Ajaxo, Inc. v. ETrade Financial Corp.

Citation: Not availableDocket: H042999

Court: California Court of Appeal; April 23, 2020; California; State Appellate Court

Original Court Document: View Document

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In the case Ajaxo, Inc. v. E*Trade Financial Corporation, a jury in 2003 found E*Trade liable for trade secret misappropriation and breach of a nondisclosure agreement, awarding damages only for the breach of contract after a nonsuit on trade secret damages. Following an appeal, a second jury trial in 2008 resulted in no net damages for unjust enrichment, and the trial court denied Ajaxo’s request for a reasonable royalty under the California Uniform Trade Secret Act (CUTSA). This court reversed the denial, allowing for a reasonable royalty to be assessed if damages were not provable. Upon remand, the trial court held a bench trial but ultimately declined to award any royalty, entering judgment for E*Trade and granting its costs. Ajaxo appealed, challenging the denial of a reasonable royalty, the motion for a new trial, and the award of costs to E*Trade. The appellate court reviewed whether the trial court abused its discretion in denying the royalty based on Ajaxo's failure to provide credible evidence and also examined the prevailing party determination and costs award. The court concluded that the trial court did not abuse its discretion regarding the reasonable royalty and found no reversible error in the other issues, affirming the judgment and costs in favor of E*Trade. Extensive case history is referenced from previous appellate decisions for context.

The dispute originated in 1999 when Ajaxo proposed to license its wireless transaction technology, Wirelessproxy XO, to E*Trade, which sought to enable online stock trading via web-enabled wireless phones. Both parties entered a nondisclosure agreement to protect proprietary information, and Ajaxo provided several technology demonstrations. E*Trade initially planned to counter Ajaxo's licensing proposal of $860,000 but later offered $200,000 plus additional fees per device platform before ultimately withdrawing, citing Ajaxo's size as a concern. Shortly thereafter, E*Trade partnered with Everypath, Inc. for its wireless trading solution, despite Everypath lacking a suitable product at the time.

In October 2000, Ajaxo filed a lawsuit against E*Trade and Everypath, alleging misappropriation of trade secrets, breach of the nondisclosure agreement, and seeking compensatory damages and royalties under the California Uniform Trade Secrets Act (CUTSA). The case was tried in 2003, where evidence revealed E*Trade's financial support of Everypath and interactions between E*Trade employees and Everypath during the evaluation of Ajaxo's technology. An expert witness testified that Everypath's technology closely mirrored Ajaxo's, making independent development unlikely.

The trial court granted a partial nonsuit on Ajaxo's unjust enrichment claim due to insufficient evidence but allowed liability for misappropriation to proceed. The jury found E*Trade liable for breaching the nondisclosure agreement, awarding Ajaxo $1.29 million in damages. Additionally, both E*Trade and Everypath were found liable for trade secret misappropriation, but no damages were awarded due to the nonsuit. Ajaxo subsequently sought a permanent injunction against the use of its trade secrets.

The trial court denied Ajaxo’s claim for injunctive relief and rejected various posttrial motions, including E*Trade's requests for a new trial and judgment notwithstanding the verdict. In the first appeal (Ajaxo I), the appellate court found that the trial court incorrectly granted a nonsuit regarding damages for the trade secret misappropriation. The court noted that Ajaxo's claims for breach of contract and misappropriation were interconnected, with evidence from the nondisclosure agreement indicating E*Trade's unjust enrichment from disclosing Ajaxo's trade secrets. The appellate court reversed the judgment and remanded the case for a new trial on misappropriation damages.

During the second trial, the jury was tasked with determining the extent of E*Trade’s unjust enrichment from Ajaxo’s trade secret misappropriation. Ajaxo aimed to demonstrate over $300 million in unjust enrichment, focusing on licensing discussions and expert evaluations of E*Trade's wireless trading benefits. However, Ajaxo's expert did not assess E*Trade’s actual profits or the low percentage of clients using wireless trading. E*Trade countered by showing that its wireless trading operations incurred losses of approximately $2.5 million due to expenses exceeding commissions. The jury ultimately awarded no damages, valuing E*Trade’s benefit from the misappropriation at approximately $3.99 million but recognizing expenses of about $6.41 million, leading to a net loss.

Afterward, Ajaxo sought reasonable royalties under section 3426.3, subdivision (b), but the trial court sided with E*Trade, contending that Ajaxo had not proven unjust enrichment damages and thus could not claim royalties. The appellate court (Ajaxo II) disagreed, interpreting the statutory language and legislative intent of the California Uniform Trade Secrets Act (CUTSA) to allow for reasonable royalties even when unjust enrichment is not proven in terms of net gains.

