PER CURIAM:
Decision Insights, Inc. (DII) filed a complaint in June 2006 against Sentia Group, Inc. (Sentia) and the four individuals that founded Sentia (collectively, the defendants).
In June 2007, the district court granted the defendants' motion for summary judgment on all DII's claims. In an unpublished opinion issued in February 2009, this Court affirmed the judgment of the district court in part and reversed in part.
Because our prior opinion set forth the facts of this case at great length,
The record reflects that DII created software in the 1980s called the "Dynamic Expected Utility Model" (EU Model), which is an analytical tool used to prepare negotiating strategies. The EU Model assesses risk, compares the impact of different operating positions, and details the relative effects of selecting various alternatives. Essentially, the EU Model applies concepts from several academic disciplines, including mathematics, economics, political science, and psychology, to predict for DII's clients the outcome of a given political or business situation. DII owns the assets, copyright, and all proprietary rights to the EU Model, which DII considers to be its primary asset.
Sentia was formed in November 2002 by the four individual defendants in this case, Mark Abdollahian, Brian Efird, Jacek Kugler, and Thomas H. Scott. Three of these defendants, Abdollahian, Efird, and Kugler, were formerly affiliated with DII, and each worked with the EU Model while employed by DII.
Sentia initially sought to obtain a software license from DII for use of the EU Model. However, negotiations between the parties did not result in an agreement. Sentia later hired Carol Alsharabati, a former consultant for DII who worked extensively on the source code for DII's EU Model, to develop software for a Sentia product that would compete directly with DII's software. Alsharabati completed this task in about six weeks, which, according to DII, could only have been accomplished by using DII's source code to create the Sentia software.
DII filed a complaint in the district court against the defendants, alleging that Abdollahian, Efird, Kugler, and Alsharabati disclosed DII's trade secrets to Sentia in violation of the Virginia Trade Secret Misappropriations Act, Virginia Code §§ 59.1-336 through -343 (the Act).
DII also alleged that Efird, Kugler, and Abdollahian breached their respective contractual and fiduciary obligations by disclosing confidential and proprietary information owned by DII. Additionally, DII contended that Scott conspired with Sentia to induce DII's former employees to breach their respective nondisclosure agreements with DII, and assisted the defendants in misappropriating DII's trade secrets.
After discovery, the defendants filed a motion for summary judgment seeking dismissal of all DII's claims. The district court granted the defendants' motion. With regard to DII's trade secret claims, the district court held that DII failed to meet its burden to establish that the EU Model software qualified as a trade secret under the Act. The district court did not address DII's claims relating to the other materials that DII asserted were its trade secrets, including reports containing marketing and research material, information contained in the user manual for the DII software at issue, and certain information pertaining to DII's clients.
With regard to DII's breach of contract claims, the district court held that DII failed to identify "any confidential or proprietary information obtained by [the defendants] while employed at DII that [was] thereafter misappropriated" that would violate the nondisclosure provisions in Abdollahian's and Efird's agreements. The district court also held that DII could not establish an enforceable contract between DII and Kugler because DII did not execute Kugler's agreement.
DII timely noted an appeal and, as stated above, we affirmed in part, reversed in part, and remanded the case to the district court. 311 F. App'x at 587. In our unpublished opinion, we noted that DII's trade secret claims were founded, in part, "upon its software as a total compilation."
We instructed the district court to determine first whether DII "adequately identified its software compilation claim."
Additionally, we remanded DII's claims concerning other confidential information that DII alleged was misappropriated by the defendants, including the operating manual for the DII software, DII's reports containing marketing and research material, and DII's client contact information.
On remand, the district court first held that DII met its burden under
The district court held that DII's other claims, including its claims concerning DII's marketing, research, and client information material, as well as DII's breach of contract claims, all failed because DII did not satisfy its evidentiary Accordingly, the district court awarded summary judgment to the defendants on all DII's claims. DII timely appealed from the district court's judgment.
The primary issue in the present appeal is whether DII adduced enough evidence during discovery to allow a jury to reach the ultimate conclusion that the DII software, as a compilation, is not generally known or ascertainable by proper means, within the meaning of Section 59.1-336 of the Code of Virginia. As discussed below, we conclude that the district court erred in holding that DII failed to satisfy its burden of producing sufficient evidence on this issue.
We review the district court's decision granting summary judgment de novo.
"[T]he determination whether a trade secret exists ordinarily presents a question of fact to be determined by the fact finder from the greater weight of the evidence."
Va. Code § 59.1-336. As described in our prior opinion in this case, the determination whether information qualifies as a trade secret under the Act depends on "whether or not the [information] has independent economic value, is generally known or readily ascertainable by proper means, and is subject to reasonable efforts to [maintain] secrecy." 311 F. App'x at 594 (citing Va. Code. § 59.1-336).
We have recognized that a trade secret may be composed of publicly-available information if the method by which that information is compiled is not generally known. For instance, in
Although it is clear that a software compilation such as DII's EU Model can qualify for protection as a trade secret, the question presented here is whether the record supports DII's contention that the DII software is not generally known or readily ascertainable by proper means. As described below, DII relies on deposition testimony and reports from two witnesses that DII presented in support of the argument that the EU Model software, as a compilation, is not generally known or readily ascertainable.
