48 Cal.App.5th 129
Cal. Ct. App.2020Background
- In 1999 Ajaxo (Koo founder) demonstrated wireless trading software to ETrade under an NDA; ETrade later contracted with Everypath and Ajaxo sued for trade-secret misappropriation and breach of the NDA.
- A 2003 jury found liability for trade-secret misappropriation and breach; it awarded $1.29M for breach but a nonsuit precluded trade-secret damages; the jury found willful misappropriation as to liability.
- On appeal (Ajaxo I) the nonsuit as to trade-secret damages was reversed and the case was remanded for a damages retrial; a 2008 jury awarded no net unjust-enrichment damages to Ajaxo. The trial court denied a reasonable-royalty award and judgment entered for E*Trade.
- This court (Ajaxo II) held that when neither actual loss nor unjust enrichment is provable, the CUTSA permits a discretionary reasonable royalty under Civ. Code § 3426.3(b) and remanded for the trial court to exercise that discretion.
- On remand the trial court held a bifurcated bench trial on entitlement (Phase I) and amount (Phase II). Ajaxo’s founder Koo offered three royalty models; two were later excluded as untimely. The court found Ajaxo destroyed critical evidence (source code/Javadoc), that Ajaxo’s royalty theories were speculative and un-apportioned, and denied any royalty award; it awarded costs to E*Trade.
- Ajaxo appealed, challenging (1) denial of a reasonable royalty, (2) denial of a new trial, and (3) the prevailing-party/costs ruling. The Court of Appeal affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether trial court abused discretion by declining to award a reasonable royalty under CUTSA §3426.3(b) | Ajaxo: remand required the court to award a royalty (amount left to court); ample evidence existed (negotiations, Infocast license, Everypath payments) to compel a royalty. | E*Trade: award is discretionary; Ajaxo failed to meet burden—evidence was speculative, un-apportioned, and key documents were destroyed; untimely expert opinions. | Court: No abuse. Award is discretionary; Ajaxo failed to carry burden and evidence did not compel a royalty. |
| Admissibility of Koo’s two royalty models (expert disclosure) | Ajaxo: models were disclosed in earlier testimony and discovery; exclusion prejudiced Ajaxo. | E*Trade: models were not timely disclosed in expert reports/depositions; exclusion was proper under disclosure rules. | Court: No abuse. Exclusion of late-disclosed expert opinions was within discretion; prejudice and disclosure rules supported exclusion. |
| Relevance of spoliation / unclean hands to royalty calculation | Ajaxo: spoliation issues were litigated earlier; source-code analysis not required to define the trade secret. | E*Trade: Ajaxo destroyed or lost source code/Javadoc, preventing apportionment and reliable valuation; this justified adverse findings. | Court: No error. Trial court reasonably found destruction of evidence impeded reliable apportionment and royalty valuation; spoliation findings supported denial. |
| Prevailing party for costs after multi-phase litigation with prior satisfied judgment | Ajaxo: It secured a net monetary recovery ($1.29M breach judgment) in the action as a whole and thus is prevailing party under Code Civ. Proc. §1032. | ETrade: After remittitur Ajaxo’s breach judgment was final and satisfied; subsequent proceedings produced no recovery for Ajaxo, so ETrade is prevailing party for the 2015 judgment. | Court: No error. Given the separate final judgments and satisfaction of the earlier judgment, the trial court reasonably found E*Trade the prevailing party for the 2015 judgment and awarded costs. |
Key Cases Cited
- Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970) (sets out multi-factor framework for hypothetical-negotiation royalty analysis)
- University Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518 (5th Cir. 1974) (reasonable-royalty framework for trade-secret damages and concept of apportionment)
- Ajaxo Inc. v. E*Trade Group Inc., 135 Cal.App.4th 21 (Cal. Ct. App. 2005) (first appeal reversing nonsuit on trade-secret damages)
- Ajaxo Inc. v. E*Trade Financial Corp., 187 Cal.App.4th 1295 (Cal. Ct. App. 2010) (second appeal: §3426.3(b) permits discretionary reasonable royalty when loss and unjust enrichment are unprovable)
- Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011) (apportionment and requirement to separate value attributable to the claimed invention)
- Yield Dynamics, Inc. v. TEA Systems Corp., 154 Cal.App.4th 547 (Cal. Ct. App. 2007) (bench trial rejected where plaintiff failed to prove independent value of alleged source-code segments)
- Bonds v. Roy, 20 Cal.4th 140 (Cal. 1999) (expert-disclosure rules and exclusion of testimony that exceeds declared scope)
- Oracle Am., Inc. v. Google Inc., 798 F. Supp. 2d 1111 (N.D. Cal. 2011) (use of comparable real-world licenses as a starting point for hypothetical-negotiation analysis)