Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_17-cv-00885/USCOURTS-casd-3_17-cv-00885-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (District or BAP)

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

In re

SOTERA WIRELESS, INC.,

Debtor.

MASIMO CORPORATION,

Appellant,

v.

SOTERA WIRELESS, INC.,

Appellee.

Case No.: 17-cv-0885-BTM-BLM

ORDER AFFIRMING JUDGMENT 

OF THE BANKRUPTCY COURT

Masimo Corporation (“Masimo”) appeals under 28 U.S.C. § 158(a)(1) from a

July 18, 2017 memorandum of decision and order of the United States Bankruptcy 

Court for the Southern District of California, adjudicating Masimo’s claims against 

Sotera Wireless, Inc. (“Sotera”) under the California Uniform Trade Secret Act 

(“CUTSA”). For the reasons discussed below, the Court AFFIRMS.

//

//

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I. BACKGROUND

On May 10, 2013, Masimo filed a lawsuit in Orange County Superior Court 

against Sotera for, among other causes of action, trade secret misappropriation 

under CUTSA. (ER 77). Masimo alleged that two of its former employees, James 

Welch and David Hunt, took trade secrets from Masimo and that Sotera then used 

those trade secrets. Id. On September 30, 2016, before the state court trial had 

commenced, Sotera filed for Chapter 11 bankruptcy. (ER 78). As part of the 

bankruptcy proceedings, Masimo filed a formal proof of claim asserting at least 

$15,500,000 in damages, which was in part, based on misappropriation of trade 

secrets. (ER 84). Sotera filed an objection to the claim. Id.

On April 14, 2017, the Bankruptcy Court announced its determinations on 

Masimo’s claim and Sotera’s objection through an oral ruling. (ER 2533). On July 

18, 2017, to supplement the oral ruling, the Bankruptcy Court issued a 117 page 

memorandum of decision that included post-trial findings of fact and conclusions 

of law. (ER 75). The Bankruptcy Court overruled Sotera’s objection, in part, but 

otherwise sustained Sotera’s objection to Masimo’s claim, finding that Masimo was 

entitled to a claim of $558,000. (ER 191). The Bankruptcy Court awarded Masimo 

$240,000 for Sotera’s misappropriation of Masimo’s pricing trade secrets, 

$300,000 for David Hunt’s misappropriation of Masimo’s customer trade secrets1, 

and $18,000 to recover direct costs for Masimo’s forensic investigation of Sotera’s 

acts. (ER 186, 189-90). The Bankruptcy Court also granted Masimo’s request for 

injunctive relief, requiring Sotera to remove and destroy Masimo’s technical trade 

secret documents from its computers and barring use of those trade secrets. (ER 

129, 191). 

//

 

1 The Bankruptcy Court found Sotera liable for Hunt’s misappropriation through the doctrine of respondeat 

superior.

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Masimo has appealed the Bankruptcy Court’s order, arguing that: (1) the 

Bankruptcy Court legally erred in its analysis of CUTSA’s requirements for trade 

secret misappropriation, (2) the Bankruptcy Court made clearly erroneous findings 

of fact that certain information was either not a trade secret or not used by Sotera, 

and (3) the Bankruptcy Court failed to address Masimo’s request for royalties for 

Sotera’s supposedly adjudged misappropriation of thousands of Masimo 

documents. (Appellant Brief at 1). 

II. STANDARD OF REVIEW

“The bankruptcy court’s conclusions of law are reviewed de novo, and its 

findings of fact are reviewed for clear error.” USAA Fed. Sav. Bank v. Thacker (In 

re Taylor), 599 F.3d 880, 887 (9th Cir. 2010). Under the “clear error” standard, the 

reviewing court will reverse a lower court’s “findings of fact only upon a definite 

and firm conviction that a mistake has been made.” Sepulveda v. Pac. Mar. Ass'n, 

878 F.2d 1137, 1139 (9th Cir. 1989). The standard “plainly does not entitle a 

reviewing court to reverse the finding of the trier of fact simply because it is 

convinced that it would have decided the case differently. Anderson v. City of 

Bessemer City, N.C., 470 U.S. 564, 573 (1985). “If the [lower] court's account of 

the evidence is plausible in light of the record viewed in its entirety, the [reviewing 

court] may not reverse it even though convinced that had it been sitting as the trier 

of fact, it would have weighed the evidence differently.” Anderson, 470 U.S. 564 at 

573-74. “The issue of whether information constitutes a trade secret is a question 

of fact.” Thompson v. Impaxx, Inc., 113 Cal. App. 4th 1425, 1430 (2003).

