforts (§ 3426.1, subd. (d)(2)) to protect the secrecy of its purported trade secrets
24 “Computer software programs are written in specialized languages called source code.
The source code, which humans can read, is then translated into language that computers
can read. The computer readable form, which operates on a binary system, is called
object code.” (Cadence Design Systems, Inc. v. Avant! Corp., supra, 29 Cal.4th at p. 218,
fn. 3; see also DVD Copy Control, supra, 31 Cal.4th at p. 872, fn. 2; Silvaco, supra,
184 Cal.App.4th at pp. 217-218 & fn. 4.)
29
because Altavion disclosed its secrets to others without the protection of an NDA. It is
well established that “ ‘[i]f an individual discloses his trade secret to others who are
under no obligation to protect the confidentiality of the information, or otherwise publicly
discloses the secret, his property right is extinguished.’ ” (In re Providian Credit Card
Cases (2002) 96 Cal. App. 4th 292, 304, quoting Ruckelshaus, at p. 1002; see also DVD
Copy Control, at p. 881.) KMSL points to evidence it argues demonstrates that Altavion
disclosed its DST concept to several entities without assurances of confidentiality. It
asserts, “Altavion did not treat ‘DST’ or its ‘digital stamping technology’ as a secret or
confidential—to the contrary, it showed it to anyone who might be interested in doing
business with Altavion.” We conclude the evidence of disclosure does not undermine the
trial court’s finding that Altavion made reasonable efforts to maintain the secrecy of its
DST, because the evidence shows Altavion disclosed only its general DST concept, not
the underlying design details.
The first disclosure of Altavion’s general DST concept involved a demonstration
by Altavion of its black and white barcode in Saudia Arabia to the Saudi Chamber of
Commerce in September 2002. Altavion did not have an NDA with that group. Moussa
testified he demonstrated document authorization with a black and white stamp as
embodied in trade secret 1A. Trade secret 1A, which is a method for “captur[ing]
document text as it is being created in real-time and encod[ing] it into a barcode,” was
not one of the secrets for which Altavion claimed misappropriation at trial. Moreover,
Moussa testified he demonstrated the creation of a barcode using this method, but he
never explained how it was done or “the details of doing it.”
The second disclosure of Altavion’s general DST concept involved a June 2003
demonstration by Altavion to KMSL of “paper stamp software” embodying trade secrets
1C, 4, and 12. Altavion and KMSL had not yet executed an NDA. But Moussa
explained that the software demonstration showed the results of the process, but not the
steps or details of how to make the stamp. He explained it “was just to show to them
results rather than to explain details. . . . And that is needed when you sell something,
otherwise you will continue to keep it for yourself and not being [sic] able to sell
30
anything.” He further explained that confidential information for Altavion “means the
details of making things to work. . . . [Y]ou have to show other people as well on the
surface what we have so that at least you attracted the attention for possible relationships.
So, these things which appears on the surface is not confidential. I’ve showed you . . . a
picture . . . . The picture itself is the result of applying that trade secret for it to appear. If
people are interested in that picture, then we are more than happy to sit down and have an
agreement with them and start to explain what we have, if it will lead to commercial[ly]
beneficial . . . relationships.”
The third disclosure of Altavion’s general DST concept occurred when a
salesperson named Phil Thoren made a presentation to testing company Harcourt
Educational Measurement regarding Altavion’s DST, apparently without an NDA.
Moussa admitted the presentation was based on information obtained from Altavion, but
he denied authorizing the presentation. The presentation to Harcourt stated that
“Document Stamping is a mechanism to bind the content, physical and digital signatures
and user authentication in both electronic file and paper form.” The presentation
described the size of the stamp; that the stamp contains a time stamp, image metadata,
and a digital signature; and that the stamp “Detects any change” with “Single Pixel
resolution @ 8 bit grayscale color depth.” As noted previously, there is no indication the
trial court found that KMSL misappropriated trade secret 4, which related to the
application of DST to test forms. (See fn. 18, ante.)
In the fourth disclosure of Altavion’s general DST concept, Moussa, in June 2005,
sent Microsoft a presentation about Altavion’s DST without the protection of an NDA.
The presentation described Altavion’s process for producing “[s]elf-[a]uthenticated
[d]ocuments” with the ability to detect and identify alterations. A page captioned “What
is Inside a Stamp?” contained an image of an Altavion barcode on a document, a blown-
up image of the barcode, and an indication that the barcode contained “[d]ocument
metadata” and “[a]dministrative [d]ata,” with examples of types of administrative data,
such as a time stamp or an account number.
31
Finally, in May 2006, Moussa e-mailed a presentation regarding Altavion’s DST
to Wachovia Bank without the protection of an NDA. Moussa testified the presentation
showed images of Altavion’s barcode on documents, and a “[g]lobal view of what the
barcode will contain.” The presentation also asserted the barcode would permit
alterations to be detected and identified.
Thus, the evidence in the record demonstrates that, although Altavion disclosed to
several entities its general concept for implementation of DST, it did not provide details
about the design concepts underlying its DST, much less provide demonstration software
as it did to KMSL. Accordingly, although Altavion could not base its misappropriation
claim on its general DST concept, Altavion’s disclosures did not preclude a
determination that the design concepts underlying Altavion’s general DST concept are
protectable trade secrets.
2. Design Concepts Underlying Altavion’s DST Are Protectable.
The two other levels of information arguably at issue in the present case are the
most secret level—Altavion’s algorithms and source code—and the middle tier of
information, comprised of the design concepts underlying Altavion’s DST. The record
shows Altavion did not disclose those levels of information to other companies. The
record also shows that, although it is well-established that source code can constitute a
protectable trade secret (see, e.g., Cadence Design Systems, Inc. v. Avant! Corp., supra,
29 Cal.4th at p. 219; Silvaco, supra, 184 Cal.App.4th at pp. 221-222), Altavion did not
disclose its source code and algorithms to KMSL. Accordingly, the information at issue
in the present case is the design concepts underlying Altavion’s DST, which Altavion
kept secret from other companies but indisputably disclosed to KMSL subject to an
NDA.25
KMSL argues Altavion’s DST design concepts are not protectable trade secrets,
characterizing Silvaco, supra, 184 Cal.App.4th at pages 221-222, as standing for the
25 As explained in part V., post, in fashioning its damages award, the trial court took into
consideration that KMSL misappropriated the design concepts underlying Altavion’s
DST but not the source code itself.
