* T hi s di s pos i t i on i s notappr opr i a t e f orpubl i c a t i on and i s notpr e c e de nt e xc e pta s pr ovi de d by 9th C i r . R . 36- 3. NOT F OR P UB L I CAT I ON UN I TE D STATE S C OU RT OF APPE ALS FOR T HE NI NTH CI RC UI T MANA GE ME NT AN D E NG I NE E R I NG TE CHNO LOGI ES I NTERNA TI ON AL, I N C . , aT e xa s c orpor a t i on, P l ai nt i ff

- A pp el l ee , v. I NFORM ATI ON SYST EM S S UPPORT , I N C . , aM a ry l a nd c orpor a t i on, D e f

e n d a n t - A p p e lla n t, a nd R OS S R OME O, D e f

e n d a n t. N o. 10- 17784 D . C . N o . 4 : 0 6 - c v - 0 0 0 7 7 - J MR ME MOR AN DU M *

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# FI LED JU L 23 2012 M OLLY C. DW Y ER, CLERK U . S. C O U R T OF APPE ALS2

I N C . , aM a ry l a nd c orpor a t i on, D ef

endant- A pp el l ee , a nd R OS S R OME O, D e f

e n d a n t. A pp ea l s f

rom the U ni t ed S t at es D i stri ctC ou rt f orthe D i s tr i c tof

A r i z ona J ohn M . R ol l , D i s tr i c tJ udge , P r e s i di ng A r gue d a nd S ubm i tt e d A pr i l 20, 2012 S a n F r a n c is c o , C a lif

o rn ia B efo re: S C H R O E D E R , T H O M A S , an d G R A B E R , C i rcu i tJu d g es. Inform at i on S ys t em s S up po rt , Inc. (I S S ), appeal s the j ud gm entent er ed agai nsti taf

t era j ury tri al . W e a ff

i rm i n p art , vaca t e i n p art , and rem and for further proceedi ng s. In a c ross -app ea l , M anagem entand E ng i neer i ng T ec hn ol og i es Int ernat i on al , Inc. (M E T I) , chal l enges the deni al of i t s m ot i on s f or exem pl ary da m a ge s a nd a tt orne y f

e e s . W e a f

f i rm . B e c aus e the pa r t i e s a r e f a m i l i a rw i th the f a c tu a l a n d p r o c e d u r a l h is to ry o f th is c a s e , w e n e e d n o t r e c o u n t it h e r e . I W e r e vi e w de novo the di s tr i c tc our t ’ s de ni a l of I S S ’ s m ot i on f

orj udgm e nt as a m att erof l aw . W e w i l l up ho l d the j ury’ s ver di ctso l on g as “ there i s e vi dence3

a d e q u a t e t o s u p p o rtth e j u ry ’ s c o n c l u s i o n , e v e n i f i ti s a l s o p o s s i b l e t o d r a w a contraryconcl usi on . ” EE O Cv. G o D addy So f tw are, Inc. , 5 8 1 F .3 d 9 5 1 , 9 6 3 ( 9 th C i r. 20 09 ) ( i nt ernal qu ot at i on m arks om i tt ed); s e e a ls o H a n g a r te rv . P r o v ide n t L ife & A c c i de nt

I ns . C o. , 37 3 F . 3d 99 8, 10 05 (9th C i r. 20 04 ). A generalverdi ctm ay st and i f the courti s “ abl e t o con strue ageneralverdi ctas attri bu t abl e t o a theory subm i tt ed t o the j ury thatw as vi abl e. ” W e bb v . Sloan , 330 F . 3d 1158, 1166- 67 ( 9 th C ir . 2 0 0 3 ) . T he e vi de nc e w a s s uf

f i c i e ntt o s uppor tM E T I ’ s the ory tha ti t s pr of i tm a r gi n, a s w e ll a s its g e n e r a l a n d a d m in is tr a tiv e e x p e n s e r a te s , c o n s titu te d tr a d e s e c r e ts u n d e rA r iz . R e v . S ta t. § 4 4 - 4 0 1 ( 4 ) . M E T I ’s p r e s id e n t te s tif ie d th a t M E T I c a r e f

u lly gua r de d thi s c onf

i de nt i a l f i na nc i a l i nf

orm a t i on by ( 1) ke e pi ng pr i nt e d ve r s i ons of i t s f i na nc i a l i nf