III. DISCUSSION

A. The Bankruptcy Court’s Consideration Of Whether Information Was 

“Readily Ascertainable”

For its first issue on appeal, Masimo argues that the Bankruptcy Court, in 

determining whether information qualified as a trade secret, erroneously included 

the requirement that the information not be “readily ascertainable.” (Appellant Brief 

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at 32). The Court reviews this under a de novo standard.

Masimo focuses on the Bankruptcy Court’s statement that “readily 

ascertainable information cannot be a trade secret.” (ER 92). The Bankruptcy 

Court cited Syngenta Crop Prot., Inc. v. Helliker, 138 Cal. App. 4th 1135, 1172 

(2006), which explains that “[i]nformation that is readily ascertainable by a 

business competitor derives no independent value from not being generally 

known.” Syngenta, in turn, cited to American Paper & Packaging Products, Inc. v. 

Kirgan, 183 Cal. App. 3d 1318, 1326 (1986). CUTSA defines “trade secret” as

information, including a formula, pattern, compilation, program, device, 

method, technique, or process that: (1) [d]erives 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) [i]s the subject of efforts that are reasonable 

under the circumstances to maintain its secrecy.

Cal. Civ.Code Section 3426.1. By considering whether information was “readily 

ascertainable” in interpreting “derives independent economic value . . . from not 

being generally known,” an express phrase within CUTSA’s definition of a trade 

secret, Syngenta arguably incorporated “readily ascertainable” into the definition 

of a trade secret. See Altavion, Inc. v. Konica Minolta Sys. Lab. Inc., 226 Cal. App. 

4th 26, 62 (2014) (“the focus of the inquiry regarding the independent economic 

value element is on whether the information is generally known to or readily 

ascertainable by business competitors or others to whom the information would 

have some economic value”). 

Masimo’s assertion that the Bankruptcy Court committed legal error relies on 

Abba Rubber Co. v. Seaquist, 235 Cal. App. 3d 1, 21 (1991), which stated that 

“under California law, information can be a trade secret even though it is readily 

ascertainable, so long as it has not yet been ascertained by others in the industry.

Accordingly, [the court] decline[d] to follow [American Paper & Packaging Prod., 

Inc. v. Kirgan, 183 Cal. App. 3d 1318 (1986)], to the extent that it suggest[ed] that 

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information is not protectable as a trade secret if it is known or readily 

ascertainable.” Abba, Syngenta, and American Paper are all California Court of 

Appeal opinions. To the extent there is a disagreement among the California 

Courts of Appeal on this issue, the Supreme Court of California has not yet 

weighed in. Therefore, Abba is persuasive and not binding authority. See Sarti v. 

Salt Creek Ltd., 167 Cal. App. 4th 1187, 1193 (2008) (“there is no horizontal stare 

decisis in the California Court of Appeal”); Auto Equity Sales, Inc. v. Superior Court 

of Santa Clara Cty., 57 Cal. 2d 450, 456 (1962) (“where there is more than one 

appellate court decision, and such appellate decisions are in conflict . . . the court 

exercising inferior jurisdiction can and must make a choice between the conflicting 

decisions”). The Court agrees with the Bankruptcy Court and does not find that it

legally erred in relying on Syngenta, which in turn relied on American Paper, in 

interpreting the definition of “trade secret” under CUTSA.2

However, even assuming that the Bankruptcy Court legally erred in stating 

that “readily ascertainable information cannot be a trade secret,” this error was not 

material to the Bankruptcy Court’s analysis and therefore, would not be sufficient 

grounds for reversal. “[T]he assertion that a matter is readily ascertainable by 

proper means remains available as a defense to a claim of misappropriation.” DVD 

Copy Control Ass'n, Inc. v. Bunner, 31 Cal. 4th 864, 899 (2003). Therefore, 

regardless of whether it was at the trade secret definition stage or the 

misappropriation stage, the Bankruptcy Court’s affirmative finding that information 

was “readily ascertainable” would have prevented a finding of a CUTSA violation. 

Assuming that “readily ascertainable” can only be a defense to misappropriation, 

the Bankruptcy Court would only have committed reversible legal error if it had 

 

2 The Court acknowledges that several federal district courts have cited Abba for the proposition that “information 

can be a trade secret even though it is readily ascertainable, so long as it has not yet been ascertained by others 

in the industry.” See, e.g., SkinMedica, Inc. v. Histogen Inc., 869 F. Supp. 2d 1176, 1193 (S.D. Cal. 2012). While 

this lends support for a court to follow Abba, it is not a dispositive reason to find that a court legally erred in its 

valid choice between conflicting opinions with equally persuasive authority.