32
proposition that “although a finished product might have distinctive characteristics
resulting from a specific design, those characteristics cannot constitute trade secrets.”
KMSL is mistaken. Silvaco merely held that the design of a software program is not a
trade secret to the extent the design elements are disclosed and evident to the end user.
The plaintiff in that case, Silvaco, was the developer of software used to design electronic
circuits and systems. (Id. at p. 216.) Silvaco filed suit against the defendant Intel,
alleging Intel had misappropriated certain trade secrets used by Silvaco in its software.
(Ibid.) “The primary gist of the claims was that Intel had used software acquired from
another software concern with knowledge that Silvaco had accused that concern of
incorporating source code, stolen from Silvaco, in its products.” (Id. at pp. 215-216.)
The main issue in the case was whether Intel could be liable for misappropriation of
Silvaco’s source code where it never had access to the actual source code. (Id. at p. 220.)
As relevant to the present case, Silvaco also held that one category of purported trade
secrets—described as “various features, functions, and characteristics of the design and
operation of Silvaco’s software products”—did not include trade secrets at all. (Id. at
p. 221.) That was because those software design concepts ceased to be protectable trade
secrets to the extent the finished program disclosed the underlying design. (Id. at p. 222.)
As Silvaco explained, “The design may constitute the basis for a trade secret, such that
information concerning it could be actionably misappropriated; but it is the
information—not the design itself—that must form the basis for the cause of action. And
while the finished (compiled) product might have distinctive characteristics resulting
from that design—such as improved performance—they cannot constitute trade secrets
because they are not secret, but are evident to anyone running the finished program.” (Id.
at pp. 221-222.)
Thus, Silvaco makes a distinction between source code and software design
concepts, concluding design concepts are not protected by trade secret law where they
can be ascertained by the end software user. A California federal district court
summarized Silvaco on this issue as follows: “Plans, flows, inputs, outputs, rules of
operation, priorities of operation, and the like are not trade secrets to the extent they are
33
manifest in the way a program works. [Citation.] In other words, background
information comprising, for example, the features and functions, the business
requirements and the high level design specifications that are incorporated into software
and are evident in the operation of the software are not trade secrets. While source code
is undoubtedly a trade secret, the way the source code works when compiled and run is
not.” (Agency Solutions.Com, LLC v. TriZetto Group, Inc., supra, 819 F.Supp.2d at
p. 1017; see also id. at pp. 1019-1021 [following Silvaco in rejecting claims that software
workflow processes that would be apparent to users are trade secrets]; IDX Systems Corp.
v. Epic Systems Corp., supra, 285 F.3d at p. 584 [“details that ordinary users of the
software could observe” are not trade secrets]; LinkCo, Inc. v. Fujitsu Ltd. (S.D.N.Y.
2002) 230 F. Supp. 2d 492, 499 [holding, as a matter of law, that the plaintiff had not
established the existence of a trade secret where the alleged secret was only the “software
architecture,” which “cannot remain secret once it is marketed”].)
Although Silvaco supports the proposition that disclosed software design concepts
are not trade secrets, “A potent distinction exists between a trade secret which will be
disclosed if and when the product in which it is embodied is placed on sale, and a ‘trade
secret’ embodied in a product which has been placed on sale, which product admits of
discovery of the ‘secret’ upon inspection, analysis, or reverse engineering.” (1 Milgrim
on Trade Secrets, supra, § 1.05[4], p. 1-338.1; accord, Learning Curve, supra, 342 F.3d
at p. 729.) Consistent with that proposition, cases have extended trade secret protection
to computer programs and aspects of computer programs that the plaintiffs kept
confidential. For example, in Integrated Cash Mgmt. Serv. v. Digital Transactions,
supra, 920 F.2d 171, the plaintiff alleged that former employees misappropriated the
design and “ ‘architecture’ ” of the plaintiff’s computer programs in creating a program
for another company. (Id. at p. 172.) The appellate court extended trade secret
protection to “the manner in which several non-secret utility programs are arranged to
create” the plaintiff’s “computer software product.” (Id. at p. 171.) The court noted that
the manner in which plaintiff’s programs interacted was not generally known or readily
ascertainable, and that the combination of programs “was not disclosed in [the plaintiff’s]
34
promotional literature, which contains merely a user-oriented description of the
advantages of [the plaintiff’s] product.” (Id. at p. 174.)
Similarly, in Burroughs Payment Systems, Inc. v. Symco Group, Inc., supra,
2012 WL 1670163, the claims involved the plaintiff’s check processing business and
“password protected diagnostic software that is stored on scanning equipment provided
by” the plaintiff to customers. (Id. at p. *1) The plaintiff alleged the defendant, a
competitor, had used the diagnostic software in servicing the plaintiff’s customers’
equipment. (Ibid.) Applying California’s UTSA, the federal district court held the
plaintiff had properly alleged the existence of a trade secret because “the trade secrets at
issue are not by necessity available to the public once the software (or the equipment
containing it) is placed on the market; rather they can only be accessed by authorized
individuals by entering a password.” (Id. at p. *15) The court characterized the alleged
trade secrets as the improperly accessed “materials and screen images . . . rather than the
source code.” (Id. at p. *16; see also Rivendell Forest Products v. Georgia-Pacific,
supra, 28 F.3d at p. 1046 [extending trade secret protection to “combination of concepts
and ideas” implementing the plaintiff’s customer service software system]; AirWatch
LLC v. Mobile Iron, Inc. (N.D.Ga., Sept. 4, 2013, 1:12-CV-3571-JEC) 2013 WL
4757491, pp. *3-*4 [distinguishing Silvaco, rejecting contention that only underlying
“source code” protectable, and concluding that software functions and specifications
were potentially protectable where the plaintiff allegedly required licensees to sign
confidentiality agreements]; Dickerman Associates v. Tiverton Bottled Gas (D.Mass.
1984) 594 F. Supp. 30, 35 [“[T]he particular combination of procedures used in [the]
plaintiff’s [computer] system, and the particular features within the system . . . are neither
obvious nor easily duplicated. They constitute a trade secret.”].)