The defendants, however, urge that we reject the testimony offered by these two witnesses as "ultimate conclusions" of individuals affiliated with DII. The defendants maintain, without citing any authority, that the testimony of these two witnesses "is clearly not evidence and cannot be used to satisfy [DII's] burden." We disagree with the defendants' argument.
DII presented the report of expert witness Dr. Bruce Bueno de Mesquita, the Silver Professor of Politics at New York University and an authority on expected utility theory, the theory upon which the EU Model is based. Dr. Bueno de Mesquita was a founder of DII, and he co-authored the original source code for DII's EU Model in the 1980s.
In his report, Dr. Bueno de Mesquita characterized some of the elements of the DII software as "proprietary . . .[,] elements that have not been published in my research or anyone else's." Dr. Bueno de Mesquita's report expressly rebutted the testimony of the defendants' expert witness, Dr. Peter Alexander, who asserted that Sentia's "alleged uses of proprietary DII methodologies are well known concepts from the open literature." Additionally, Dr. Bueno de Mesquita stated in his report that "[t]he method for calculating the value of the discount term that triggers the stopping rule and — crucially — leads to the predicted outcome is proprietary; that is, unpublished. . . . [N]o formula for the actual calculation is stated in . . . [any] publication that addresses the forecasting model on which DII's software is based."
DII also presented the report and deposition testimony of Gary Slack, a current DII employee and co-author of DII's software program. Mr. Slack stated in his report and during his deposition testimony that many aspects of the source code, and hence the compilation of the source code as a whole, were not public knowledge or readily ascertainable by proper means. In his report, Mr. Slack identified and described 13 proprietary processes in the source code, and stated that "[t]he collection of these processes as a whole and the sequence of these processes also serve as a proprietary aspect of [DII's EU Model software]." Mr. Slack's expert report also included a "flow chart," which set forth the sequencing of DII's source code, including its organization and structure. Mr. Slack testified that portions of this process, as well as the entire sequencing of the process, were not known to the public.
During his deposition testimony, Mr. Slack also identified numerous variables that are part of DII's software code for the EU Model, noting that the set of these variables had "never been disclosed to anyone else." Mr. Slack further testified that while a few of these individual variables were in the public domain, numerous other of these variables were not in the public literature or known outside of DII. Additionally, Mr. Slack testified that "[n]one of the code has ever been shared with anybody that has not signed a confidential[ity] agreement."
In light of the foregoing evidence offered by Dr. Bueno de Mesquita and Mr. Slack concerning the nonpublic and proprietary nature of DII's software code, we conclude that the district court erred in holding that DII failed to satisfy its evidentiary burden to show that DII's software compilation was not generally known or readily ascertainable by proper means. Therefore, we conclude that DII adduced sufficient evidence during discovery to render this issue appropriate for decision at a trial.
In view of its analysis, the district court did not address the other criteria specified by the Act, including whether DII's software code has independent economic value and whether DII engaged in reasonable efforts to maintain the secrecy of the software code.
In addition to the EU Model software, DII also claimed as trade secrets other materials that DII alleged were misappropriated by the defendants, including the operating manual for the DII software, DII's reports containing marketing and research material, and DII's client information. In our prior opinion, we directed the district court to examine these other categories of purported trade secrets under the criteria set forth under the Act. 311 F. App'x at 595.
On remand, the district court dismissed these claims summarily, holding that "[t]he failure of [DII's] software compilation claim requires that these proprietary claims fail." We disagree that the resolution of these other categories of purported trade secrets rises or falls on the issue whether the DII's software compilation qualifies as a trade secret. Regardless, the basis of the district court's holding on this issue is no longer valid in light of our conclusion above, and a remand to the district court for further consideration of these separate issues is required. In considering DII's trade secret claims on remand for these other categories of materials, the district court should apply the criteria specified under the Act's definition of a trade secret, including whether the materials at issue have independent economic value, whether the materials are generally known or readily ascertainable by proper means, and whether DII engaged in reasonable efforts to maintain the secrecy of the information.
The district court also dismissed DII's breach of contract claims, including the claim for breach of nondisclosure agreements asserted against Abdollahian and Efird, the claim for breach of a noncompetition agreement asserted against Efird, and the claim for breach of a nondisclosure agreement asserted against Kugler for the contract that he signed but which DII failed to execute. The sole basis for the district court's dismissal of these claims was the court's earlier holding that DII failed to meet its evidentiary burden with respect to its Because we disagree with the district court's holding on that issue, we also vacate the district court's judgment relating to DII's contract-based claims and remand those claims to the district court for further consideration. Consistent with the directive of our prior opinion, we also instruct the district court to consider whether an implied agreement existed between DII and Kugler pertaining to DII's confidential and proprietary information, despite the lack of a fully executed written agreement between the parties.
We note that separate consideration of DII's various breach of contract claims will be necessary regardless of the outcome on remand of DII's trade secret claims concerning its software compilation. Those breach of contract claims do not require a finding that the materials at issue qualify as a trade secret, because the respective nondisclosure clauses apply to "any confidential or proprietary information . . . owned or used by" DII.
For these reasons, we conclude that the district court erred by granting the defendants' motion for summary judgment on all DII's claims. We remand the case to the district court for further proceedings consistent with this opinion.