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misallocated the burden of proof between the parties, specifically, if it found that 

information was not a trade secret because Masimo failed to demonstrate that the 

information was not readily ascertainable. Masimo points to only one instance of 

this occurring. (Appellant Brief at 34). In discussing whether Sotera used Masimo 

trade secrets to target a particular customer, the Bankruptcy Court stated that 

“Masimo failed to establish that the information was not readily ascertainable.” (ER 

173 ¶ 422). However, this was not material to the Bankruptcy Court’s conclusion 

that there was no misappropriation because Sotera independently derived the idea 

to target a particular customer, without using Masimo’s information. Further, this 

one instance is unrelated to any of the four alleged trade secrets at issue in this 

appeal. 

The Court finds that the Bankruptcy Court did not commit legal error in its 

analysis of “readily ascertainable.” To the extent that there was an error, it did not 

manifest in a manner sufficient to create grounds for reversal.

B. The Bankruptcy Court’s Determination Of What Constituted “Use” 

Of A Trade Secret

For its second issue on appeal, Masimo argues that the Bankruptcy Court 

legally erred in its analysis of “use” under CUTSA. Specifically, Masimo contends 

that the Bankruptcy Court erred in (1) not including “passive consideration of data” 

in its definition of “use,” and (2) allowing a finding of “independent derivation” to 

defeat a finding of “use.” (Appellant Brief at 36, 38). The Court reviews this under 

a de novo standard.

First, the Bankruptcy Court never stated that “passive consideration of data” 

cannot be “use” under CUTSA. The Bankruptcy Court did not explicitly define the 

term, nor did it need to, as CUTSA “does not define the term ‘use’” and “the 

meaning of the term may vary depending on the context.” See Syngenta, 138 Cal. 

App. 4th at 1172. 

Masimo relies on Syngenta, where plaintiff, a pesticide manufacturer, 

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brought an action against the state Department of Pesticide Regulation, in part, for 

misappropriation of its trade secrets under the Uniform Trade Secrets Act.3

Syngenta, 138 Cal. App. 4th at 1145. To receive certificates of registration from 

the Department, plaintiff submitted data concerning the health and environmental 

impacts of specific active ingredients in its pesticides. Id. When subsequent 

pesticide manufacturers applied for registration certificates for pesticides that 

contained those same specific active ingredients, the department, without actually 

reviewing the previously submitted data from plaintiff, nonetheless took into 

account “its prior evaluation of [plaintiff’s] data in evaluating the later applications.” 

Id. The Syngenta court held that

for purposes of pesticide regulation in California, the Department [of 

Pesticide Regulation] “uses” data when it “considers” the data within 

the meaning of Food and Agricultural Code section 12811.5. By taking 

into account its prior evaluation of an active ingredient based on data 

submitted by another applicant, the Department relieves a current 

applicant of the expense of producing or otherwise acquiring similar 

data and “uses” the data to the benefit of the current applicant. . . . 

Accordingly, the superior court's ruling that the Department's “passive 

consideration” of data cannot be misappropriation under the act was 

error.

Id. at 1172–73.

The Court is not persuaded by Masimo’s attempt to stretch Syngenta’s 

context-specific finding that the Department of Pesticide Regulation’s “passive 

consideration” of data it had previously analyzed and relied upon was “use,” into a 

broad rule that “passive consideration,” under a more generic meaning, is always 

“use.” The Bankruptcy Court did not legally err by not applying a dubious rule 

derived from an overbroad reading of Syngenta.

 

3

“California has adopted the Uniform Trade Secrets Act (‘UTSA’) which codifies the basic principles of common 

law trade secret protection.” MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 520 (9th Cir. 1993).

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Second, the Bankruptcy Court did not legally err in allowing a finding of 

“independent derivation” to preclude a finding of improper “use.” A “prima facie 

claim for misappropriation of trade secrets requires the plaintiff to demonstrate: (1) 

the plaintiff owned a trade secret, (2) the defendant acquired, disclosed, or used 

the plaintiff's trade secret through improper means, and (3) the defendant's actions 

damaged the plaintiff.” Sargent Fletcher, Inc. v. Able Corp., 110 Cal. App. 4th 1658, 

1665 (2003). CUTSA provides that “[r]everse engineering or independent 

derivation alone shall not be considered improper means.” Cal. Civ. Code § 

3426.1. Therefore, “[e]vidence of independent derivation or reverse engineering 

directly refutes the element of use through improper means.” Sargent, 110 Cal. 

App. 4th at 1670. “Proof that defendant's use resulted from independent derivation 

or reverse engineering is evidence that there was no improper use on its part. The 

defendant does not have a burden of proof to make that showing.” Id. at 1669. 