In the present case, although the trial court extended trade secret protection to
design concepts analogous to those at issue in Silvaco, we conclude Silvaco does not
preclude Altavion’s misappropriation claim because the evidence shows that Altavion did
not disclose its DST design concepts to anyone other than KMSL, and the disclosure to
KMSL was subject to an NDA.
35
C. Substantial Evidence Supports The Trial Court’s Finding Altavion’s DST Design
Concepts Had Independent Economic Value.
To be protectable as a trade secret, the information at issue must “[d]erive[]
independent economic value, actual or potential, from not being generally known to the
public or to other persons who can obtain economic value from its disclosure or use.”
(§ 3426.1, subd. (d)(1).) In other words, the information alleged to be a trade secret “is
valuable because it is unknown to others.” (DVD Copy Control Assn. v. Bunner (2004)
116 Cal. App. 4th 241, 251.) Thus, the focus of the inquiry regarding the independent
economic value element is “on whether the information is generally known to or readily
ascertainable by business competitors or others to whom the information would have
some economic value. [Citation.] Information that is readily ascertainable by a business
competitor derives no independent value from not being generally known. [Citation.]”
(Syngenta Crop Protection, Inc. v. Helliker (2006) 138 Cal. App. 4th 1135, 1172; see also
Trade Secrets Practice in Cal., supra, § 1.7, pp. 1-11 to 1-12.) The information must be
“ ‘sufficiently valuable . . . to afford an . . . economic advantage over others.’ [Citation.]”
(Yield Dynamics, supra, 154 Cal.App.4th at p. 565.) The actual or potential advantage
“ ‘need not be great,’ ” but it must be “ ‘more than trivial.’ ” (Id., at p. 564; but see
Morlife, supra, 56 Cal.App.4th at p. 1522 [secrecy of information provides a
“ ‘substantial business advantage’ ”].)26
It was Altavion’s burden to show independent economic value. (Yield Dynamics,
supra, 154 Cal.App.4th at pp. 562-563.) “The value of information claimed as a trade
26 Yield Dynamics quotes the language of and the commentary to the Restatement Third
of Unfair Competition (Yield Dynamics, supra, 154 Cal.App.4th at pp. 564-565), which
defines a trade secret as “any information that can be used in the operation of a business
or other enterprise and that is sufficiently valuable and secret to afford an actual or
potential economic advantage over others.” (Rest.3d Unfair Competition, § 39, p. 425.)
Although the UTSA definition differs, the Restatement and its commentary is relevant
authority in applying the UTSA. (See Vacco Industries, Inc. v. Van Den Berg, supra,
5 Cal.App.4th at p. 50 [“[b]y its adoption of the [UTSA], California effectively adopted
the common law definition” of a trade secret]; Trade Secrets Practice in Cal., supra,
§ 1.7, p. 1-11 [independent economic advantage element “is a codification of the
common law requirement that a trade secret reflect a ‘competitive advantage’ ”].)
36
secret may be established by direct or circumstantial evidence. Direct evidence relating
to the content of the secret and its impact on business operations is clearly relevant.
Circumstantial evidence of value is also relevant, including the amount of resources
invested by the plaintiff in the production of the information, the precautions taken by the
plaintiff to protect the secrecy of the information . . . , and the willingness of others to pay
for access to the information.” (Rest.3d Unfair Competition, § 39, com. e, p. 431; accord,
Religious Technology Center v. Netcom On-Line Com. (N.D.Cal. 1995) 923 F. Supp.
1231, 1253.)
KMSL argues Altavion did not show that any of its trade secrets were not
generally known. We disagree. As explained in part IV.B., ante, the evidence showed
that Altavion kept secret all but the most general idea for its DST. Moussa testified he
was not aware of any barcodes in existence when he started Altavion in 2002 that could
hold the desired amount of data, he was not aware of other barcodes that allowed for the
creation of self-authenticating documents, and Altavion invented its unique
implementation of color reference cells. Moreover, the trial court could reasonably infer
Altavion’s DST was not generally known or readily ascertainable from Moussa’s
testimony regarding the company’s investment in developing the technology. The court
could also make that inference based on KMSL’s internal documents extolling the
novelty of Altavion’s DST. Finally, the trial court could reasonably infer that Altavion’s
DST was not generally known from the fact that KMSL obtained patents based on the
technology (see part III.B.3., ante). The Patent Act provides for issuance of a patent to a
person who “invents or discovers any new and useful . . . composition of matter, or any
new and useful improvement thereof.” (35 U.S.C. § 101; see also Bilski v. Kappos
(2010) 561 U.S. ___ [130 S. Ct. 3218, 3225].) Thus, where a party obtains a patent based
on information claimed to be a trade secret, the fact of the patent itself is some evidence
showing the information was not generally known.27
27 The factual summary portion of KMSL’s opening brief on appeal includes various
references to a 2003 patent assigned to a competitor, Canon Inc., that employs an
“authentication code . . . to prevent the unauthorized editing” of a printed document. For
37
KMSL also argues there was no evidence supporting the trial court’s finding that
Altavion’s DST had potential economic value. Revealingly, KMSL does not make any
serious effort to argue that advancements in DST in general, or Altavion’s advancements
in particular, lack inherent economic value. Any such contention would be belied by the
serious interest KMSL showed in Altavion’s DST and the effort KMSL put into
obtaining patents covering Altavion’s DST. On this issue, the trial court stated, “That it
has at least ‘potential’ ‘economic value’ is demonstrated by the fact that [KMSL]
engaged in filing multiple patent applications on bar code technology after learning from
[Altavion].” (See Enterprise Mfg. Co. v. Shakespeare Co. (6th Cir. 1944) 141 F.2d 916,
920 [“The argument of appellee that the improvement disclosed in the patent under
consideration was without value, or of only nominal value, was rightly rejected. The
appellee, by infringing use, has paid tribute to the utility of the device infringed.”].) We
agree this is relevant circumstantial evidence of value, and KMSL cites to no contrary
authority. The patents themselves have some potential value to KMSL, both because
they protect the company’s use of the DST described therein and because KMSL could
charge others for a license to make use of the DST.28
Furthermore, there is evidence Altavion invested substantial time and effort in
developing its DST. In particular, Moussa testified Altavion’s eight to ten software
engineers developed the black and white document authentication barcode over a period
of four or five months, starting in February 2002, and the company finished development
of the color barcode in December 2002 or January 2003. There was also evidence KMSL
paid Altavion $50,000 for evaluation software; invested staff time in trying to develop a
deal with Altavion; and devoted resources to analyzing the Altavion software in order to
the first time in its reply brief, KMSL asserts the Canon patent shows the concepts
involved in Altavion’s DST were generally known. The contention has been forfeited.