orm a t i on i n avaul ta ti t s c orpor a t e of f i c e s , ( 2) pa s s w or d pr ot e c t i ng i t s e l ec troni c docum ent s s o thatthe fi l es w er e a cc es si bl e onl y t o tho se w ho had s i gne d anon- di s c l os ur e a gr e e m e nt , a nd ( 3) s t a m pi ng a“ c onf i de nt i a l , nond i s c l o s u r e ” n o t i c e o n e v e ry p a g e o f e v e ry g o v e rn m e n tc o n tr a c tp r o p o s a l . He further t es t i fi ed thatthi s c on fi dent i al fi nanci al i nform at i on w ou l d h ave been e c onom i c a l l y va l uabl e t o ac om pe t i t orl i ke I S S s e e ki ng t o out - c om pe t e M E T I i n a bi d f oral uc r a t i ve c ontr a c t . M E T I ’ s e xpe r tw i tne s s M a rk P e t e r s on c onf i rm e d the val ue of thi s i nform at i on . T hu s, suff i ci entevi dence s up po rt ed the concl usi on that4

M E T I’ s profi tm ar gi n, as w el l as i t s gener al and adm i ni stra t i ve expense ra t es , w er e e c o n o m ic a lly v a lu ab le a n d r e a s o n ab ly s a f e g u a r d e d . See A r i z . R e v. S t a t . § 44- 4 0 1 ( 4 ) ; se e al

so E nt er p. L easi ngC o. of

P ho eni x v . E hm ke , 3 P . 3d 1064, 1068 (A ri z. C t . A pp . 19 99 ) ( “ T he thres ho l d d et erm i nat i on [of] w hether t o p rot ec t i nf orm a t i on a s atr a de s e c r e t. . . de pe nds upon the na tur e of the i nf orm a t i on a nd th e c ir c u m s ta n c e s s u rr o u n d in g its s e c r e c y a n d th e m a in te n a n c e th e r e o f .” ) . M E T I a ls o p r e s e n te d d ir e c t a n d in f e r e n tia l e v id e n c e s u f

f ic ie n t to s u p p o r t its a s s e r tio n th a t I S S m is ap p r o p r ia te d th e s e p a r tic u la rtr a d e s e c r e ts . See A r i z . R e v. S t at . § 4 4 -4 0 1 (2 ). Ju stb efo re h i s d ep artu re fro m M E T I t o j o i n IS S , em p l o yee R o ss R o m e o d o w n lo a d e d th o u s a n d s o f c o n f id e n tia l f in a n c ia l d o c u m e n ts o n to m u ltip le f l a s h dr i ve s . R om e o us e d s om e of thi s i nf orm a t i on i n aP ow e r P oi ntpr e s e nt a t i on d e liv e r e d to I S S s ta f

f a t a n e x e c u tiv e p la n n in g m e e tin g . I S S s a v e d th is p r e s e n ta tio n o n its s h a r e d n e tw o rka n d c o n tin u e d to r e f e r e n c e th e in f

o rm a tio n in l a t e rs tr a t e gy di s c us s i ons . I S S the n l a t e rs ol d a l l of i t s a s s e t s , i nc l udi ng the com pu t er s c on t ai ni ng M E T I’ s profi tm ar gi n and expense r at es , t o a l ar ger f i rm that part i ci pat ed i n a bi d agai nstM E T I. Th u s , s u f

f i c i e n te v i d e n c e s u p p o r t e d th e j u ry ’ s f i n d i n g th a tI SS m i sapp ropri at ed M E T I’ s tra de se cr et s. A l tho ug h IS S ar gu es i n the al t ernat i ve that i tsi m pl y posse ss ed, bu tdi d n otuse or di sc l ose M E T I’ s tra de se cr et s, the j ury w as5

notr e qui r e d t o be l i e ve thi s r e ndi t i on of the f a c t s , a nd w e m a y nots ubs t i tut e our v ie w o f th e e v id e n c e f

o rth a t o f th e ju ry ’s . Se e P av ao v . P agay , 307 F . 3d 915, 918 ( 9 th C ir . 2 0 0 2 ) ; see a l

so G o D a dd

y So f tw a re , 581 F . 3d a t961. II T he di s tr i c tc ourtdi d notabus e i t s di s c r e t i on i n a dm i tt i ng the t e s t i m ony of M ark P et er son, M E T I’ s e xp ertw i tness . A tthe t i m e of tri al , P et er son w as the C hi ef E xecut i ve O ff

i ce r of hi s ow n i nt el l ec tual prop erty c on sul t i ng com pany and h ad m ore than tw o d ec ades of experi ence val ui ng i nt el l ec tual prop erty i n d am ages litig a tio n a n d f

o rlic e n s in g tr a n s a c tio n s . P e te r s o n th u s s a tis f ie d th e th r e s h o ld r e q u ir e m e n ts p r o v id e d in R u le 7 0 2 o f th e F e d e r a l R u le s o f