Refusing to consider a reasonable royalty in cases where liability is established but the defendant has not profited would disregard the potential nonpecuniary benefits derived from trade secret theft and undermine public policies aimed at fostering innovation and commercial ethics. The court concluded that if a defendant has not gained any profit or calculable benefit from misappropriating a trade secret, unjust enrichment is not provable under section 3426.3, subdivision (b), regardless of whether this is evaluated as a legal or factual matter. E*Trade's assertion that Ajaxo's actual losses were provable was rejected, although Ajaxo II indicated that some evidence could help the trial court estimate a reasonable royalty, including the negotiation history between the parties and the licensing price E*Trade paid to Everypath. Consequently, Ajaxo II determined that since neither actual loss nor unjust enrichment could be established, the trial court had the discretion to award a reasonable royalty under section 3426.3, subdivision (b), leading to a remand for the trial court to exercise that discretion.

On remand, the parties disagreed on implementing Ajaxo II, prompting the trial court to bifurcate the proceedings into two phases: first assessing Ajaxo's entitlement to royalties, followed by determining the amount if any were awarded. The phase I trial addressed whether Ajaxo was entitled to any monetary award, involving extensive witness testimony and exhibits. Ajaxo argued that it had sufficient evidence from prior trials to warrant a reasonable royalty, highlighting E*Trade's disclosure of the trade secret and the financial benefits gained from using it via Everypath. Ajaxo maintained that the statutory discretion did not allow withholding a reasonable royalty when entitlement was proven and that separate damages for trade secret misappropriation were justified despite E*Trade's lack of profit in wireless trading.

Ajaxo denied any allegations that its founder, Sing Koo, had destroyed evidence or obstructed the litigation process, asserting that the spoliation issue regarding source code and hardware had already been resolved in previous trials. Ajaxo highlighted the jury's rejection of E*Trade’s unclean hands defense in the first trial and the trial court's dismissal of E*Trade’s motion for terminating sanctions in the second trial. Conversely, E*Trade accused Ajaxo of intentionally destroying evidence and providing false testimony, claiming this hindered a fair assessment of the royalty claim. E*Trade pointed out that Ajaxo’s principals had eliminated all relevant financial data and destroyed key components of Ajaxo's wireless application, making it impossible to evaluate the trade secrets and assign a royalty value. E*Trade also argued that Ajaxo had already been compensated for the misappropriation of its trade secret through a $1.29 million payment for breach of a nondisclosure agreement and a separate $90 million default judgment against Everypath. E*Trade contested the legitimacy of any royalty claim based on Everypath’s use of the trade secret and emphasized that any reasonable royalty amount would be less than what Ajaxo had already received. The trial court denied Ajaxo's request to advance to phase II of the trial, leading to a phase I trial where both parties presented live testimony and evidence. Koo served as Ajaxo's sole witness and expert on royalty entitlements, proposing three models for determining royalties based on E*Trade's use of Ajaxo’s trade secret. E*Trade objected to Koo’s testimony regarding these models, stating he had not disclosed his opinions prior to trial; however, the trial court allowed his testimony, with the option for E*Trade to later file a motion to strike.

Koo testified regarding the destruction of evidence claims related to E*Trade, detailing an incident in January 2006 during a prior litigation involving KC Multimedia, where a laptop used as Ajaxo’s development server was inspected. Following the start of the inspection, Koo was informed that the hard drive had been "wiped clean." He ordered the inspection to cease until his arrival, but by the time he arrived, the expert had left. Koo noted the hard disk was encrypted, rendering it unreadable when removed from the laptop, and expressed distress over the situation. After the KC Multimedia litigation, the laptop was returned to Koo but was nonfunctional, leading him to dispose of it.

E*Trade presented several witnesses regarding the destruction of source code and documentation containing Ajaxo’s trade secrets. Robert Stillerman, a computer forensic expert involved in the KC Multimedia case, testified that he could not access the hard drive during his inspection, suspecting it had been erased or encrypted. He emphasized the importance of source code for evaluating trade secrets. Lynell Phillips, another forensic expert present during Stillerman’s inspection, agreed that the drive was likely password protected or encrypted and noted that Koo had ordered the inspection to conclude, preventing further attempts to access the drive.

Defense expert Peter Garza testified that Stillerman’s inspection did not damage or erase the server and disputed Koo’s claim regarding the encryption, stating it was not available for that model at the time. E*Trade also introduced David Klausner, an expert in software valuation, who stated that he could not adequately assess Ajaxo’s trade secret due to the loss of source code following Koo’s disposal of the development server. Klausner identified several critical factors he could not evaluate, including the scalability and maintainability of Ajaxo's wireless application. Additionally, E*Trade referenced previous testimonies from Chun and Koo, suggesting inconsistencies regarding Ajaxo’s products, licensing agreements, and negotiations with E*Trade.