(Loranger v. Jones (2010) 184 Cal. App. 4th 847, 858, fn. 9.) In any event, substantial
evidence in the record supports a finding the process described in the Canon patent is
distinguishable from Altavion’s DST.
28 As the trial court pointed out, Altavion’s expert testified that KMSL’s patents could
prevent Altavion from proceeding with sale or licensing of Altavion’s own DST.
38
develop its own DST that would, in the words of Cattrone, achieve “Altavion’esque”
results. All of these investments of resources support the court’s finding. (See Courtesy
Temporary Service, Inc. v. Camacho (1990) 222 Cal. App. 3d 1278, 1287 [holding that “a
customer list procured by substantial time, effort, and expense is a protectable trade
secret”]; accord, ReadyLink Healthcare v. Cotton (2005) 126 Cal. App. 4th 1006, 1020;
see also Mattel, Inc. v. MGA Entertainment, Inc. (C.D.Cal. 2011) 782 F. Supp. 2d 911, 972
[“[i]ndependent economic value can be evidenced by ‘circumstantial evidence of the
resources invested in producing the information’ ”]; cf Learning Curve, supra, 342 F.3d
at p. 728 [although “significant expenditure of time and/or money in the production of
information may provide evidence of value,” it is not required].) Finally, Moussa’s
secrecy (see part IV.B., ante) regarding the details of Altavion’s DST reflects Moussa’s
own assessment of the information’s value, which further supports the trial court’s
finding. (See Morlife, supra, 56 Cal.App.4th at p. 1522 [a company’s effort to maintain
the secrecy of information is “an important factor in establishing the value which was
placed on the information and that it could not be readily derived from publicly available
sources”].)
Finally, there was evidence before the trial court that, if successfully implemented,
DST could be very lucrative because of potential applications in many different
industries. A June 2005 marketing consultant’s report prepared for KMSL emphasized
the worldwide impacts of document fraud and discussed the potential to apply document
authentication methods in trade, national security, immigration, government
documentation, pharmaceutical, casino, and a range of other industries and contexts. It
stated there was a need to develop “new methods of document authenticity” to address
the problem of easy digital manipulation of documents. Former Minolta Business
Solutions salesman Zivic testified he thought the “pay-per-scan” concept using
Altavion’s DST was a “remarkable opportunity” that provided a “very unique
differentiator among all copier manufacturers.” He also referred to the Altavion deal as
the “biggest opportunity” he had ever worked on, because the technology had the
potential to earn vast sums on check scanning in the banking industry.
39
Although the trial court found it is “disputed whether [Altavion’s DST] actually
works in the physical world, as opposed to in theory or only in the digital world,” the
long-term lucrative potential of DST supports a finding that the incremental
advancements in the field represented by the concepts misappropriated by KMSL have
independent economic value. In particular, the fact that Altavion’s DST is not
incorporated into a product on the market does not preclude a finding of independent
economic value. (See § 3426.1, subd. (d)(1) [“potential” value]; 1 Milgrim on Trade
Secrets, supra, § 1.01[2][a], p. 1-47 [quoting commentary to UTSA that “[t]he broader
definition in the proposed Act extends protection to a plaintiff who has not yet had an
opportunity or acquired the means to put a trade secret to use”]; see also Leatt Corp. v.
Innovative Safety Technology, LLC (S.D.Cal., Apr. 15, 2010, 09-CV-1301-IEG (POR))
2010 WL 1526382, p. *5 [design features of neck safety brace prototype have
independent economic value].) A concept can have enough value to justify trade secret
protection even if further refinement and development is required before a product based
on the concept can be brought to market. (Learning Curve, supra, 342 F.3d at p. 726; see
also Mattel, Inc. v. MGA Entertainment, Inc., supra, 782 F.Supp.2d at p. 962 [“[c]oncepts
can have value independent from the product they eventually inspire”].) For the same
reasons, the fact that KMSL did not misappropriate the DST source code did not preclude
a finding that Altavion’s DST concept had independent value.
All of the above analysis on the independent economic value element is applicable
to both Altavion’s DST viewed as a protectable combination of elements and to the
previously identified specific design concepts underlying Altavion’s DST. (See part
III.B., ante.) Regarding the misappropriated design concepts, because those concepts
represented the heart of Altavion’s DST concept as a whole, it was reasonable for the trial
court to infer that the potential economic value was ascribable to those elements.
Substantial evidence supports the court’s finding that Altavion showed its alleged trade
secrets had independent economic value.
40
D. Conclusion Regarding Merits of Misappropriation Claim
The trial court’s finding that KMSL misappropriated Altavion’s trade secrets is
amply supported by the evidence in the record and the relevant legal authorities. As
Altavion sought to commercialize its innovative DST with the assistance of KMSL, to the
expected mutual benefit of both companies (and society as a whole, had a marketable
product been achieved), Altavion was entitled to the protections afforded by trade secret
law alluded to at the beginning of this opinion. When KMSL secretly filed patent
applications disclosing Altavion’s ideas, and subsequently obtained patents covering
Altavion’s ideas, it was a classic violation of trade secret law. The trial court did not err
in its misappropriation finding.
V. Trial Court’s Damages Award
The UTSA authorizes compensatory damages (1) “for the actual loss caused by
misappropriation”; (2) “for the unjust enrichment caused by misappropriation that is not
taken into account in computing damages for actual loss”; and (3) if “neither damages nor
unjust enrichment caused by misappropriation are provable, the court may order payment
of a reasonable royalty.” (§ 3426.3, subds. (a) & (b); Ajaxo Inc. v. E*Trade Financial
Corp. (2010) 187 Cal. App. 4th 1295, 1308-1309, 1312-1313 (Ajaxo); see also K.C.