Masimo takes issue with the Bankruptcy Court’s conclusion that there was 

no improper use of Masimo’s purported trade secrets if it determined that Sotera 

had independently derived the same information. (Appellant Brief at 39). The 

Bankruptcy Court’s conclusion was consistent with the correct standard. (See ER 

93-94). If a necessary element of misappropriation requires that the defendant 

“acquired, disclosed, or used the plaintiff’s trade secret through improper means,” 

and “independent derivation . . . [is not] considered improper means,” then a finding 

of independent derivation knocks out a crucial component of a necessary element 

of misappropriation. See Cal. Civ. Code § 3426.1; Sargent, 110 Cal. App. 4th at

1665. Masimo’s contention that independent derivation “is relevant only to whether 

a trade secret was acquired through improper means” is not supported by the 

statutory language of CUTSA or Sargent. (See Appellant Brief at 39-40). 

The Court finds that the Bankruptcy Court did not commit legal error in its 

analysis of “use” under CUTSA.

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C. The Bankruptcy Court’s Findings That Information Was Either Not 

A Trade Secret Or Not Used By Sotera

For its third issue on appeal, Masimo argues that the Bankruptcy Court erred 

in its factual findings that the following information either was not a trade secret or 

not used by Sotera: (1) “custom alarm analytics” (2) “four breaths per minute” (3) 

“5 GHz” and (4) “installation forms.” The Court addresses each in turn, under a 

clear error standard. 

1. Custom Alarm Analytics

The first alleged trade secret at issue is “custom alarm analytics,” which is 

the marketing strategy of applying a particular methodological analysis to an 

individual hospital’s data in order to convince that hospital to adopt a program of 

new alarm thresholds and delays. (ER 156-57). The Bankruptcy Court found that 

“custom alarm analytics” was not a trade secret and that Sotera did not improperly 

misappropriate the concept. (ER 164). 

First, the Bankruptcy Court rejected the categorization of “custom alarm 

analytics” as a “technical product trade secret.” (ER 156). The particular 

methodological analysis that Masimo used to analyze hospital data was 

retrospective analysis. (ER 159). Masimo applied retrospective analysis to data 

aggregated from multiple hospitals and published the results in the industry journal 

Horizons. (ER 157). In finding that the process of gathering hospital data and 

applying retrospective analysis was not a trade secret, the Bankruptcy Court 

credited the testimony of Masimo’s expert witness, Bilal Muhsin, who admitted that 

the Horizons article “explain[ed] the ‘how’ sufficiently for replication.” (ER 161). 

Further, the Bankruptcy Court found that Sotera, through its engineer Scottie 

McCombie, created its own algorithm to conduct retrospective analysis. (ER 160). 

The Bankruptcy Court found McCombie’s testimony to be “highly credible” and 

corroborated by testimony from James Welch. (ER 161). Masimo does not appear 

to dispute that the technical elements of “custom alarm analytics” are not trade 

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secrets. Instead, Masimo focuses on “custom alarm analytics” as a sales 

technique. 

The Bankruptcy Court, in addressing “custom alarm analytics” as a sales 

technique, required Masimo to “show that applying the analytical method to a 

single hospital’s data, rather than an aggregation of data from multiple hospitals, 

and then presenting the results to that hospital [was] a trade secret.” Id. The 

Bankruptcy Court’s rejection of “custom alarm analytics” as a trade secret was not 

due to a per se rule that sales techniques could not be trade secrets, but rather 

because “Masimo did not meet its burden” to demonstrate that this particular sales 

technique was a trade secret. Id. The Bankruptcy Court highlighted the deficiency 

of the testimony from Muhsin, Masimo’s expert witness, explaining that

Mr. Muhsin did not fare well on cross examination. In particular, he 

steadfastly but with obvious discomfort, held to the opinion that 

analyzing data from a single site in a particular manner is a protected 

trade secret while analyzing data from multiple sites, in the same 

manner, something Masimo allowed to be discussed in a paper

produced by Mr. Welch, was not a trade secret. He admitted that 

analyzing and presenting data from five hospitals was not a secret; nor 

from three; nor from two. But just one was. There was no follow up on 

this testimony on redirect, and the Court, frankly, found the testimony 

nonsensical. The mere statement that something is a trade secret falls 

far short of what the Court needs to find that Masimo has met its burden 

of proof on this point. (ER 161-62).

The Court agrees. Because Muhsin’s testimony conceded that the 

sales technique of using a particular mode of analysis on data from two or 

more hospitals was not a trade secret, it was not clearly erroneous for the 

Bankruptcy Court to be unpersuaded by Masimo’s attempt to make a 

meaningful distinction between using the same mode of analysis on data 

from only one hospital. (See ER 1065-69).