E v id e n c e . See D a u b ert v. Merre l l

D ow P ha rm . , Inc. , 5 0 9 U .S . 5 7 9 , 5 9 7 ( 1 9 9 3 ) ; s e e al s o P r i m i ano v . C ook , 598 F . 3d 558, 564 ( 9th C i r . 2010) ( “ S ha ky buta dm i s s i bl e e vi de nc e i s t o be a tt a c ke d by c r os s e xa m i na t i on, c ontr a ry e vi de nc e , a nd a tt e nt i on t o the bur de n of proo f, no texcl usi on . ”) . II I W e c o n c l u d e th a tth e e v i d e n c e s u p p o r t s th e j u ry ’ s d e c i s i o n t o a wa r d M ET I d am ag es u n d er a reaso n ab l e ro yal ty th eo ry o f l i ab i l i ty. A ri zo n a l aw p erm i t s a c om pl a i na ntt o r e c ove rda m a ge s f orm i s appr opr i a t i on unde rthi s the ory “ by im p o siti o n o f liab il ity f

o r a re as o n ab le ro ya lty” re su lt in g fr o m “a m isap p ro p riato r’s6

u n au th o r iz e d d is c lo s u r e o ru s e o f atr a d e s e c r e t.” A r iz . R e v . S ta t. § 4 4 - 4 0 3 ( A ) . H er e, the j ury aw ar ded d am ages because i tfoun d thatM E T I had suff er ed a harm w h en IS S u sed i t s trad e secrets for strat eg i c p l an n i n g p u rp o ses. W e h av e n o cau se t o d i stu rb th e ap p l i cat i o n o f th i s l i ab i l i ty th eo ry. W e c onc l ude , how e ve r , the e vi de nc e doe s nots uppor tthe a m ountof da m a ge s tha tthe j ury a w a r de d t o M E T I . A l though, a s w e ha ve di s c us s e d, the e vi de nc e w a s s uf

f i c i e ntt o s uppor tatr a de s e c r e tthe ory f ounde d on the m is ap p r o p r ia tio n o f

c o n f id e n tia l f in a n c ia l in f

o rm a tio n , th a t th e o ry w a s n o t th e s o le basi s upo n w hi ch M E T I c l ai m ed dam ages . M E T I a l so re l i ed on tra de se cr et th e o r ie s th a t f

a ile d a s am a tte ro f

la w b e c au s e th e y r e s te d o n p u b lic in f o rm a tio n . See E hm ke , 3 P . 3d a t1069 ( “ [ M ] a tt e r s tha ta r e publ i c know l e dge a r e not s a f e gua r de d a s tr a de s e c r e t s . ” ) ( c i t i ng Ke w ane e O i l C o. v . B i c r on C or

p. , 4 1 6 U . S. 47 0, 47 5 (19 74 )) . I n p a rtic u la r , M E T I c o n te n d e d th a t its e m p lo y e e r o s te rw a s atr a d e s e c r e t, bu tt es t i m on y a ttri al re veal ed thatthe rost erw as nei ther c l as si fi ed no r the subj ec t of a ny pa rt i c ul a re f

f ortt o s a f e gua r d i t s s e c r e c y . I nde e d the i de nt i t i e s a nd pos i t i ons of the e m pl oy e e s on the r os t e rw e r e ge ne r a l l y know n t o thos e w orki ng a tthe g o v e rn m e n t f

a c ility , a n d o n ly af

r a c tio n o f

th o s e lis te d w e r e M E T I e m p lo y e e s . T he em pl oyee rost erw as there fore no ta tra de se cr etun der A r i z . R e v. S t a t . § 44-7