Multimedia, Inc. v. Bank of America Technology & Operations, Inc., supra,
171 Cal.App.4th at p. 954; Morlife, supra, 56 Cal.App.4th at p. 1529; Unilogic, Inc. v.
Burroughs Corp. (1992) 10 Cal. App. 4th 612, 628.) KMSL contends the trial court
improperly “tailor[ed] a new category of damages to fit Altavion.” As explained below,
the trial court properly based its damages award on the reasonable royalty measure of
damages.
Altavion conceded during its opening statement that it could not prove it had
actual damages, and the trial court found Altavion had not proven any actual loss. The
court reasoned, “The evidence that [Altavion] would have a working software product
embedded in [KMSL’s] hardware machines, and successfully sold for years at a profit,
under the circumstances, is highly speculative and uncertain, and the revenue projections
are unreliable.”
41
Regarding unjust enrichment, the trial court noted that, although Altavion had not
argued for that measure of damages, section 3426.3 required the court to consider
whether such damages were provable. The court quoted Ajaxo, supra, 187 Cal.App.4th
at page 1313, which held “that where a defendant has not realized a profit or other
calculable benefit as a result of his or her misappropriation of a trade secret, unjust
enrichment is not provable within the meaning of section 3426.3, subdivision (b),
whether the lack of benefit is determined as a matter of law or as a matter of fact.” The
trial court then suggested there was no such evidence of a calculable benefit in the
present case, reasoning that KMSL “did not incorporate [Altavion’s] trade secrets into
any of its [MFP] products, or create a software that it sells or licenses, or otherwise
commercially exploit the secrets. [KMSL has] made no profits from [Altavion’s] trade
secrets or its misappropriation.” The court also pointed out that KMSL did not
misappropriate Altavion’s DST source code or algorithms, which were Altavion’s “core”
trade secret.
The trial court then acknowledged the next step was to determine whether a
reasonable royalties award was appropriate, quoting Ajaxo, supra, 187 Cal. App. 4th 1295,
for the propositions that “where the defendant does not make any profit, reasonable
royalties could be awarded” (id. at p. 1312) and “[w]hen calculating a monetary remedy
for the past use of a misappropriated trade secret, a court ‘may order’ reasonable royalties
‘[i]f neither damages for actual loss nor unjust enrichment caused by misappropriation
are provable’ ” (id. at p. 1308). The court then quoted extensively from Ajaxo and other
authorities regarding the standards for determining the amount of a reasonable royalty.
Ultimately, the court found, “whether properly characterized as unjust enrichment
or (because [KMSL] made no profit and the exact amount of the value or benefit to
[KMSL] is not easily subject to calculation) as reasonable royalties, the [c]ourt would
award the same amount of damages.” The court proceeded to list a number of
circumstances that it had considered, “including but not limited to the fact that [KMSL
has] not used the trade secrets in any product; [KMSL does] not presently have any
viable software to produce a DST for Closed Loop or for self-authentication; [KMSL]
42
attempted to obtain the trade secrets of [Altavion] without having to pay for them . . . and
when this did not occur [KMSL] attempted to create its own DST technology by piggy-
backing upon all of the DST knowledge and information [KMSL] had received from
[Altavion]; that [KMSL] expended [its] own resources thereafter to try and develop the
DST technology . . . but were unable to actually achieve Closed Loop results or achieve
DST matching that of [Altavion]; that [Altavion] spent years developing its technology at
its own expense; that the parties discussed development of an SDK or other means by
which [Altavion] would further develop its DST technology to be used for Closed Loop,
at a price range of $400,000 to $500,000, and then potentially entered into a commercial
agreement to sell a product together with revenue sharing of some sort; that [KMSL’s]
expert opined that the R&D costs incurred by [Altavion] for the DST were approximately
$660,000, and would be approximately $1.2 million if it included the unpaid ‘salary’ of
Moussa; that the unpaid ‘salary’ of Moussa was . . . not an amount negotiated at arm’s
length; that the Altavion records internally regarding financials and technology and
externally regarding the communications and transactions between the parties are not
reliable or are incomplete; that [Altavion] still retains its core trade secret(s); and that
there is presently no market for [Altavion’s] technology or for [KMSL’s] patented DST
ideas.” The court awarded Altavion damages of $1 million, “as the equitable value of the
trade secrets misappropriated at the time of the misappropriation commencing in late
June 2004.” The court also awarded prejudgment interest.
KMSL argues the trial court “ventured into uncharted waters, selecting ‘none of
the above’ as the measure of damages . . . and awarding Altavion $1 million ‘as the
equitable value of the trade secrets misappropriated.’ ” KMSL mischaracterizes the
court’s decision. The court did not conclude none of the statutory measures of damages
were applicable. Instead, the trial court expressly found the amount of Altavion’s actual
loss was unprovable, suggested the amount of KMSL’s unjust enrichment was also
unprovable, and found $1 million was a reasonable royalty. Although the court did not
make an express finding about unjust enrichment, that measure of damages is unprovable
“where a defendant has not realized a profit or other calculable benefit as a result of his
43
or her misappropriation of a trade secret.” (Ajaxo, supra, 187 Cal.App.4th at p. 1313.) In
the circumstances of the present case, the court’s finding that KMSL did not make any
profits from or otherwise commercialize Altavion’s trade secrets is properly understood
as a finding that the amount of unjust enrichment was unprovable.
Contrary to KMSL’s argument on appeal, the trial court unequivocally concluded
that $1 million was a reasonable royalty for the misappropriated trade secrets. The trial
court’s reference to the “equitable value” of the misappropriated secrets appears to be due
to the origin of the reasonable royalty measure of damages in equitable principles. (See
Ajaxo, supra, 187 Cal.App.4th at p. 1310; University Computing Co. v. Lykes-
Youngstown Corp. (5th Cir. 1974) 504 F.2d 518, 536-537.) University Computing quoted
an earlier decision explaining, “ ‘To adopt a reasonable royalty as the measure of
damages is to adopt and interpret, as well as may be, the fiction that a license was to be
granted at the time of beginning the infringement, and then to determine what the license
price should have been. In effect, the court assumes the existence ab initio of, and
declares the equitable terms of, a supposititious license, and does this nunc pro tunc; it
creates and applies retrospectively a compulsory license. . . .’ ” (University Computing,
at p. 537, second italics added.) KMSL’s assertion that the trial court “invented a theory
outside the statute” is meritless.