Further, the Bankruptcy Court made an affirmative finding that “Sotera 

did not improperly misappropriate the concept because it was readily 

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ascertainable.” (ER 164-65). The Bankruptcy Court explained that the 

testimony of Masimo’s Joe Kiani, Paul Jansen, and Bilal Muhsin

demonstrated that individual hospitals have a perception that they have 

unique issues or circumstances, and therefore, customized analytics would 

have been the only way to effectively persuade them to change their alarm 

management systems. (ER 163-64). In support of its “readily ascertainable” 

finding, the Bankruptcy Court concluded that “anyone selling to these 

hospitals would be told the same thing.” (ER 164). 

In addition, to the extent that Masimo argues that the Bankruptcy Court 

legally erred in including a “readily ascertainable” factor into the definition of 

trade secret, that error did not effect the analysis of “customized alarm 

analytics.”4 The Bankruptcy Court treated “readily ascertainable” as a 

defense to misappropriation, and did not put any burden on Masimo to prove 

that “customized alarm analytics” was not readily ascertainable to establish 

it as a trade secret. See DVD Copy Control Ass'n, 31 Cal. 4th at 899 (“the 

assertion that a matter is readily ascertainable by proper means remains 

available as a defense to a claim of misappropriation”). 

The Bankruptcy Court’s finding that “custom alarm analytics” was not a trade 

secret and not misappropriated by Sotera was “plausible in light of the record 

viewed in its entirety.” See Anderson, 470 U.S. 564 at 574. The Court cannot 

conclude “upon a definite and firm conviction” that the Bankruptcy Court made a 

mistake. See Sepulveda, 878 F.2d at 1139.

 

4 Masimo points to one instance of the Bankruptcy Court using the term “reasonably ascertainable” rather than 

“readily ascertainable.” (ER 163). Five paragraphs later, the Bankruptcy Court properly uses the term “readily 

ascertainable.” (ER 164). Taken in the proper context, the stray usage of one imprecise term is not a material 

error.

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2. Four Breaths Per Minute Limit 

The second alleged trade secret at issue is “four breaths per minute,” which 

is the idea of reducing an alarm threshold to four breaths per minute as part of an 

alarm management strategy. (ER 138). While the Bankruptcy Court articulated

skepticism that “four breaths per minute” qualified as a trade secret, it never made 

such an affirmative finding. (ER 139). Instead, the Bankruptcy Court found that, 

regardless of the trade secret status of “four breaths per minute,” there was no 

misappropriation because Sotera independently determined to use four breaths 

per minute as the lower limit in its alarm management strategy. Id.

The Bankruptcy Court found the evidence of Sotera’s independent derivation 

of “four breaths per minute” both “compelling” and “overwhelming.” (ER 140-41). 

The Bankruptcy Court credited the testimony of Tom Watlington, who explained 

that Sotera analyzed 694 hours of patient data from “real live hospitals” to 

determine the incidence of rate alarms. (ER 140; SER 754). This analysis was the 

basis for Sotera’s decision to use four breaths per minute as a lower limit. Id. The 

Bankruptcy Court also credited the testimony of Jim Moon, who had experience 

with setting respiratory alarm thresholds and generally understood the clinical 

significance of lower respiratory limits. Id. Moon participated in the discussion at 

Sotera analyzing the data and setting the lower limit. Id. He testified that during

these discussions, Welch never disclosed information about Masimo’s respiratory 

rates. Id. The Bankruptcy Court found his testimony to be “highly credible” and 

“believe[d] him.” Id. Moon’s testimony that Welch never disclosed Masimo’s 

information during discussions was corroborated by the testimony of McCombie, 

who the Bankruptcy Court also described as “very credible.” (See ER 140, 1775, 

1852-53).

The Bankruptcy Court weighed this evidence against the testimony from 

Masimo’s Harold Walbrink, who concluded that Sotera must have used Masimo’s 

trade secret because: (1) Sotera lowered its respiratory limit to four breaths per 

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minute after the arrival of Welch; (2) Sotera did not have a medical advisor at the 

time it made the change; and (3) Welch and Hunt had downloaded Masimo 

documents related to this topic. (ER 139-40). The Bankruptcy Court validly found

Walbrink’s testimony to be a mere “facial analysis” that no more than “infer[ed] that 

Sotera relied on Masimo trade secrets.” (ER 140).

The Bankruptcy Court also considered an internal Sotera email between Don 

Bernstein and Welch, in which Bernstein wrote “do whatever else is necessary to 

literally mimic Masimo’s M1A1 Abram’s Tank.” (ER 4550). The Bankruptcy Court 

concluded that “this evidence was not compelling,” rejecting Masimo’s 

characterization of the email as a directive from Sotera to use Masimo’s trade 

secret. (ER 140). The Bankruptcy Court validly found that the email, in its proper 

context, was better characterized as “an exchange between a clinician providing 

Sotera input about Sotera’s default setting.” Id.

