PEARL INVESTMENTS

2004 | Cited 0 times | D. Maine | April 20, 2004

ORDER ON DEFENDANT CHUNN'S RENEWED MOTION FOR JUDGMENT AS A MATTER OF LAW AND FOR NEW TRIAL

This motion presents the issue whether the plaintiff's damage awardson two counts are supported by the evidence, or whether they areprecluded by a favorable verdict and ruling on one other count. Iconclude that the damage awards survive the arguable inconsistencies, andthat the evidence supports them. I. FACTS

Pearl Investments, LLC ("Pearl") commissioned Jesse Chunn ("Chunn") towrite software to permit Pearl to run an automated stock tradingsystem.1 Before the Pearl contract, Chunn knew nothing aboutautomated trading. Once Pearl's system became operational, Pearl operatedit through the black box network of a third party, On Site. At somepoint, Pearl and Chunn parted ways and Pearl discovered that, without itsknowledge, Chunn had attached his own server to the On Site black boxnetwork to run a different automated trading system ("Scalper") thatChunn claimed to have developed on his own time. Pearl asserted thatChunn's development and use of Scalper breached a nondisclosure agreementbetween the parties, violated Maine's trade secret misappropriation law,and violated the Digital Millennium Copyright Act ("DMCA"). Pearl alsoclaimed that defects in Chunn's software breached warranties. At the endof the plaintiff's case, I granted Chunn judgment as a matter of law onthe breach of warranty claim. The jury found for Pearl on the breach ofcontract and the misappropriation claims, but found for Chunn on the DMCAclaim. It awarded a total of $54,000, recoverable on either count.2Chunn now seeks judgment as a matter of law on two grounds. First, Chunn argues that Pearl's only evidence of damage derived fromeither Chunn's installation of his server on Pearl's On-Site black boxnetwork or problems with Chunn's software. Chunn says that both theseclaims are now gone from the case, Def. Chunn's Renewed Mot. at 1 (DocketItem 143), and that the damage awards are therefore unsustainable. Theserver installation claim disappeared, he argues, with the jury verdictin his favor on the DMCA claim; the defective software claim disappearedupon entry of judgment as a matter of law on the breach of warranty claimat the close of the plaintiff's case.

Second, Chunn argues that Pearl presented no evidence of actual damagesflowing from Chunn's use of the Scalper automated trading program. (Theparties seem to agree that Chunn's use of Scalper is at the root of bothverdicts favorable to Pearl: the breach of contract verdict (thenondisclosure agreement) and the misappropriation of trade secretverdict.)

Alternatively, Chunn seeks a new trial on damages.

II. ANALYSIS

A. Effect of Chunn's Victory on Breach of Warranty and DMCA

All the evidence about damages came from the testimony of DennisDaudelin. He described bugs and slowdowns in the Pearl system'soperation, and the time, energy and expenses devoted to trying to fix theproblems. One explanation of the problems was defective software writtenby Chunn for Pearl; another was the unknown (at the time) interferenceand congestion from Chunn's simultaneous operation of his own automated trading program on thesame black box network that Pearl used. But Chunn argues that the verdictof no liability on the DMCA claim and the disappearance of the breach ofwarranty count "removed any liability against Mr. Chunn based upon" theseactivities. Def. Chunn's Renewed Mot. at 1. Certainly no issue went tothe jury concerning Chunn software errors. The real issue between theparties on this point, then, is the effect of the DMCA verdict in Chunn'sfavor.

Verdicts in civil cases need not be perfectly consistent. "Inconsistentjury verdicts upon different counts or claims are not an anomaly in thelaw, which at times recognizes a jury's right to an idiosyncraticposition provided the challenged verdict is based on the evidence and thelaw." Merchant v. Ruhle, 740 F.2d 86, 90 (1st Cir. 1984)(citations omitted). The First Circuit subscribes "to a substantialreluctance to consider inconsistency in civil jury verdicts a basis fornew trials." Id. at 91. Before disregarding a verdict andawarding a new trial, I "must attempt to reconcile the jury's findings."See Connelly v. Hyundai Motor Co., 351 F.3d 535, 540 (1st Cir.2003) (citations omitted).

The DMCA is a relatively new statute, effective since October 28,2000.3 Neither I nor the lawyers were able to find much to assist usin explaining its terms to the jury. With the agreement of both Chunn andPearl, I instructed the jury: [t]his federal statute prohibits circumventing a technological measure that effectively controls access to a copyrighted work. A technological measure "effectively controls access to a work" if the measure, in the ordinary course of its operation, requires application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the work. To "circumvent a technological measure" means avoid bypass, remove, deactivate or impair a technological measure without the authority of the copyright owner.Court Jury Instructions (Docket Item 129). Applying thisinstruction, the jury could have concluded that Pearl did not prove thatChunn's hookup of his server to Pearl's automated trading system on thesame network "circumvent[ed] a technological measure" as that phrase isdefined, yet still conclude that Chunn's hookup disrupted, congested andimpaired the Pearl system. Indeed, it is apparent that the jury struggledwith the DMCA instruction (which in hindsight was fairly abstruse).During deliberations, it sent out the following note: "Would you pleaseclarify which actions of Jesse Chunn are supposed to have violated theDMCA?" Court Ex. 3. Chunn resisted satisfying the jury's inquiry, and Isent back the following unhelpful response: "Now that the evidence isclosed, I am no longer in a position to advise you what the respectiveparties' claims are. You must base your decision upon the evidence thatwas presented, the closing arguments you heard and my instructions on thelaw." Court Ex. 4. It is hardly surprising that, although it awardeddamages for misappropriation and the breach of the nondisclosureagreement, the jury found that Pearl did not prove that Chunn's conduct violated the DMCA.