Furthermore, although KMSL asserts “there is no basis for a royalty award,”
KMSL does not actually provide any reasoned argument on that issue with citations to
the record and supporting authority. (Badie v. Bank of America, supra, 67 Cal.App.4th at
pp. 784-785.) That is, KMSL does not address the specific evidence cited by the trial
court in justifying its damages award and explain why that evidence was insufficient to
support the award under the reasonable royalties measure of damages. KMSL has failed
to establish a basis to reverse the trial court’s damages award.
VI. Trial Court’s Award of Prejudgment Interest
The trial court found $1 million was the value of the misappropriated trade secrets
“at the time of the misappropriation commencing in late June 2004” and awarded
44
“prejudgment simple interest of 7 [percent] per annum” from that date. KMSL contends
the trial court erred in awarding prejudgment interest.
Section 3288 provided the trial court discretion to award prejudgment interest.29
(Greater Westchester Homeowners Assn. v. City of Los Angeles (1979) 26 Cal. 3d 86, 102
(Greater Westchester); Michelson v. Hamada (1994) 29 Cal. App. 4th 1566, 1586-1587.)
An award of prejudgment interest is “ ‘awarded to compensate a party for the loss of his
or her property.’ [Citations] The award of such interest represents the accretion of
wealth which money or particular property could have produced during a period of loss.
Using recognized and established techniques a fact finder can usually compute with fair
accuracy the interest on a specific sum of money, or on property subject to specific
valuation. Furthermore, the date of loss of the property is usually ascertainable, thus
permitting an accurate interest computation.” (Greater Westchester, at pp. 102-103.)
The underlying theory is that “ ‘[a]n individual who must litigate to recover damages
should be placed in the same position, when he recovers, as the individual who recovered
the day he suffered an injury. Otherwise, the tortfeasor benefits from denying liability
and continuing to litigate, while he retains the use of money to which the plaintiff is
entitled, and the plaintiff is deprived of the benefit he should have derived from an
immediate recovery.’ ” (Canavin v. Pacific Southwest Airlines (1983) 148 Cal. App. 3d
512, 526; see also In re Pago Pago Aircrash of January 30, 1974 (C.D.Cal. 1981) 525
F. Supp. 1007, 1013-1014.)
Citing Greater Westchester, KMSL contends the trial court’s award of
prejudgment interest was improper because the amount KMSL owed Altavion was not
readily ascertainable. In Greater Westchester, supra, 26 Cal. 3d 86, the California
Supreme Court held it was improper to award prejudgment interest for personal injuries
and emotional distress sustained by reason of airport noise. (Id. at p. 102.) The court
29 Section 3288 provides, “In an action for the breach of an obligation not arising from
contract, and in every case of oppression, fraud, or malice, interest may be given, in the
discretion of the jury.” KMSL does not dispute the applicability of the provision to
Altavion’s misappropriation claim.
45
reasoned, “damages for the intangible, noneconomic aspects of mental and emotional
injury are . . . inherently nonpecuniary, unliquidated and not readily subject to precise
calculation. The amount of such damages is necessarily left to the subjective discretion
of the trier of fact. Retroactive interest on such damages adds uncertain conjecture to
speculation. Moreover where, as here, the injury was of a continuing nature, it is
particularly difficult to determine when any particular increment of intangible loss arose.”
(Id. at p. 103.)
The trial court’s award of prejudgment interest was not an abuse of discretion
under Greater Westchester. Although, as the trial court acknowledged, it was difficult to
measure Altavion’s damages or KMSL’s unjust enrichment, the trial court was able to
determine a reasonable royalty for the misappropriated trade secrets. That royalty
represented the “ ‘ “hypothetically agreed value of what [KMSL] wrongfully obtained
from” ’ ” Altavion, based on “ ‘ “what the parties would have agreed to as a fair licensing
price at the time that the misappropriation occurred.” ’ ” (Ajaxo, supra, 187 Cal.App.4th
at p. 1308.) Thus, the damages are for a pecuniary injury, the amount of the royalty is
based on an objective assessment of the evidence rather than a subjective assessment of
harm, and the award of prejudgment interest compensates Altavion for loss of the use of
the royalty funds it should have received at the time of misappropriation. (See O2 Micro
Intern. Ltd. v. Monolithic Power Systems (N.D.Cal. 2006) 420 F. Supp. 2d 1070, 1077
[awarding § 3288 prejudgment interest on reasonable royalty damages award]; see also
Canavin v. Pacific Southwest Airlines, supra, 148 Cal.App.3d at p. 527 [in wrongful
death case, awarding prejudgment interest on “damages attributable to an ascertainable
economic value”]; Harsany v. Cessna Aircraft Co. (1983) 148 Cal. App. 3d 1139, 1144
[proper to award interest where value of crashed plane was disputed, because “[t]his was
a property loss, not the type of noneconomic loss for which prejudgment interest is
denied”].) KMSL has not shown the trial court erred in identifying the date of loss, and,
as noted in part V., ante, KMSL has not shown there is insufficient evidence to support
46
the trial court’s determination of the amount of a reasonable royalty. KMSL has not
demonstrated an abuse of discretion.30
VII. Trial Court’s Attorney Fees Award
The trial court awarded Altavion attorney fees in the amount of $3,297,102.50
pursuant to section 3426.4. KMSL asserts several claims of error.
A. Finding of Willful and Malicious Misappropriation*
A court may award reasonable attorney fees to the plaintiff in a trade secret case
where “willful and malicious misappropriation exists.” (§ 3426.4.) KMSL contends the
trial court’s finding KMSL willfully and maliciously misappropriated Altavion’s trade
secrets is not supported by substantial evidence. In making that finding, the court
emphasized the evidence that KMSL secretly attempted to develop its own DST using
Altavion’s DST, and secretly filed for patents covering Altavion’s DST.31 KMSL asserts
the FSOD contains “conclusions, not findings” on this issue, and that any findings are not
supported by substantial evidence. To the contrary, the factual findings in the FSOD
include a highly detailed description of the conduct by KMSL referred to by the trial
30 KMSL cites Wisper Corp. v. California Commerce Bank (1996) 49 Cal. App. 4th 948,
962, where prejudgment interest was denied under section 3287, subdivision (a) because
damages were not “capable of being made certain” before trial. However, that section
relates to interest on “liquidated” damages claims, while “section 3288 permits
discretionary prejudgment interest for unliquidated tort claims.” (Greater Westchester,
supra, 26 Cal.3d at p. 102; see also Newby v. Vroman (1992) 11 Cal. App. 4th 283, 286-
287 [characterizing as “inapposite” cases decided under § 3287 “which hold that
prejudgment interest is only appropriate if a plaintiff’s damages are either known or
knowable”]; Stein v. Southern Cal. Edison Co. (1992) 7 Cal. App. 4th 565, 572 [in contrast
to § 3287, § 3288 “allows interest from date of monetary loss at the discretion of the trier
of fact even if the damages are unliquidated”]; In re Pago Pago Aircrash of January 30,
1974, supra, 525 F.Supp. at p. 1015 [comparing §§ 3287 & 3288].)