Masimo only identifies one piece of evidence on the record that the 

Bankruptcy Court did not explicity mention in its written order: a June 4, 2014 email, 

sent to six other Sotera employees, in which Welch explains that “short duration 

breath rates of 4-6 BPM are not harmful in the immediate sense.” (ER 4605; 

Appellant Brief at 52). However, the email, sent approximately one year after 

Sotera had already initiated its independent study on alarm thresholds and delays, 

does not definitively preclude Sotera’s independent derivation narrative. 

The Bankruptcy Court’s finding that Sotera independently derived the idea 

to use four breaths per minute as a lower limit in its alarm management strategy 

was “plausible in light of the record viewed in its entirety.” See Anderson, 470 U.S. 

564 at 574. The Court cannot conclude “upon a definite and firm conviction” that 

the Bankruptcy Court made a mistake in finding that there was no misappropriation

by Sotera of “four breaths per minute.” See Sepulveda, 878 F.2d at 1139.

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3. Moving to a 5 GHz wireless frequency

The third alleged trade secret at issue is “5 GHz,” which is the idea of moving 

from a 2.4 GHz wireless frequency to a 5 GHz one, for transmittal of patient data 

to a central monitoring station. (ER 154). Despite articulating some skepticism, the 

Bankruptcy Court assumed that “5 GHz” was a trade secret. Id. However, the 

Bankruptcy Court found, based on “overwhelming” and “credible” evidence, that 

there was no misappropriation because Sotera independently derived the idea. 

(ER 155). 

The Bankruptcy Court identified compelling evidence that Sotera had already 

begun moving towards a 5 GHz wireless frequency before Welch joined Sotera 

from Masimo in 2011. The Bankruptcy Court credited the testimony of Gary 

Manning, who explained that Sotera began seeking hospitals’ “expert opinions” on 

the requirement for a wireless monitoring system in 2008. Id. Moon also testified 

that Wi-Fi was identified as a critical need for Sotera’s ViSi device as far back as 

2009. Id. At the time however, the technology did not yet exist for a wireless chip

that was both small enough to fit Sotera’s ViSi device and able to support a 5 GHz

wireless frequency. Id. However, by 2011, Sotera had identified a manufacturer of 

a promising wireless chip that had potential to meet both Sotera’s size and wireless 

frequency goals. Id. The Bankruptcy Court credited a July 6, 2011 email, written 

two months before Welch’s arrival at Sotera, between Moon and the wireless chip 

manufacturer, referencing the need to get to dual band, 2.4 and 5 GHz, as quickly 

as possible. (ER 155, 4610). 

The Bankruptcy Court weighed this evidence against the following evidence 

from Masimo, which the Bankruptcy Court validly did not find compelling: (1) a 

declaration from Masimo’s expert, Walbrink, who concluded that Sotera began 

working towards a 5 GHz solution only after Welch joined Sotera. He pointed to an 

August 2011 product roadmap that listed 2.4 GHz as a “must have” and then, a 

month after Welch joined Sotera, an October 2011 roadmap that listed 2.4 and 5 

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GHz as a strategic area for discussion; and (2) an October 5, 2012 email from 

Welch stating that the move to 5 GHz must be prioritized. The Bankruptcy Court 

explained that “this statement of opinion in no way establishes that Mr. Welch and 

a Masimo trade secret caused Sotera to desire, specify, and finally incorporate 

dual band radio capacity into ViSi. The overwhelming and credible evidence 

supports that Sotera did not rely on Mr. Welch or a Masimo trade secret in this 

regard.” (ER 154-55, 4535). 

The Bankruptcy Court’s finding that Sotera independently derived the idea

to move to a 5 GHz wireless frequency was “plausible in light of the record viewed 

in its entirety.” See Anderson, 470 U.S. 564 at 574. The Court cannot conclude 

“upon a definite and firm conviction” that the Bankruptcy Court made a mistake in 

finding that there was no misappropriation by Sotera of “5 GHz.” See Sepulveda, 

878 F.2d at 1139.

//

//

4. Installation Forms

The fourth alleged trade secret at issue is “installation forms,” which are

questionnaire forms that Masimo developed and sent to hospitals to collect 

information about hospitals’ network infrastructure. (ER 149-50). The Bankruptcy 

Court accepted that the “installation forms” were trade secrets. (ER 150-51). 

However the Bankruptcy Court determined that there was no misappropriation 

because Sotera had not “used” the “installation forms.” (ER 151). 

There is no dispute that Hunt emailed the “installation forms” to Sotera 

employees. In the email, Hunt wrote

I have attached some IT forms from my days at Masimo. The 1965 was 

a requirement during either the late stages of the sales process 

(preferably) or right after getting the PO. The other one was for our 

requirement to have VPN access. Hope these help.

