All American Semiconductor v. APX Technology

 

 

 

 

 

 

 

 

 

 

Filed 8/14/13  All American Semiconductor v. APX Technology
CA4/3

 

 

 

 

 

 

 

 

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

 

 

California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b).  This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.

 

 

 

IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA

 

FOURTH APPELLATE
DISTRICT

 

DIVISION THREE

 

 
>

ALL AMERICAN SEMICONDUCTOR, LLC,         Plaintiff and Appellant,                           v.   APX TECHNOLOGY CORP.,         Defendant and Respondent.

G046605          (Consol. with G046613, G046803 &            G047643)            (Super. Ct. No. 30-2008-00101073)            O P I N I O N

                        Appeal from a judgment and an order of the Superior
Court of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Orange
County, Glenda Sanders, Judge. 
Affirmed.

                        Law
Offices of Chad
Biggins, Chad
Biggins; Fox, O’Neill & Shannon and Bruce C. O’Neill for Plaintiff and
Appellant.

                        Brady,
Vorwerck, Ryder & Caspino and Ravi Sudan
for Defendant and Respondent.

*                      *                      *



 

                        All
American Semiconductor, LLC ( plaintiff), appeals from a judgment and attorney
fee order after the trial court granted summary
adjudication in favor of APX 
Technology Corporation (APX) on plaintiff’s trade secret
misappropriation cause of action. 
Plaintiff contends triable issues of fact precluded summary
adjudication, and plaintiff argues the trial court erred in awarding APX
attorney fees on grounds of bad faith (Civ. Code, § 3426.4) after the
court concluded plaintiff’s trade secret claim was completely baseless.  As we explain, despite the complexity of the
technological subject matter, this appeal turns on straightforward summary
adjudication and fee award review principles under which plaintiff’s claims
have no merit.  We therefore affirm the
judgment.

I

FACTUAL AND PROCEDURAL BACKGROUND

                        According
to the parties’ separate statements of fact, an investment group formed
plaintiff as an LLC to purchase in bankruptcy and assume the name and all
assets of a corporation known as All American Semiconductor, Inc. (Inc.).href="#_ftn1" name="_ftnref1" title="">[1]  The bankruptcy asset bid solicitation
materials that plaintiff reviewed before the purchase described Inc. as a
company that “markets its products primarily to original equipment
manufacturers in a diverse and growing range of industries.”  Inc.’s “customer base include[d]
manufacturers of computers and computer-related products; office and home
office equipment; cellular and portable products; wireless products;
networking, satellite and other communications products, Internet infrastructure
equipment and appliances,” and other technology products.

                        Among
Inc.’s many subsidiaries was a company called All American A.V.E.D., Inc.,
which included the Aved Memory Products business unit (Aved).  Some of Inc.’s and Aved’s many products included
“Flat Panel Display Products,” “Active and Passive/Electromechanical Products,”
and “Memory Modules.”  According to
plaintiff, “[m]emory modules facilitate the incorporation of expanded memory in
limited space” in technology applications, and “[m]emory products, which
include the memory module subsegment, represent one of the larger product
sectors of semiconductor revenues.”  For
its part, APX rather unhelpfully defines a memory module as an assembly of “certain
components on a P[rinted]C[ircuit]B[oard] designed for that purpose and
specifications.”

                        Plaintiff
acquired Aved when it acquired Inc. 
Plaintiff believed when it bought Inc. out of bankruptcy that Aved’s
ongoing business operations included designing memory modules and that it did
not simply design those modules under contract for others, but instead retained
ownership of their proprietary memory module designs.  Plaintiff relied on a statement in the
voluminous bankruptcy bid solicitation package noting Aved “also sells memory
modules under the Aved Memory Products label. 
These modules, which are designed by the Company, are manufactured
by third party companies.” 
(Plaintiff’s underlining.)  This
statement apparently had its origin in Inc.’s summary statement of its
operations in a 2006 quarterly Securities and Exchange Commission (SEC)
regulatory filing, in which Inc. stated in identical language, “These modules, >which are designed by the Company, are
manufactured by third parties.”  (Italics
added.)

                        Plaintiff
bought from Inc. under the bankruptcy
asset purchase agreement all of the following, “to the extent owned” by Inc. and its various subsidiaries:  “all inventory, raw materials and
work-in-process”; “all fixed assets, equipment, furnishings, computer hardware,
vehicles, fixtures and other tangible personal property”; “all rights of the
Sellers under the Assumed Contracts”; and “all
Seller Intellectual Property, including the software licensed to Sellers by
Microsoft and Oracle.”  (Italics
added.) 