40 1(4). S i m i l ar l y, M E T I’ s r anki ng by C arnegi e M el l on ’ s C apabl e M aturi ty M od el I nt e gr a t i on pr ogr a m di d notc ons t i tut e atr a de s e c r e t . T he C a rne gi e M e l l on p r o g r a m is a n in d u s try - w id e “p r o c e s s im p r o v e m e n t” m o d e l. M E T I ’s r a n k in g in thi s program w as avai l abl e t o the pu bl i c and ea si l y a cc es si bl e throu gh an i nt ernet s e a r c h . C

f . W ri gh t v. P alm er , 464 P . 2d 363, 366 ( A r i z . C t . A pp. 1970) ( A tr a de s e c r e tm us tbe “ of

s uc h ac ha r a c t e rtha ti tw oul d notoc c urt o pe r s ons i n the tr a de w i th the kn ow l edge of the st at e of the art ”) . A ttr i a l , P e t e r s on di d notappor t i on va l ue a m ong the l e ga l l y va l i d a nd the l egal l y i nv al i d al l eged tra de se cr et s. R ather, he t es t i fi ed abou tthe hypo thet i ca l nego t i at ed pri ce thatIS S w ou l d h ave pai d for a ll of the i nf orm a t i on a l l e ge d t o be tr a de s e c r e t s . P e t e r s on a l s o s pe c i f i c a l l y c onc e de d tha ta n a dj us tm e ntof the dam ages am ou ntw ou l d b e r equi re d i f s om e of the tra de se cr ettheori es w er e l e ga l l y i ns uf

f i c i e nt . A c c or di ngl y , the e vi de nc e w a s i ns uf f i c i e ntt o s uppor tthe a m o u n t o f

th e ju ry ’s d a m a g e s a w a r d . C f . H arper v . C i t

y of L os A ng eles , 533 F . 3d 1 0 1 0 , 1 0 2 8 - 2 9 ( 9 th C ir . 2 0 0 8 ) ( u p h o ld in g ju ry a w a r d “[ u ]n le s s th e a m o u n t is grossl y e xces si ve or m on strous, cl earl y notsupp ort ed by the evi dence, or base d on l y on specul at i on or gu es sw ork”) ( i nt ernal qu ot at i on m arks om i tt ed). W e are there fore com pel l ed t o v ac at e the dam ages aw ar d and re m and the m att erfor f urther p ro ceed i n g s.8 IV T he di stri ctcourtdi d n oterr i n d enyi ng M E T I’ s m ot i on for e xem pl ary d a m a g e s p u r s u a n t to A r iz . R e v . S ta t. § 4 4 - 4 0 3 ( B ) . A r iz o n ala w p r o v id e s th a t a c o u r t m ay a w a r d e xe m pl a ry da m a ge s i f w i l l f ul a nd m a l i c i ous m i s appr opr i a t i on occurre d. T he di stri ctcourtdeci ded n ott o m ake s uch an aw ar d h er e, st at i ng that “[ t]h e ju ry d e c lin e d to g r a n t p u n itiv e d a m a g e s . . . a n d th e C o u r t w ill n o t ta k e th is o p p o r tu n ity to d o s o .” C o n tr a ry to M E T I ’s a r g u m e n t, w e d o n o t c o n s tru e th is c om m e ntt o m e a n the di s tr i c tc our tappl i e d a n i nc orr e c te vi de nt i a ry s t a nda r d. C f. Y e t iby Mol l

y L td. v . D e c ke rs O utdoorC or p. , 25 9 F . 3d 11 01 , 11 11 -12 (9th C i r. 2001) ( hol di ng tha tthe di s tr i c tc our te rr e d by r e f us i ng t o c ons i de rm ot i on f or e x e m p la ry d a m a g e s o n b a s is th a t ju ry h a d d e c id e d n o t to a w a r d p u n itiv e d a m a g e s ) . N ordo w e c onc l ude tha tthe di s tr i c tc our te rr e d i n de ny i ng M E T I ’ s m ot i on f or a tt orne y f

e e s unde rA r i z . R e v. S t a t . § 44- 404. L i ke A r i z ona ’ s pr ovi s i on r e ga r di ng d a m a g e s a w a r d s , th is s ta tu te is p e rm is s iv e a n d M E T I o f f e r s n o c r e d ib le a r g u m e n ts abou tho w the di stri ctcourtm i gh thave abused i t s di sc re t i on i n d enyi ng the fe e r e q u e s t. A FFI R M ED i n pa r t ; VA C A TED i n pa r t ; a nd R EM A N D ED . The p a r t ie s s h a ll b e a r t h e ir o w n c o s t s o n a p p e a l.