* See footnote, ante, page 1.
31 KMSL’s February 2004 planning report outlined a “patent application plan” involving
filing for a patent describing “an Altavion technology based method for creating self-
authentic[ating] with embedded integrity data documents which can be authenticated
from digital or print form.” The record demonstrates that KMSL effectively proceeded
with that plan, even after negotiations with Altavion fell through.
47
court in making its findings. For example, the trial court found that KMSL signed the
August 2004 MOU with Altavion “to temporarily placate Moussa, without [KMSL]
having any intention of performing on the MOU. Indeed, [KMSL] entered into the MOU
with [Altavion] at the same time that [KMSL was] filing patent applications on [DST].”
Because KMSL fails to provide any reasoned argument with citations to the record and
supporting authority explaining why its conduct did not support a finding of willful and
malicious misappropriation, its claim requires no further consideration. (Badie v. Bank of
America, supra, 67 Cal.App.4th at pp. 784-785.)32
B. Apportionment*
KMSL next contends the amount of fees awarded by the trial court on the
misappropriation claim was excessive, because the court awarded fees for time spent on
the other causes of action in the Complaint (including conversion, breach of the NDA,
unjust enrichment, unfair business practices, fraudulent misrepresentation, and fraudulent
concealment). As explained in Akins v. Enterprise Rent-A-Car Co. (2000)
79 Cal. App. 4th 1127, 1133, “When a cause of action for which attorney fees are provided
by statute is joined with other causes of action for which attorney fees are not permitted,
the prevailing party may recover only on the statutory cause of action. However, the
joinder of causes of action should not dilute the right to attorney fees. Such fees need not
be apportioned when incurred for representation of an issue common to both a cause of
action for which fees are permitted and one for which they are not. All expenses incurred
on the common issues qualify for an award. [Citation.] When the liability issues are so
interrelated that it would have been impossible to separate them into claims for which
attorney fees are properly awarded and claims for which they are not, then allocation is
not required.” (Accord, Yield Dynamics, supra, 154 Cal.App.4th at p. 577.)
32 KMSL points out that the trial court’s tentative statement of decision declined to find
that KMSL’s conduct was malicious. However, KMSL fails to present any argument
why or authority that the absence of such a finding in the tentative decision affects our
analysis regarding the sufficiency of the evidence to support the findings in the FSOD.
* See footnote, ante, page 1.
48
Altavion asked for fees for more than 6,100 hours of attorney time and more than
500 hours of paralegal time, from which the trial court deducted only 80.4 hours. The
trial court explained its award and decision not to enhance Altavion’s fees award with a
multiplier as follows: “This lawsuit was brought by [Altavion] alleging seven causes of
action and suing six defendants. It is not subject to reasonable dispute that this was a
complex case involving intellectual property claims. [Altavion] only prevailed on one
cause of action (for misappropriation) against one defendant. On the other hand, most of
the claims were inextricably intertwined, or the facts and evidence were interlinked. All
of the named defendants were interrelated. The time records for the attorneys are not
easily segregated by claim or by specific defendant. Only a fraction of the amount of
compensatory damages sought were ultimately awarded. Inefficiencies existed in the
prosecution of the case, as identified in the opposition, and otherwise. The skill and
experience of [Altavion’s] attorneys is already recognized by the hourly rates utilized by
the [c]ourt in calculating the lodestar. On balance, the Court exercises its discretion and
DENIES [Altavion’s] request for a multiplier/enhancement of the lodestar amount.”
KMSL asserts, “[t]he trial court’s suggestion that apportionment was inappropriate
because most of Altavion’s claims ‘were inextricably intertwined’ . . . is belied by its
finding that apportionment wasn’t practical because the ‘time records for the attorneys
are not easily segregated by claim or specific defendant.’ ” However, those are distinct
findings. The trial court found both that the claims, facts, and evidence were intertwined
and interrelated and that the time records were not easily segregated. Regardless of
whether the nature of Altavion’s attorneys’ time records was an appropriate basis to limit
apportionment, the intertwined nature of the claims and evidence was a proper basis to do
so. (Akins v. Enterprise Rent-A-Car Co., supra, 79 Cal.App.4th at p. 1133; Yield
Dynamics, supra, 154 Cal.App.4th at p. 577.) KMSL cites no authority to the contrary,
and KMSL fails to analyze Altavion’s claims and evidence to demonstrate the trial court
erred in concluding the awarded hours represented work on the common issues in the
case. KMSL has not shown the court abused its discretion in declining to further
apportion the hours. (Yield Dynamics, at p. 577.)
49
C. Hourly Rates
The trial court used $600 per hour as “the reasonable hourly rate prevailing in the
community for similar work for” attorneys Glenn Peterson and John Costello, and $350
per hour for attorney Pamela Bertani’s work. KMSL contends the court erred because
those attorneys charge lower hourly rates in Sacramento, where they are based. KMSL
argues it was error to base the attorney fees award on the higher attorney hourly rates in
San Mateo County.
“ ‘It is well established that the determination of what constitutes reasonable
attorney fees is committed to the discretion of the trial court . . . . [Citations.] The value
of legal services performed in a case is a matter in which the trial court has its own
expertise. [Citation.] The trial court may make its own determination of the value of the
services contrary to, or without the necessity for, expert testimony. [Citations.] The trial
court makes its determination after consideration of a number of factors, including the
nature of the litigation, its difficulty, the amount involved, the skill required in its
handling, the skill employed, the attention given, the success or failure, and other
circumstances in the case.’ [Citation.]” (PLCM Group, Inc. v. Drexler (2000) 22 Cal. 4th
1084, 1096 (PLCM Group).)