                        According
to plaintiff, Aved’s intellectual property included ownership of memory module
designs because Aved designed them and, while other companies, including APX,
assembled memory modules based on Aved’s designs, the designs remained Aved’s
sole property.  Plaintiff does not
describe the due diligence it performed in conjunction with its purchase to
verify Aved owned or had in its possession any particular examples of memory
module design intellectual property. 
While plaintiff’s agreement to purchase Inc. included a right of
inspection, plaintiff’s rights under the agreement to any intellectual property
it acquired was not contingent upon inspection. 
Because plaintiff need not “have viewed each and every design for such
designs to be included in the sale,” plaintiff concluded that inspection or
verification of the existence of any
designs “ma[de] no sense in this multimillion dollar transaction, within an
ongoing bankruptcy, involving the sale of multiple businesses, which sold ‘all’
of Inc.’s intellectual property.”

                        After
plaintiff completed the bankruptcy purchase, it sought to consolidate in Miami,
Florida, some of Inc.’s assets from around
the country, including from Aved’s Tustin
operation, where Aved assembled memory modules and where plaintiff believed
Aved designed them as well.  Plaintiff
found no memory module inventory in Tustin.  To its surprise, plaintiff also did not find
any memory module design plans.  Indeed,
plaintiff was surprised to find no paper documents of any kind among the Aved
assets shipped from Tustin to Miami.  This unsettled plaintiff’s president, Jamil
Nizam, who expected “‘at a minimum’ the transfer of folders of bills of
materials, designs, and drawings.” 

                        Nizam
believed Inc., through its subsidiary Aved, owned intellectual property
including memory module designs.  He
based his belief on the reference in the bankruptcy bid solicitation materials
to Inc.’s history of product design and the reference to intellectual property
and “Sellers’ design . . . of [unspecified] products”  in the asset purchase agreement.  Plaintiff acknowledged that while Nizam had
26 years of experience in the electronic components industry, he did not have an
electrical engineering degree or other familiarity with memory modules, nor any
business experience with memory modules, nor did he know what one looked like,
and he did not have any knowledge of the process to design a memory module.

                        Plaintiff
sent to Aved’s Tustin location one of its business operations auditors, Laura
Blaisdell, who had been employed at Inc. for 19 years and was well-versed in
its operating procedures, especially its computer systems.  Blaisdell confirmed the absence of paper
files of any kind in the Tustin office to transfer to Inc. in Miami.  Blaisdell also personally supervised the
transfer of Aved’s computer files to plaintiff’s computer network.  Familiar with “the meaning and impact of
computer ‘scrubbing,’” Blaisdell noted the existence of empty directories on
Aved’s computers labeled “Richard McCauley,” “Document,” “GDDR266,” and
“Dung.”  Blaisdell concluded someone had
“scrubbed” Aved’s computers, erasing data from them. 

                        Plaintiff
surmised the erased data related somehow to memory modules and would have shown
Aved not only designed memory modules, but continued to hold a proprietary
ownership interest in those designs. 
Plaintiff concluded, for instance, that because “[t]here is no reason to
have a file directory without files,” it reasonably could infer “the ‘Document
List’ file contained designs.”

                        McCauley,
Aved’s general manager and a vice president of the company, had resigned his
position before the bankruptcy. 
According to McCauley, Aved did not design memory modules, it only
assembled them according to designs created by APX and other companies.  Plaintiff surmised the converse was true,
reasoning as follows:  APX assembled
memory modules; the designs to do so had to come from somewhere; and therefore
the designs APX used to assemble memory modules must have been Aved’s.  Plaintiff claimed McCauley formed a new
company called Aved Memory Products, Inc. (AMP), even before he left Aved, and
AMP produced memory modules in conjunction with APX.  Plaintiff believed APX assembled the memory
modules according to Aved’s missing designs, pirated by McCauley.      

                        Plaintiff
sued McCauley and AMP (collectively, the McCauley defendants) for claims
including trademark infringement and, as pertinent here, four causes of action
against both the McCauley defendants and APX: 
unfair competition by using Aved’s memory module designs (fifth cause of
action); conversion of over $300,000 of Aved’s physical inventory to assemble
memory modules (seventh cause of action); conversion of Aved’s memory module
designs (eighth cause of action); and misappropriation of Aved’s trade secrets,
namely its memory module designs (ninth cause of action). 

                        The
trial court granted APX’s motion for judgment on the pleadings on Aved’s fifth
cause of action for unfair competition, and plaintiff does not challenge that
ruling in this appeal.  The seventh cause
of action for conversion of inventory eventually went to trial, and plaintiff
does not challenge the defense verdicts. 
In the meantime, APX sought summary adjudication of Aved’s eighth and
ninth causes of action.