Gunnar Trommer, a Sotera employee, replied, copying another employee, Adam

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Vasquez:

Thank you for sharing. Adam, you might want to touch base with Dave 

and compare notes what you have in our RAQ and what Dave provided 

in these docs. There certainly is a “best practice” learning opportunity 

here...

(ER 149-50). 

The Bankruptcy Court credited the testimony of Vasquez, who stated that 

while he briefly reviewed the Masimo forms, he did not use them in any way to 

create or modify Sotera’s own forms. The Court found Vasquez’s testimony to be 

highly credible and supported by documentary evidence. (ER 151). Vasquez 

testified that he had been employed as a wireless network engineer since 2005 or 

2006. Id. In 2011, he was hired by Sotera to develop processes and procedures to 

install Sotera’s ViSi system on hospital networks. Id. At the time, Sotera already 

had documentation in place related to future implementation of ViSi at hospitals. 

Id. This documentation included a form, the Remote Assessment Questionnaire 

(“RAQ”), designed to collect information about a hospital’s wireless network. Id.

Vasquez was in charge of making updates to the RAQ. (ER 152). 

Vasquez compared versions of Sotera’s RAQ before and after Hunt’s email 

of Masimo’s “installation forms.” Id. The comparison revealed “several minor 

wording and ordering differences.” Id. The Bankruptcy Court validly concluded that 

any changes between the versions of Sotera’s RAQ were not material. Id. Vasquez 

further testified that in making any changes to the RAQ, he relied solely on his own 

experience and did not rely on any other company’s form. Id. While Vasquez saw 

Masimo’s “installation forms” sent from Hunt, he did not discuss the forms with 

Hunt. (ER 153). Additionally, Vasquez did not print out the forms and did not review 

them for more than a minute or two. Id.

The Bankruptcy Court weighed this evidence against the testimony of 

Masimo’s expert witness, Walbrink, who concluded that “Sotera’s forms 

implement[ed] many of the features from Masimo’s forms.” (ER 153, 3639-40). The 

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Bankruptcy Court found Walbrink’s conclusion to be suspect because he 

compared Masimo’s forms, which were designed to solicit information from 

hospitals before installation, to forms that Sotera used during and after installation

of their system. (ER 153). The Bankruptcy Court found Walbrink’s testimony to be 

an “apples versus elephants analysis” that relied on a “comparison [that was] 

meaningless in terms of hospital questionnaire form development.” Id. When the 

Bankruptcy Court identified Sotera questionnaires that were a more appropriate 

comparison to Masimo’s forms, it found mere “cosmetic changes” between the 

versions before and after Hunt’s email. Id. 

Masimo argues that the Bankruptcy Court legally erred in its finding that 

Sotera did not “use” Masimo’s “installation forms” because nothing more than 

“passive consideration” is required to establish “use” under CUTSA. (Appellant 

Brief at 57). As previously discussed, Masimo’s allegation of legal error is without 

merit and relies on an assertion of a rule derived from an overbroad reading of 

Syngenta that is divorced from its essential factual context. See Syngenta, 138 

Cal. App. 4th at 1172-73. CUTSA “does not define the term ‘use’” and “the meaning 

of the term may vary depending on the context.” See id. at 1172. The Bankruptcy 

Court validly found, that in this particular context, Vasquez’s one to two minute 

consideration of Masimo’s “installation forms,” accompanied by no further action, 

did not constitute “use.” See 02 Micro Int'l Ltd. v. Monolithic Power Sys., Inc., 399 

F. Supp. 2d 1064, 1072 (N.D. Cal. 2005) (“use does not mean mere possession of 

a trade secret or mere internal discussion within the company of a trade secret”).

The Bankruptcy Court’s finding that Sotera did not “use” Masimo’s 

“installation forms,” when Vasquez briefly reviewed the forms for a minute or two, 

was “plausible in light of the record viewed in its entirety.” See Anderson, 470 U.S. 

564 at 574. The Court cannot conclude “upon a definite and firm conviction” that 

the Bankruptcy Court made a mistake in finding that there was no misappropriation 

by Sotera of the “installation forms.” See Sepulveda, 878 F.2d at 1139.

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D. Masimo’s Request For Royalties

For its final issue on appeal, Masimo argues that the Bankruptcy Court failed 

to address Masimo’s request for a royalty for Sotera’s supposed misappropriation 

of thousands of Masimo documents. Masimo requests a remand in order for the 

Bankruptcy Court to consider Masimo’s request and decide whether royalties are 

appropriate. (Appellant Brief at 58). However, Masimo’s argument is premised on 

a misreading of the Bankruptcy Court’s order.