At bottom, KMSL argues the trial court was precluded as a matter of law from
awarding fees based on local rates rather than Altavion’s counsel’s normal Sacramento
rates. However, the hourly rate adopted by the court was consistent with the general rule:
“The reasonable hourly rate is that prevailing in the community for similar work.”
(PLCM Group, supra, 22 Cal.4th at p. 1095.) The relevant “community” is that where
the court is located. (Nichols v. City of Taft (2007) 155 Cal. App. 4th 1233, 1242-1243;
see also Cordero-Sacks v. Housing Authority of City of Los Angeles (2011)
200 Cal. App. 4th 1267, 1286; MBNA America Bank, N.A. v. Gorman (2006)
147 Cal.App.4th Supp. 1, 13 [“determination of market rate is generally based on the
rates prevalent in the community where the services are rendered, i.e., where the court is
located”]; Camacho v. Bridgeport Financial, Inc. (9th Cir. 2008) 523 F.3d 973, 979
[“[g]enerally, when determining a reasonable hourly rate, the relevant community is the
50
forum in which the district court sits”]; 2 Pearl, Cal. Attorney Fee Awards (Cont.Ed.Bar
3d ed. 2014) Determining Lodestar, § 9.114, p. 9-98) [“determination of ‘market rate’ is
generally based on the rates prevalent in the community where the court is located”].)33
KMSL points to authority that attorneys practicing in other localities may be able
to obtain an award based on their higher home hourly rates in some circumstances;
KMSL argues there is an absence of authority supporting the specific result in this case—
a fee award based on higher local rates. For example, the court in Horsford v. Board of
Trustees of California State University (2005) 132 Cal. App. 4th 359, concluded the trial
court had discretion to base its fee award on the plaintiff attorney’s higher home hourly
rate in the “unusual circumstance” that local counsel was unavailable. (Id. at p. 399; cf.
Nichols v. City of Taft, supra, 155 Cal.App.4th at p. 1242 [trial court “erred when it used
a multiplier enhancement to compensate for out-of-town counsel’s higher fee rate,
because no threshold showing was made that it was impracticable for plaintiff to hire
local counsel”].) Although Horsford demonstrates there are circumstances where it is
appropriate to base a fee award on nonlocal hourly rates, the case also supports the
proposition that an award based on local rates is the default rule, from which the trial
court may deviate in its discretion, where justified by the circumstances.
KMSL points to no such circumstances in the present case, beyond the bare fact
that Altavion’s counsel’s home rates in Sacramento are lower. But that circumstance is
insufficient in itself, because the rule that fee awards generally should be based on
reasonable local hourly rates presupposes that an attorney’s actual rates may be different
33 In PLCM Group, the California Supreme Court affirmed an award based on the
“prevailing market rate for comparable legal services in San Francisco, where counsel is
located.” (PLCM Group, supra, 22 Cal.4th at p. 1096.) Although the opinion does not
state so directly, the history of the case shows it was litigated in Los Angeles. (See
2 Pearl, Cal. Attorney Fee Awards, supra, § 9.114, pp. 9-98 to 9-99.) The issue in PLCM
Group was whether the trial court was required to “determine reasonable attorney fees
based on actual costs and overhead” (PLCM Group, at p. 1098); the court did not address
whether the relevant community for determining reasonable hourly rates is generally that
where the court is located or where counsel’s office is located. The decision is not
authority for an issue it did not consider. (Mercury Ins. Group v. Superior Court (1998)
19 Cal. 4th 332, 348.)
51
for any number of reasons—because, for example, the attorney normally charges higher
or lower rates, works on a contingency basis, or is in-house counsel. As explained in
Chacon v. Litke (2010) 181 Cal. App. 4th 1234, 1260, “ ‘The reasonable market value of
the attorney’s services is the measure of a reasonable hourly rate. [Citations.] This
standard applies regardless of whether the attorneys claiming fees charge nothing for
their services, charge at below-market or discounted rates, represent the client on a
straight contingent fee basis, or are in-house counsel.’ ”
KMSL has not demonstrated the trial court abused its discretion in basing its fee
award on local hourly rates; neither has KMSL shown the hourly rates employed by the
trial court were unreasonable in light of the types of factors referenced in PLCM Group,
supra, 22 Cal.4th at page 1096.34
D. Altavion’s Time Records*
Finally, KMSL contends the trial court’s attorney fees award must be reversed
because “[t]he time records submitted by Altavion for its attorneys’ work were
incomplete and unreliable, and they certainly cannot support the award made here.”
KMSL references several “irregularities” in the time records, but it makes no showing the
referenced circumstances involved a significant number of hours. In denying Altavion
enhancement of the lodestar fees award, the trial court took into account the lack of detail
in Altavion’s time records and the “[i]nefficiencies [that] existed in the prosecution of the
case.” KMSL has not shown that any of the referenced problems with Altavion’s time
records require this court to conclude the overall fees award is unreasonable. (See
Ketchum v. Moses (2001) 24 Cal. 4th 1122, 1132 [“The ‘ “experienced trial judge is the
best judge of the value of professional services rendered in [his/her] court, and while
[his/her] judgment is of course subject to review, it will not be disturbed unless the
34 We do not consider whether or what circumstances could support a trial court’s
decision to base a fee award on an attorney’s lower home hourly rates. Because a trial
court generally should base its fee award on reasonable local hourly rates, no special
circumstances were required in the present case to support the trial court’s decision to do
so.
* See footnote, ante, page 1.
52
appellate court is convinced that it is clearly wrong.” ’ ”]; PLCM Group, supra,
22 Cal.4th at p. 1095 [“trial court has broad authority to determine the amount of a
reasonable fee”].)
DISPOSITION
The trial court’s judgment is affirmed. Costs on appeal are awarded to Altavion.
SIMONS, J.
We concur.
JONES, P.J.
NEEDHAM, J.
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Superior Court of San Mateo County, No. CIV467662, Marie S. Weiner, Judge.
Morrison & Foerster, Miriam A. Vogel, Bryan J. Wilson, Roman A. Swoopes and Daniel
Wan for Defendant and Appellant.
Millstone Peterson & Watts, Glenn W. Peterson; Costello Law Corporation and John P.
Costello for Plaintiff and Respondent.
54