                        APX
grounded its summary adjudication motion in McCauley’s deposition testimony
that Aved did not and could not design memory modules.  Instead, Aved acquired memory module designs
from APX and assembled modules based on those designs, according to
McCauley.  Lu Nguyen, an electrical
engineer and APX’s founder and president, explained APX provided Aved and other
memory module assemblers with memory module designs on a nonexclusive basis,
never selling the underlying design because that would destroy APX’s business
model.  Patrick Patterson, an electrical
engineer, testified he designed the memory modules for APX, and he and Nguyen
explained that complex computer software such as OrCad, PADS, and Gerber
electronic files were “absolutely required in the design process” for memory
modules.  McCauley confirmed Aved lacked
the in-house capability to design memory modules because it employed no
electrical engineers and also did not have the requisite software or machine
tooling. 

                        Plaintiff
opposed APX’s summary adjudication motion relying on its general belief based
on the SEC and bankruptcy bid solicitation materials that Aved designed memory
modules.  For its part, APX highlighted
that plaintiff failed to identify or provide any description of Aved’s alleged
trade secret memory module designs, and that no one at Inc. or Aved could
describe who, how, when, and where anyone at Aved designed a specific memory
module. 

                        To
rebut this claim and show a triable issue of fact, plaintiff offered the
deposition testimony of a McCauley employee and former shipping clerk at Aved,
Jesus Sanchez, attesting that he believed a former Aved employee, Dung Nguyen,
designed memory modules at Aved. 
Sanchez, however, provided no foundation for his belief; he did not work
with Dung in design, nor did he otherwise have any familiarity with or
expertise in the design of memory modules. 
Additionally, Dung testified he was not an engineer and denied he
designed memory modules. 

                        Plaintiff
also relied on Blaisdell’s declaration that she conducted a business practices
audit for Inc. at Aved 10 years before the litigation and noted then a 1996
Aved “Quality Manual” that referred to management and design process controls
necessary to obtain certification from an unspecified certification agency.  But Blaisdell did not claim the manual or
certification process governed the design of memory modules specifically. 

                        Blaisdell
did claim to have found on Aved’s computers a “trace of print” and, while
neither party explained what a trace of print is, plaintiff suggested it had
something to do with Orcad memory module design software, and therefore the
Orcad software might once have been on Aved’s computers before being
scrubbed.  Similarly, Blaisdell surmised
from an empty directory labeled “GDDR266” that Gerber software, which could be
used to design memory modules, might also have once been on Aved’s
computers. 

                        David
Heimann, an Inc. employee who had never worked at Aved, testified in his
deposition that with the right software and tools, he and other Inc. field
engineers could design a memory module. 
But Heimann, who held only a two-year associates degree in electrical
engineering, admitted he had never observed anyone at Aved or Inc. creating or
preparing any memory module designs, he did not know what specific equipment
Aved or Inc. possessed to design memory modules, and he did not know of any
memory module designs created by Inc. or Aved. 
Finally, plaintiff faulted McCauley for the lack of evidence, claiming
he stole the designs and that, because “McCauley’s infringing company employs
the bulk of [former] Aved employees,” “[p]roviding evidence adverse to McCauley
would risk these ‘disloyal’ employees’ jobs.”

                        Without
evidence of any particular memory module designs created by Aved, plaintiff
submitted supplemental opposition that offered a new basis for liability.  Plaintiff now claimed it obtained an
exclusive intellectual property and trade secret interest in memory module
designs by purchasing designs from APX
so it could assemble memory modules. 
Plaintiff relied on multiple invoices in which APX billed Inc. on behalf
of Inc.’s subsidiary Aved for nonrecurring engineering (NRE) charges.  Inc. paid APX a total of $81,000 on the NRE
invoices, which dated from 2000 to 2007. 
One invoice for $15,000 among the two or three dozen NRE invoices stated
it was for “NRE design 4GB 4 Rank
SO-DIMM.”  (Italics added.)   Based on these invoices and McCauley’s
testimony that APX included design costs in its price for memory module
components that Aved purchased and assembled, plaintiff argued it owned memory
module designs created by APX.

                        The
trial court granted APX summary adjudication, concluding plaintiff failed to
establish a triable issue of fact on either of its theories of design ownership
and misappropriation.  Specifically, the
court concluded that “even if Aved did design [its own] memory modules, there
is no evidence that Aved provided specific
designs to” APX that APX then misappropriated.  The trial court similarly found no triable
issue of fact on APX’s alleged misappropriation of its own designs that it sold
to Aved.  Specifically, the court
concluded plaintiff “did not provide any evidence to show that, when
Aved/[Inc.] purchased designs from Defendant APX, it specifically conditioned
the purchase on an agreement that APX would not retain anything related to the
purchased designs.  As such, Defendant
APX’s possession of designs it sold to Aved/[Inc.] would be lawful,” whereas
plaintiff’s misappropriation theory required it “to show that APX engaged in a
wrongful act to somehow misuse whatever designs it sold to Aved/[Inc.].”

