3 minute read | April.30.2020
The latest appellate decision in the nearly 20-year legal battle between Ajaxo and E*Trade highlights the importance of expert discovery and a well-developed trial court record for a plaintiff attempting to claim reasonable royalties for trade secret misappropriation.
The saga between Ajaxo and E*Trade began back in the late 1990s, with Ajaxo, a six-person company, approaching E*Trade, seeking to support its wireless access and trading business. In response, E*Trade asked Ajaxo for a technical paper and live demonstrations, during which E*Trade’s engineers peppered Ajaxo with questions. One E*Trade senior engineer, Dan Baca, made a copy of Ajaxo’s technical binder. After E*Trade sent Ajaxo a draft letter of intent—with everything but the dollar amount filled in—E*Trade had a change of heart and told Ajaxo it was simply too small to be an E*Trade partner. Instead, E*Trade acquired these services a short time later from Everypath, a company that it had been meeting with simultaneously, and where Dan Baca started to work shortly after attending the Ajaxo meetings.
Ajaxo sued E*Trade, alleging, inter alia, breach of the parties’ NDA and trade secret misappropriation. After a seven-week trial on Ajaxo’s claims for breach of the NDA and misappropriation of trade secrets, a jury found in favor of Ajaxo and awarded $1.3 million on the NDA breach and nothing for misappropriation. After a round of appeals, the court of appeals remanded for a second trial on the issue of unjust enrichment damages. Ajaxo lost and appealed again. The court of appeals remanded the case for consideration of reasonable royalties. After a third trial, the trial court declined to award Ajaxo any reasonable royalty. (The trial court order is covered extensively here.) Ajaxo appealed again, asking the court of appeals to overrule the trial court’s denial of a reasonable royalty.
Finding that the trial court did not abuse its discretion in denying Ajaxo’s request for a royalty, the court of appeals’ opinion provides important guidance for those pursuing a reasonable royalty for trade secret misappropriation: