Altavion, Inc. v. Konica Minolta Sys. Lab. Inc.

226 Cal.App.4th 26

171 Cal.Rptr.3d 714

ALTAVION, INC., Plaintiff and Respondent,

v.KONICA MINOLTA SYSTEMS LABORATORY INC., Defendant and Appellant.

A134343

A135831

Court of Appeal, First District, Division 5, California.

Filed May 8, 2014

Certified for Partial Publication.^*

Superior Court of San Mateo County, No. CIV467662, Marie S. Weiner, Judge. (San Mateo County Super. Ct. No. CIV467662)

Morrison & Foerster, Miriam A. Vogel, Los Angeles, Bryan J. Wilson, Roman A. Swoopes, Palo Alto, and Daniel Wan for Defendant and Appellant.

Millstone Peterson & Watts, Glenn W. Peterson, Roseville; Costello Law Corporation and John P. Costello, Sacramento, for Plaintiff and Respondent.

SIMONS, J.

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, 4 Cal.Rptr.3d 69, 75 P.3d 1 (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 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 (2012) 203 Cal.App.4th 549, 552–553, 137 Cal.Rptr.3d 693; see also Pool v. City of Oakland (1986) 42 Cal.3d 1051, 1056, fn. 1, 232 Cal.Rptr. 528, 728 P.2d 1163.) Conflicts in the evidence are noted only where pertinent to the issues on appeal. (Pool, at p. 1056, fn. 1, 232 Cal.Rptr. 528, 728 P.2d 1163; SCI California Funeral Services, Inc., at p. 553, 137 Cal.Rptr.3d 693.) 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 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.

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.”

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 assessed 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...