                        The
matter proceeded to trial on the remaining causes of action.  Plaintiff prevailed against the McCauley
defendants for infringing its Aved trademark when McCauley began operating Aved
Memory Products, Inc.  The jury rejected
plaintiff’s claim that APX and the McCauley defendants converted $300,000 of
Aved’s physical inventory for manufacturing memory modules.  In a special verdict, the jury also rejected
plaintiff’s claim that the McCauley defendants converted Aved memory module
designs or misappropriated Aved memory module design trade secrets.  Specifically, the jury found Aved did not own
the memory module designs it claimed the McCauley defendants stole.  In a posttrial motion, the trial court
awarded APX more than $200,000 from plaintiff in attorney fees because
plaintiff continued to pursue its trade secret misappropriation cause of action
against APX without any evidence to support the claim.  (Civ. Code, § 3426.4.)  Plaintiff now appeals the trial court’s
summary adjudication ruling on plaintiff’s ninth cause of action alleging APX
misappropriated trade secrets (memory module design) and the trial court’s
ruling awarding APX attorney fees. 
Success in overturning the summary adjudication ruling would, of course,
also require reversal of the attorney fees order.

II

DISCUSSION

A.        Summary Adjudication
Principles and Standard of Review

                        “A
motion for summary adjudication shall be granted only if it completely disposes
of a cause of action, an affirmative defense, a claim for damages, or an issue
of duty.”  (Code Civ. Proc., § 437c,
subd. (f)(1); all further undesignated statutory references are to this
code.)  “A motion for summary
adjudication proceeds in all procedural respects as a motion for summary
judgment.”  (Westlye v. Look Sports, Inc. (1993) 17 Cal.App.4th 1715,1727;
§ 437c, subd. (f)(2).)  As with
motions for summary judgment, the moving party on a motion for summary
adjudication bears the initial burden to show the plaintiff's claim has no
merit.  (§ 437c, subds. (a) &
(o).)  A defendant meets “his ‘burden of
showing that a cause of action has no merit if’ he ‘[shows] that one or more
elements of the cause of action . . . cannot be established’” (>Aguilar v. Atlantic Richfield Co. (2001)
25 Cal.4th 826, 849) or disproves “at least one essential element of the
plaintiff’s cause of action” (Sanchez v.
Swinerton & Walberg Co. (1996) 47 Cal.App.4th 1461, 1465) or there
is a complete defense to the claim.  (§
437c, subd. (p)(2).) 

                        Once
the defendant meets that burden, the burden shifts to the plaintiff to present
evidence establishing triable issues exist on one or more material facts as to
that cause of action or a defense thereto. 
(§ 437c, subd. (p)(2).)  A triable
issue of material fact exists “‘if, and only if, the evidence would allow a
reasonable trier of fact to find the underlying fact in favor of the party
opposing the motion in accordance with the applicable standard of proof.’  [Citation.] 
Thus, a party ‘cannot avoid summary judgment by asserting facts based on
mere speculation and conjecture, but instead must produce admissible evidence
raising a triable issue of fact. 
[Citation.]’  [Citation.]”  (Dollinger
DeAnza Associates v. Chicago Title Ins. Co. (2011) 199 Cal.App.4th 1132,
1144-1145 (Dollinger).)  “Where the plaintiff fails to satisfy this
burden, judgment in favor of the defendant shall be granted as a matter of
law.  [Citation.]”  (Lopez
v. Baca (2002) 98 Cal.App.4th 1008, 1014.)

                        We
review de novo a trial court’s summary adjudication ruling.  (Eriksson
v. Nunnink (2011) 191 Cal.App.4th 826, 848.)  Nevertheless, “[o]n review of a summary
[adjudication], the appellant has the burden of showing error, even if he did
not bear the burden in the trial court.” 
(Claudio v. Regents of University
of California (2005) 134 Cal.App.4th 224, 230 (Claudio).)  “‘[I]n practical
effect, we assume the role of a trial court and apply the same rules and
standards that govern a trial court’s determination of a motion for summary [adjudication].’  [Citation.] 
‘Regardless of how the trial court reached its decision, it falls to us
to examine the record de novo and independently determine whether that decision
is correct.’  [Citation.]”  (Carnes
v. Superior Court (2005) 126 Cal.App.4th 688, 694; Dollinger, supra, 199
Cal.App.4th at p. 1144 [“the reviewing court . . . ‘reviews the
trial court’s ruling, not its rationale’”].)

