Atlantic Inertial Systems Inc. v. Condor Pacific Industries of California, Inc.
2:08-cv-02947
| C.D. Cal. | Jun 18, 2015Background
- AIS sued Condor II for misappropriation of trade secrets related to Condor I drawings used to obtain government approval.
- A prior terminating sanctions order in 2010 tied liability to misappropriation of the 12000 series drawings.
- Jury found no harm or damages from the misappropriation at trial, prompting AIS to seek a reasonable royalty under CUTSA §3426.3(b).
- Ninth Circuit remanded to determine whether a royalty is warranted and, if so, the amount.
- On remand, court limits royalty to the 12000 series drawings and calculates a royalty based on hypothetical negotiations.
- Court ultimately awards AIS a $125,000 royalty for eight months of misappropriated use.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a reasonable royalty may be awarded when damages and unjust enrichment are not provable | AIS argues RAND is permitted under §3426.3(b). | Condor II contends the award is discretionary and not compelled. | Royalty awarded; discretionary but warranted. |
| Scope of misappropriation for the royalty period | AIS seeks royalty for all AIS drawings misappropriated. | Defendants contend only 12000 series drawings were misappropriated. | Royalty limited to 12000 series drawings. |
| How to measure the amount of the reasonable royalty | AIS relies on Beaton, citing 26% rate and 483,710 base. | Drews argues 1.0% of 483,710, with insufficient comparable licenses. | Royalty set at 26% of $483,710 (eight months), yielding $125,000. |
| Duration and factors informing the hypothetical license | Project Raven and competitive relationship support higher royalties. | Reverse engineering period limits duration; some value contested. | Eight-month reverse-engineering period used; factors support $125,000 royalty. |
Key Cases Cited
- Ajaxo Inc. v. E*Trade Fin. Corp., 187 Cal. App. 4th 1295 (Cal. Ct. App. 2010) (royalty may be awarded when damages or unjust enrichment are not provable)
- Altavion, Inc. v. Konica Minolta Sys. Lab. Inc., 226 Cal. App. 4th 26 (Cal. Ct. App. 2014) (factors informing discretion; profitability and licensing discussions considered)
- University Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518 (5th Cir. 1974) (explains hypothetical license concept and standards for trade secrets)
- Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970) (factors for calculating reasonable royalties (nonexclusive framework))
- DVD Copy Control Ass’n, Inc. v. Bunner, 31 Cal. 4th 864 (Cal. 2003) (equitable and ethical considerations in trade secrets context)