I conclude that the DMCA verdict is not inconsistent with the jury'sconclusion that Chunn's physical hookup to the Pearl system caused damageto Pearl.

B. Evidence for Damages Resulting from. Misappropriation or Breach of Contract

The jury found that Chunn's creation and use of Scalper misappropriateda trade secret and violated the nondisclosure agreement. It awarded$54,000 as damages. The only evidence of damages, however, was impairmentto the Pearl automated trading system (e.g., slower processing,congestion, etc.) through Chunn's physical connection. The jury couldreasonably find that Chunn was using software containing misappropriatedtrade secrets in the activity he conducted through the connection, andthat Pearl spent significant funds trying to cure its system's slow-down,believing incorrectly that software bugs were slowing the processingspeed. Chunn maintains that there is a distinction betweenmisappropriation of the trade secret and breach of the nondisclosureagreement, on the one hand, and surreptitiously hooking up the Chunnsystem to the Pearl system, on the other hand. He says that thecongestion damages flow only from the latter. But does themisappropriation or breach make Chunn liable for these damagesnonetheless? (1) Trade Secret Misappropriation

According to the Maine statute, an individual whose trade secret hasbeen misappropriated is entitled to recover "the actual loss caused bythe misappropriation and the unjust enrichment caused by misappropriationthat is not taken into account in computing actual loss." 10 M.R.S.A.§ 1544(1) (1997). If these measures are unavailable, a reasonableroyalty may be awarded. Id. No evidence regarding the licenseor royalty value of the Scalper trade secret or suggesting that Chunnprofited from his misappropriation was produced at trial.4 In theabsence of such royalty or unjust enrichment evidence, the only possibledamages are those resulting from the Pearl system's impairment andcongestion. Did the trade secret misappropriation "cause" these damages?

Chunn argues that he could have misappropriated the trade secret,Scalper, but used it by hooking up to another network, thereby notcausing the congestion damages to Pearl. Reply Mem. at 3 (Docket Item149). Had he done so, he says, there would have been misappropriationwithout congestion damages. Hence, he argues, it was not the theft thatcaused Pearl's damages.5 That is too crabbed a reading of the Maine statute.Misappropriation includes "use" of a trade secret. 10 M.R.S.A. §1542. Chunn made the decision how to use his stolen trade secret, and heused it to Pearl's detriment. I conclude that the jury reasonably couldfind that Chunn's misappropriation caused Pearl's congestion-relateddamages.

Chunn also claims that the damage award is excessive. A damage awardwill be reduced or a new trial on damages will be granted only when theaward exceeds any rational estimate of damages based on the evidencebefore the jury. See Wortley v. Camplin, 333 F.3d 284, 297 (1stCir. 2003) (citations omitted); Blinzler v. Marriott Intl.Inc., 81 F.3d 1148, 1161 (1st Cir. 1996) (citations omitted). Thejury's damage award of $54,000 does not exceed any rational estimate thatcould be based on the evidence. As I have stated, Pearl introducedevidence at trial that it lost significant funds during the time Chunnoperated his own trading system, and that it spent numerous resources toimprove the performance of its own system while Chunn's system wasrunning on the same network.

For the foregoing reasons, I DENY the motion for judgment asa matter of law and for new trial on the jury damage award of $54,000 onthe trade secret misappropriation count.

(2) The Nondisclosure Agreement The same analysis applies here, as to the misappropriation claim. Iwill not repeat it.

III. CONCLUSION

The defendant Chunn's renewed motion for judgment as a matter of law toreject the jury damage award or in the alternative for a new trial isDENIED.

So ORDERED.

1. Chunn is founder, owner and president of Standard I/O, Inc. Thejury found that Standard I/O, Inc. did not violate the nondisclosureagreement.

2. The parties stipulated to award Chunn $1,000 on a third-partyclaim against Dennis Daudelin, president of Pearl, for conversion of theChunn server.

3. President Clinton signed the DMCA into law on October 28, 1998,but the Act did not take effect until two years later. See17 U.S.C. § 1201(a)(1)(A) (Supp. 2003).

4. There is evidence of the number of hours Chunn worked to createScalper, and the amount of time and money it took to develop the Pearlsystem. However, it would be difficult to convert the value of Scalperbased on development costs into a measurement of lost value for use ofthe trade secret through the involuntary license that results frommisappropriation.

5. The Maine statute does not further define causation. Severalother courts applying the same law (the Uniform Trade Secrets Act) haveused the standard of proximate cause. See, e.g., World WideProsthetic Supply, Inc. v. Mikulsky, 640 N.W.2d 764, 769-70 (Wis.2002); Fred's Stores of Miss., Inc. v. M & H Drugs. Inc.,725 So.2d 902, 912 (Miss. 1998); Total Care Physicians. P.A. v.O'Hara, 2003 Del. Super. LEXIS 261, *4. That standard is satisfiedhere, with both cause-in-fact and foreseeability.

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