B.        The
Law Governing Trade Secret Misappropriation Claims

                        The
California Uniform Trade Secrets Act (CUTSA), codified in sections 3426
through 3426.11 of the Civil Code, governs claims relating to the
misappropriation of trade secrets.  A
“[t]rade secret” is “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.”  (Civ. Code, § 3426.1,
subd. (d).)  Stated differently, the
fundamental test for a trade secret is “whether the matter sought to be
protected is information (1) which is valuable because it is unknown to
others and (2) which the owner has attempted to keep secret.”  (Whyte
v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1454; ABBA Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1, 18 (>Abba Rubber).)  Information that is generally known to the
public or to persons in the relevant industry is not a trade secret.  (American
Paper & Packaging Products, Inc. v. Kirgan (1986) 183 Cal.App.3d 1318,
1326.)

                        The
information cannot be vague or undefined. 
By statute, a plaintiff seeking trade secret protection must be able to
“identify the trade secret with reasonable particularity.”  (§ 2019.210; see Lemley, >The Surprising Virtues of Treating Trade
Secrets as IP Rights (2008) 61 Stan. L.Rev. 311, 344 [a 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”].)  Accordingly, plaintiffs sometimes file under
seal a document or description “designating the trade secrets claimed by it.”  (Silvaco
Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 221 (>Silvaco), disapproved on other grounds
in Kwikset Corp. v. Superior Court
(2011) 51 Cal. 4th 310, 337.)

                        The
plaintiff must own the trade secret.  (>CytoDyn of New Mexico Inc. v. Amerimmune
Pharmaceuticals, Inc. (2008) 160 Cal.App.4th 288, 297 (Cytodyn) [ownership is an essential element for trade secret
protection under CUTSA]; Sargent
Fletcher, Inc. v. Able Corp. (2003) 110 Cal.App.4th 1658, 1665
[same].)  Thus, “a plaintiff must be able
to prove his status as an ‘owner’ of the trade secret,” or face dismissal of
the claim.  (Jasmine Networks, Inc. v. Superior Court (2009) 180 Cal App.4th
980, 999 (Jasmine Networks) [no
standing where plaintiff does not own trade secret].)

                        The
CUTSA protects trade secret owners against misappropriation of their
proprietary information. 
Misappropriation is the wrongful acquisition, use, or disclosure of a
trade secret.  (Civ. Code, §3426.1,
subd. (b).)  A cause of action for
misappropriation of a trade secret consists of the following elements:  “(1) possession by the plaintiff of the
trade secret; (2) the defendant’s misappropriation of a trade secret, meaning
its wrongful acquisition, disclosure or use; and (3) resulting or threatened
injury to the plaintiff.”  (>Silvaco, supra, 184 Cal.App.4th at p. 220.) 
Here, the trial court granted summary adjudication based on the first
element:  plaintiff failed to demonstrate
it could prove by a preponderance of evidence that it possessed and solely
owned trade secret information.

C.        Summary Adjudication of
Plaintiff’s Trade Secret Claim Was Proper

                        The
trial court properly granted APX’s summary adjudication motion on plaintiff’s
trade secret misappropriation claim. 
Plaintiff advanced two alternate theories of trade secret ownership:  first, that it created memory module designs
it furnished to APX for assembly and second, it purchased memory module trade
secret designs from APX that Aved used to develop a derivative line of Aved
memory modules based on APX’s trade secret design.  The trial court did not err in concluding no
evidence supported either theory.

                        A
general flaw common to both theories is that plaintiff never identified >what constituted the trade secret in any
particular memory module design.  The
core premise of trade secret protection is that an individual or enterprise has
developed a novel commercial secret worthy of legal protection precisely
because it is unknown to others in the trade or the public.  Plaintiff did not identify for the court in
sealed filings or otherwise any particular secret manner of designing memory
modules that it developed or purchased. 
Instead, on its development theory, plaintiff devoted its efforts to
showing its capacity to design, i.e.,
that it could have designed memory
modules, based on the inference it hoped to create from evidence that some of
the scrubbed data might have been software that could be used to design memory modules.  Plaintiff similarly attempted to prove its
field engineers could design memory
modules, assuming Heimann was correct that any field engineer and not just an
experienced designer or electrical engineer could design a memory module given
the right software and materials. 

                        But
conspicuously lacking in plaintiff’s summary adjudication opposition was any
evidence Aved actually designed any >particular memory module, whether or not
it had the capacity to do so. 
Independently fatal to plaintiff’s claim, plaintiff also omitted
specifying in its opposition what
constituted the trade secret in any particular module design, including
evidence that the design was novel in the field and remained unknown to
competitors and the public.

