Opinion ID: 4076467
Heading Depth: 4
Heading Rank: 2

Heading: Harm to Avaya

Text: All of the common law claims at issue have as an element that Avaya establish actual damages resulting from TLI’s unlawful activity. At trial, Avaya presented evidence of several avenues through which TLI’s alleged misappropriation of maintenance access caused it financial harm. First, Avaya lost license revenue when TLI provided the misappropriated access to its customers, who would otherwise have had to license access from Avaya. Scott Graham testified that TLI provided customers with logins that went beyond the base customer logins. Douglas Graham testified to a specific instance in which TLI provided a highlevel password to a client so that the client would “not have to pay Avaya for MSPs.” (J.A. 2720.) Shelby testified that TLI would “tell prospective customers that they did not need to pay for MSPs if they were to become a TLI maintenance customer,” “because [TLI] had another method to gain access.” (J.A. 3033.) Second, TLI would itself sell passwords to customers, as was established by Douglas Graham’s testimony. He described how TLI charged “setup fees” for customers who needed a new password. (J.A. 2750.) Also, “[t]here was a time where [TLI] would charge customers if [TLI] had to get a second password.” (J.A. 2750.) That TLI revenue gained by selling Avaya’s proprietary information could be a basis for disgorgement damages. Third, and most importantly, the allegedly misappropriated access enabled TLI to compete directly with 32 Avaya for maintenance customers, costing Avaya profit in its high-margin maintenance business. Scott Graham testified that, from 2001 on, TLI competed with Avaya for maintenance dollars. Douglas Graham acknowledged that, since that time, TLI “marketed ... its own maintenance, to existing Avaya maintenance customers,” and he identified one customer in particular that TLI “took over” from Avaya. (J.A. 2704-05.) Shelby acknowledged that TLI “targeted PBX owners with existing maintenance contracts because they were the ones ... who were most likely to spend money on PBX maintenance.” (J.A. 2983.) He also stated that, of those existing maintenance contracts, “[t]he vast majority were with Avaya.” (J.A. 2983.) Avaya presented evidence that TLI’s ability to compete for that business depended on the maintenance access that Avaya contends was misappropriated. Scott Graham agreed that “unless [TLI] could access the maintenance commands built into the software, [it] couldn’t ... do the maintenance.” (J.A. 2385.) He also stated that “[s]ome of the services” offered by TLI for the PBX maintenance at issue “do require the maintenance commands.” (J.A. 2294.) And he acknowledged that “generally” the commands at issue “can’t be executed by a customer level login with no MSPs,” hence requiring a higher-level login of the type that was gained by the various means just described. (J.A. 2294.)19 19 Avaya presented a specific example through the testimony of one maintenance client who was courted by TLI. That witness testified that his firm had traditionally used Avaya maintenance (either directly or through Business Partners), switched to TLI under the mistaken belief that it 33 The competition for business was especially costly to Avaya because maintenance was a major driver of the profits from its PBX and PDS systems.20 Avaya’s profit margin on the sale of PBX systems was substantially lower than its profit margin on the whole range of maintenance products. was a Business Partner, then terminated that arrangement upon discovering that TLI was not “able to provide [them] with the proper login credentials to support and administer the system” and thereafter “went back to Avaya for support.” (J.A. 2510.) Avaya therefore presented not only generalized evidence that TLI’s maintenance contracts were at Avaya’s expense, but a concrete example of how that substitution worked. 20 Indeed, Douglas Graham noted in an email that Avaya would frequently take losses in order to retain its extant maintenance contracts, another facet of TLI’s competitive strategy: TLI continues to have significant success in taking over existing Avaya maintenance contracts. Even when TLI loses, in most cases Avaya has to take a significant loss to win the deal. For example, TLI just lost International Paper. At the time of TLI’s proposal, International Paper was paying Avaya over $4,000,000 a year. TLI’s proposal was for $2,800,000 a year. I have not gotten all the details, but I am confident that Avaya had to partner with a Business Partner and take a significant loss to keep TLI from winning this deal. (J.A. 6363.) 34 Even if Avaya did not retain the customer as a direct service client, the two other authorized routes for customers to obtain maintenance service – purchasing service from a Business Partner or purchasing licenses for self-maintenance – would also have benefited Avaya financially. As an Avaya executive testified, when a customer signs on with a Business Partner, it becomes a “customer ... that [Avaya] can look to sell additional products to.” (J.A. 2065) In some cases, the Business Partner would in turn sell Avaya maintenance service, providing direct revenue to Avaya. Even if the Business Partner sold its own branded maintenance, any such service was “going to ... include[] ... some Avaya content,” hence yielding business for Avaya. (J.A. 2569.) 21 Moreover, if the jury credited Avaya’s case, it would have been able to apportion damages to different conduct, because it had evidence of TLI’s total maintenance earnings and the proportion of maintenance attributable to each form of allegedly unlawful access. Avaya’s accounting expert testified that, depending on which profit model was believed (the plaintiff’s or the defendant’s), TLI made between $20,260,092 and $31,160,190 from its maintenance of Avaya PBX systems between 2003 and 2010. TLI’s own analysis concluded that its maintenance services were based on logins procured in the following proportions: 8% was “obtained 21 Not incidentally, a maintenance relationship either directly with Avaya or with an authorized Business Partner also allowed Avaya to assert quality control over maintenance, which helped protect the value of Avaya’s brand reputation. When it came to independent providers, Avaya was “concerned about the quality of maintenance service that the customer receives.” (J.A. 2065.) 35 from Avaya when TLI was a Business Partner” (J.A. 2423); 1% was using “a well-known Business Partner password” (id.); 5% was based on deceptive requests from other Business Partners; 24% was “obtained through Mr. Creswick” (J.A. 2424); 28% was “using a login that the customer had provided it access to” (id.); 17% was obtained through a “default login or password” (id.); and 16% was “obtained internally,” including “through use of the known key with Mr. Hall” and TLI’s internally-developed cracking method (id.). If the jury found each of those courses of conduct to be unlawful, the total would account for 99% of the profit that TLI garnered from its Avaya PBX maintenance business. Even limiting the analysis to just the more obviously problematic conduct – deceptive log-in requests, hacking and cracking, and using passwords TLI gained as a Business Partner – it accounts for 53% of TLI’s business. With all the foregoing considerations taken together, we conclude that Avaya presented substantial evidence that, but for TLI’s competition, made possible only by its alleged theft of proprietary information, Avaya would have received a significant portion of the money TLI’s clients spent on maintenance. Further, it would have been feasible for the jury to attribute particular losses to particular conduct.