“[I]f neither damages nor unjust enrichment caused by misappropriation are 

provable, the court may order payment of a reasonable royalty for no longer than 

the period of time the use could have been prohibited.” Cal. Civ. Code § 3426.3(b).

A consideration of a royalty award is only triggered upon a finding of 

misappropriation. 

The Bankruptcy Court found that Welch copied more than 4,500 Masimo files 

and that Hunt copied approximately 2,500 Masimo files. (ER 115, 118). With 

respect to Welch, the Bankruptcy Court determined that when he “transferred 

Masimo files to his Sotera computer and when he opened any of them Sotera 

acquired Masimo trade secrets and, therefore, misappropriated Masimo trade 

secrets within the meaning of the CUTSA.” (ER 116). With respect to Hunt, the 

Bankruptcy Court determined that when he “transferred Masimo files to a Sotera

computer or flash drive and when he opened any of them Sotera acquired Masimo 

trade secrets and, therefore, misappropriated Masimo trade secrets within the 

meaning of the CUTSA.” (ER 119). The Bankruptcy Court’s misappropriation 

finding did not apply to all of the thousands of Masimo files copied, rather, it applied 

only to the files opened by Welch and Hunt. The Bankruptcy Court noted that “the 

universe of opened documents [was] small.” (ER 116). The Bankruptcy Court 

acknowledged that there was no dispute that Welch opened 5 Masimo documents 

and that Hunt opened 6 Masimo documents. (ER 115-16, 118-19). In total, the 

Bankruptcy Court awarded damages of $540,000 for Sotera’s misappropriation of 

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Masimo’s pricing and customer trade secrets. (ER 186, 189). 

Because the Bankruptcy Court found no misappropriation for the remaining

thousands of Masimo documents copied but not accessed or opened, the 

Bankruptcy Court did not err by not considering a royalty award.

E. Equitable Mootness

While the Court addresses the merits of Masimo’s appeal, Sotera argues 

that the Court should dismiss the appeal under the doctrine of equitable mootness

because the Bankruptcy Court confirmed Sotera’s reorganization plan on May 12, 

2017 (ER 4279 (“Confirmation Order)) and Masimo did not object to certain 

provisions of the Confirmation Order and did not appeal the Confirmation Order. 

(ECF 37 at 57-58). 

“Equitable mootness is a prudential doctrine by which a court elects not to 

reach the merits of a bankruptcy appeal. An appeal is equitably moot if the case 

presents transactions that are so complex or difficult to unwind that debtors, 

creditors, and third parties are entitled to rely on the final bankruptcy court order.”

In re Transwest Resort Properties, Inc., 801 F.3d 1161, 1167 (9th Cir. 2015)

(internal citation and quotations omitted). To determine whether an appeal is 

equitably moot, courts look at: (1) “whether a stay was sought, for absent that a 

party has not fully pursued its rights”, (2) “if a stay was sought and not gained, . . . 

whether substantial consummation of the plan has occurred”, (3) “the effect a 

remedy may have on third parties not before the court”, and (4) “whether the 

bankruptcy court can fashion effective and equitable relief without completely 

knocking the props out from under the plan and thereby creating an uncontrollable 

situation for the bankruptcy court.” In re Thorpe Insulation Co., 677 F.3d 869, 881 

(9th Cir. 2012).

As to the first factor, Masimo filed an emergency motion for a stay pending 

possible appeal of the confirmation order, which the Bankruptcy Court denied.

(SER 292). As to the second factor, substantial consummation has occurred as 

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the effective date of Sotera’s reorganization plan was May 22, 2017. (SER 285). 

As to the third factor, Sotera makes no mention of the effect a remedy may have 

on third parties not before the Court. (See ECF No. 37 at 60). As to the fourth 

factor, the Bankruptcy Court originally awarded Masimo a claim of $558,000. (ER 

191). However, Sotera’s reorganization plan permits Masimo’s relief to draw from 

the $3,325,000 set aside for the Class 6 Pool. (SER 1311). Accordingly, upon 

remand, the Bankruptcy Court would be able to award more than the original 

amount of $558,000 without serious disruption to the plan. Therefore, the Court 

can fashion “effective and equitable relief without completely knocking the props 

out from under the plan and thereby creating an uncontrollable situation.” See In 

re Thorpe Insulation Co., 677 F.3d at 881. 

Because the factors do not weigh in favor of applying equitable mootness, 

the Court declines to dismiss Masimo’s appeal on this basis.

IV. CONCLUSION AND ORDER

For the foregoing reasons, the Court AFFIRMS the order of the Bankruptcy 

Court. The clerk shall enter judgment accordingly.

IT IS SO ORDERED.

Dated: September 11, 2018

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