                        At
oral argument in this court, as at the hearing below, plaintiff attempted to
fill these gaps with inferences.  For
example, plaintiff suggested a doctrine of “confidential relationship” or
“equitable estoppel” supported its design ownership claim.  Plaintiff contends Aved did not expect APX as
its assembly vendor to misappropriate Aved’s designs because parties in a
commercial relationship are or should be estopped from doing so.  But this tack is circular.  Plaintiff simply presumes from its bare
allegation that Aved furnished APX with designs that Aved in fact did so —
without any evidence that Aved actually gave APX any particular designs >or created or owned them, nor even what
constituted the trade secret, if any, in the unspecified designs.

                        We
find similarly spurious plaintiff’s claim at argument that a reasonable trier
of fact could infer from the bare fact Aved existed before Nguyen founded APX
that Aved necessarily must have created memory module designs and therefore
held superior title in those designs against APX.  The argument is a logical nonsequitur since
the mere existence of a company before another is formed says nothing about >what the first company has designed or
created, if anything.  Plaintiff’s
attempt to shift the burden of proof to APX is similarly unavailing.  Plaintiff claimed at argument that APX had
not proved it created or owned any memory module designs, and therefore a
reasonable trier of fact could infer that Aved created and owned memory module
designs.  Again, this reasoning is
fallacious:  that one entity has >not done X, does not mean another
has.  In any event, plaintiff’s inability
to provide evidence of any particular trade secret in any particular memory
module design that it allegedly created does not warrant shifting the burden of
proof to APX to identify Aved’s trade
secrets.  That burden necessarily rests
on the plaintiff.  (See § 2019.210
[plaintiff must “identify the trade secret with reasonable particularity”]; see
also Silvaco, supra, 184 Cal.App.4th at p. 220 [plaintiff must prove
existence of trade secret it claims to possess].)

                        In
sum, the record reflects plaintiff knew nothing of the designs it allegedly
created.  Yet inherent in the nature of a
trade secret is that it is something only the plaintiff knows, and further that
it is worth protecting and the plaintiff has actually protected it.  Because plaintiff failed to offer proof of >what its alleged memory module design or
designs consisted of, it could not prove another essential element of its trade
secret case:  that whatever was unique
about its memory module design was unknown to the public or to others in the
industry.  As noted, at best plaintiff
attempted to present evidence that it could
design memory modules with novel trade secret elements.  But trade secret protection safeguards what >is, not what could be.  And the design must be new or otherwise
unknown to others, which plaintiff made no effort to establish. 

                        It
is the plaintiff’s burden to prove the existence of the claimed trade secret (>Silvaco, supra, 184 Cal.App.4th at p. 220) and “to prove his
status as an ‘owner’ of the trade secret,” or face dismissal of the claim (>Jasmine Networks, supra, Cal App.4th at p. 999). 
(See, e.g., IDX Systems Corp. v.
Epic Systems Corp. (7th Cir. 2002) 285 F.3d 581, 583-584 [at summary
judgment, claimant must “separate the trade secrets from the other information
that goes into any software package. 
Which aspects are known to the trade and which are not?”]  Put another way, the plaintiff may not
“leave[] mysterious exactly which pieces of information are the trade secrets”
and “must do more than just identify a kind of technology and then invite the
court to hunt through the details in search of items meeting the statutory
definition.”  (Ibid.)  Consequently, the
trial court properly granted summary adjudication on grounds there was “no
evidence [of] specific designs” constituting trade secrets that McCauley
allegedly provided to APX.

                        The
trial court similarly properly granted summary adjudication on grounds that
plaintiff provided no evidence to support its alternate trade secret claim in
designs Aved allegedly purchased from
APX.  As the trial court observed, even
assuming the invoices for nonrecurring engineering (NRE) charges could be
deemed to refer to the design of memory modules, nothing in the record
indicated APX’s engineering work for Aved entitled Aved to exclusive rights in
any design. 

                        Plaintiff
misplaces reliance on McCauley’s testimony that APX included the cost of design
in its invoice charges for products and services APX sold to Aved and
others.  This does not establish an
inference plaintiff gained exclusive rights to APX’s designs, just as a
consumer who purchases an iPad from Apple Computer, Inc., does not gain
intellectual property rights in the device’s underlying technology because the
purchase price necessarily includes research and design costs.  McCauley’s testimony simply does not support
an inference plaintiff held an ownership right in any unspecified trade secrets
that may have been included in Aved’s purchases from APX.  In particular, nothing in the invoices or any
other evidence suggested an exclusive
right, such that APX would be barred from using the very trade secrets or
intellectual property it developed in whatever it sold to Aved.  As the trial court observed, plaintiff failed
to show Aved “specifically conditioned the purchase[s]” in any manner, failed
to show APX “would not retain anything related to the purchased designs,” and
therefore failed to present any evidence APX’s continued use of its own designs
was a wrongful misappropriation. 

                        Additionally,
just as plaintiff failed to show the particulars of what Aved may have designed on its own and that anything in those
memory module designs was unknown to
the public or in the industry, plaintiff also failed to show >what constituted the trade secret or
secrets in any nonrecurring engineering Aved purchased from APX, or that the
NRE creation was unknown to the
public or others in the industry. 
Although the trial court did not expressly articulate this rationale
concerning the alleged designs Aved purchased from APX, it independently
supports the trial court’s summary adjudication rationale.  (See Carnes
v. Superior Court (2005) 126 Cal.App.4th 688, 694, fn. omitted [“The sole
question properly before us on review of the summary judgment is whether the
judge reached the right result
. . . whatever path he might have taken to get there, and we
decide that question independently of the trial court”].) 

                        At
oral argument, plaintiff pointed to the similarity between items APX produced
for McCauley’s new company’s product catalog and memory modules that Aved
formerly sold as evidence that APX misappropriated for McCauley designs that
Aved created itself or purchased from APX. 
Plaintiff cites the 135 “identical” products  as evidence that APX commandeered from Aved
the trade secrets necessary to produce those items.  In essence, plaintiff relies on the products’
similitude as the “what” constituting its trade secret; in other words, because
the products are the same, their underlying design must be the same too, and
therefore APX necessarily misappropriated Aved’s trade secret design to produce
and assemble those products. 

                        But
this “evidence” of product line similarity does not state a >trade secret claim.  As discussed, plaintiff never identified the
nature of any trade secret used to create any particular memory module,
including how the secret manner of creating the product is unique in the
industry and adds value because it is unknown by others.  The fact two companies have similar or
identical iterations of a product undercuts the notion a trade secret is
necessary to create them.  (See Civ. Code,
§ 3426.1, subd. (a) [independent derivation permissible].)  Additionally, products cannot themselves be trade secrets if they reveal their
constituent parts to those in the trade or public who handle or disassemble
them because reverse engineering is not
a trade secret violation.  (>Ibid.; Abba Rubber, supra,> 235 Cal.App.3d at pp. 21-22,
fn. 9.)  In sum, plaintiff did nothing to
demonstrate it held by original creation or by purchase contract an exclusive
trade secret right in the underlying design of any products it sold, the very
basis of a trade secret claim.  For all
the foregoing reasons, the trial court properly granted summary adjudication on
plaintiff’s trade secret misappropriation cause of action.href="#_ftn2" name="_ftnref2" title="">[2]                   

D.        Attorney
Fees

                        Plaintiff
argues the trial court abused its discretion by awarding APX $202,291.50 in
attorney fees for plaintiff’s bad faith prosecution of its trade secret
claim.  The CUTSA provides that “[i]f a
claim of [trade secret] misappropriation is made in bad faith . . .
the court may award reasonable attorney’s fees and costs to the prevailing
party.”  (Civ. Code, § 3426.4.)  The statute does not define bad faith.  “But courts have concluded that ‘bad faith’
as used in section 3426.4 consists of both ‘objective speciousness of the
Plaintiff’s claim . . . and . . .
subjective bad faith in bringing or maintaining the claim.’”  (SASCO
v. Rosendin Electric, Inc. (2012) 207 Cal.App.4th 837, 844-845
(SASCO), italics added.) 
“Section 3426.4 authorizes the trial court to award attorney fees
as a deterrent to specious trade secret claims. 
[Citation.]  Because the award is
a sanction, a trial court has broad discretion in awarding fees.”  (SASCO,
at p. 845.)

                        “Objective
speciousness exists where the action superficially appears to have merit but there
is a complete lack of evidence to support the claim.”  (FLIR
Systems, Inc. v. Parrish (2009) 174 Cal.App.4th 1270, 1276 (>FLIR Systems).)  The requirement of subjective bad faith,
however, means “more” is necessary “than the simple inability to prove the
necessary elements of a cause of action.” 
(Weco Supply Co., Inc. v.
Sherwin-Williams Co. (E.D. Cal., Jan. 3, 2013) 2013 WL 56639, *3.)  “The ‘bad faith’ contemplated by
section 3426.4 means not only that the claim is objectively specious, but
that the plaintiff acted with subjective
bad faith.”  (Yield Dynamics, Inc. v. TEA Systems Corp. (2007)
154 Cal.App.4th 547, 578 (Yield
Dynamics).)

                        “‘A
subjective state of mind will rarely be susceptible of direct proof; usually
the trial court will be required to infer it from href="http://www.fearnotlaw.com/">circumstantial evidence.’”  (Gemini
Aluminum Corp. v. California Custom Shapes, Inc. (2002) 95 Cal.App.4th
1249, 1263.)  For example, bad faith
“‘may be inferred where the specific shortcomings of the case are identified by
opposing counsel, and the decision is made to go forward despite the inability
to respond to the arguments raised.’”  (>Id. at p. 1264.)  Subjective bad faith exists where the party
intends to cause unnecessary delay, filed the action to harass the opposing
party, or harbored other improper motives. 
(FLIR Systems, >supra, 174 Cal.App.4th at
p. 1278.)  “A court may find
subjective misconduct by relying on direct evidence of [the] plaintiff’s
knowledge during certain points in the litigation and may also infer it from the speciousness of [the] plaintiff’s trade
secret claim and its conduct during litigation.”  (Computer
Econs., Inc. v. Gartner Group, Inc. (S.D. Cal., Dec. 14, 1999) 1999 U.S.
Dist. LEXIS 22204, 18-19, italics added.) 


                        Most
critical to our analysis:  A plaintiff’s
failure to identify what trade secrets are at issue may support a finding of
subjective bad faith.  (>FLIR Systems, 174 Cal.App.4th at
p. 1281.)

                        Here,
as discussed, plaintiff’s separate statements of fact for summary adjudication
reflected a complete lack of evidence of what
constituted plaintiff’s actual trade secret designs for memory modules and
never identified any aspects of those designs that were unknown to the public or others in the industry.  APX had moved for summary adjudication on
this basis, repeatedly arguing from the outset of the litigation that plaintiff
did not, and could not, identify what its own alleged trade secrets were
because Aved never designed memory modules. 
The trial court reasonably could infer objective speciousness from
plaintiff’s complete lack of evidence to support essential elements of a trade
secret claim.  As the court in >SASCO observed, a bad faith finding
under Civil Code section 3426.4 is not avoided simply by claiming “it
appeared at the time of the filing of the action some evidence would be
obtained in discovery that would support a misappropriation claim.”  (SASCO,
supra, 207 Cal.App.4th at
p. 847.)

                        The
trial court reasonably could infer subjective bad faith from plaintiff’s
persistence in its claims without evidence, compounded by its supplementary
opposition that reflected the same core defects.  As noted, plaintiff initially opposed summary
adjudication on grounds it created and furnished memory module designs to APX
for assembly, but the record did not support this unfounded claim.  Plaintiff nevertheless pressed forward and
changed tacks in a supplemental opposition, claiming it purchased memory module
designs from APX, but it still never identified what if anything it purchased from APX constituted a trade secret,
how any aspect of the allegedly purchased designs was unknown to the public or within the industry, nor how it held
exclusive rights in any such design purchase. 
(Cf. Zamos v. Stroud (2004)
32 Cal.4th 958, 970 [continuing to prosecute a lawsuit lacking probable
cause may reveal requisite malice].)  A
plaintiff’s failure to identify what trade secrets are at issue supports a
finding of subjective bad faith.  (>FLIR Systems, 174 Cal.App.4th at
p. 1281.)  We cannot say the trial
court abused its discretion in finding the requisite bad faith and awarding
attorney fees.

                        Plaintiff
argues the trial court erred in sustaining APX’s objections to statements in
the declaration of its president, Nizam, that would have demonstrated a lack of
subjective bad faith.  Plaintiff relies
on the court’s observation in Yield
Dynamics that “[t]he subjective element of bad faith, at least, might be
proven or refuted by evidence that would have been wholly irrelevant at
trial.”  (Yield Dynamics, supra,
154 Cal.App.4th at p. 579.) 
The court noted that while “[the plaintiff]’s subjective opinion about
[the defendant]’s liability, for instance, had no place at trial and could not
have been properly introduced” on the plaintiff’s trade secret misappropriation
claim, the evidence was relevant to “whether [the plaintiff] in fact acted for
an improper motive in bringing and pursuing the action.”  (Ibid.) 

                        But
here, Nizam’s bare declaration that plaintiff “filed the trade secret claim, and
all of its claims in this action, in good faith and without improper motive”
and similar statements did nothing to overcome plaintiff’s complete lack of
evidence of the particulars of any trade secret design, whether self-created or
purchased.  The trial court reasonably
could find that by compounding, despite notice, its completely unsupported
claim of native trade secrets with a similarly unfounded claim of purchased
ones, plaintiff acted in subjective bad faith.

III

DISPOSITION

                        The
judgment is affirmed.  Respondent is
entitled to its costs on appeal.

 

 

 

                                                                                   

                                                                                    ARONSON,
J.

 

WE CONCUR:

 

 

 

RYLAARSDAM,
ACTING P. J.

 

 

 

FYBEL, J.