Phase I concluded with the submission of written closing arguments and E*Trade’s motion to strike Sing Koo's undisclosed expert testimony. In May 2014, the trial court decided to proceed to Phase II, deeming the decision a close call and clarifying that it did not imply Ajaxo was entitled to any royalty. The court noted that the evidence from Phase I would inform Phase II and reserved judgment on E*Trade’s motion to strike until the end of Phase II.

Phase II commenced in December 2014, with Ajaxo claiming a reasonable royalty of $65,660,000, calculated through two primary and one alternative royalty model presented by expert Sing Koo. Additionally, Ajaxo sought exemplary damages of $131,320,000 due to findings of willful misappropriation from the first trial. E*Trade contested any royalty claim, arguing that Ajaxo had inflated the potential value and compromised its case due to evidence destruction. E*Trade sought to exclude portions of Koo’s testimony as inadmissible, citing reliance on unproven facts and improper disclosures.

In response, E*Trade introduced two expert witnesses: Bruce McFarlane, who criticized Koo’s analysis, and Terry Lloyd, who stated that he could not formulate a reasonable royalty opinion due to missing critical evidence. The trial court indicated it would consider E*Trade's objections in a motion to strike related to the closing brief. 

Ajaxo's claims were categorized into two main areas: Koo’s expert testimony and the proposed royalty models, and E*Trade's rejection of any royalty amount. Ajaxo broke down its $65,660,000 claim into two segments: $41.5 million for E*Trade's direct use of the trade secret and $24.16 million for its disclosure to Everypath, which utilized the trade secret for its products. An alternative model, the 'end-user subscription' model, was valued at approximately $3.3 billion, with Ajaxo asserting these figures were conservative estimates based on anticipated user counts and licensing practices.

Koo evaluated the reasonable royalty based on several factors, including Ajaxo's licensing practices, E*Trade's misuse of trade secrets, and the Georgia-Pacific factors relevant to royalty determination. He identified Wirelessproxy XO as a software toolkit for developers, later rebranded as Smart Agent, both containing the relevant trade secrets. Koo asserted that in 1999, Wirelessproxy XO was the sole front-end solution for wireless access to E*Trade’s stock trading platform, with only Ajaxo and Everypath offering such capabilities by 2003.

Koo examined E*Trade's misappropriation of Ajaxo's trade secret and its application through Everypath, referencing an April 2000 transaction where Ajaxo licensed its Smart Agent toolkit to Infocast for $700,000, along with a 50% share of a $510,000 runtime fee from a subsequent deal with Chong Hing Securities. He proposed a hypothetical licensing scenario where E*Trade, as the trade secret owner, would owe Everypath $700,000 for the master-developer license and 50% of runtime fees for 92 deployments, totaling $24,160,000.

For the enterprise direct use model, Koo calculated that E*Trade, with a minimum capacity of 4,000 concurrent users, would need at least 80 runtime licenses at $510,000 each, plus the master license fee, resulting in $41.5 million. Koo also detailed an end-user subscription model based on a service provided to Fidelity customers, estimating a monthly fee of $30 per account. He projected that, given E*Trade's entire customer base utilized the service, this would yield a total royalty of $3,353,613,580 over six years. This end-user subscription model served as an alternative to the enterprise direct use model, both measuring royalties based on E*Trade’s direct utilization of the technology.

Koo, during cross-examination, conceded that his royalty opinions based on the end-user subscription and enterprise direct use models were absent from his expert report and deposition. He did not utilize figures from either party's licensing proposals during negotiations between Ajaxo and E*Trade and admitted his calculations ignored significant negotiation positions, such as E*Trade's proposed $200,000 licensing fee per device platform for up to 20,000 users and Ajaxo's lack of a stated 50 concurrent user limitation. Koo's calculations also disregarded E*Trade’s service agreement with Everypath and actual usage data from E*Trade customers, instead relying on total account figures from 10-K filings. He acknowledged that only the payments from Infocast for Ajaxo's Smart Agent toolkit and a runtime license to Chong Hing reflected prices Ajaxo had received for its product. Koo maintained that Wirelessproxy XO was equivalent to Smart Agent, despite previously describing Smart Agent as an evolution of Wirelessproxy. He assumed all 92 purported Everypath customers utilized Ajaxo's trade secret without reviewing their individual agreements or pricing. Regarding the subscription model, Koo agreed that actual customer usage was minimal and deemed financial terms between E*Trade and Everypath unreliable for establishing a reasonable royalty due to their infringing status. He confirmed that all code and copies of the application developed for E*Trade were no longer available at trial.

E*Trade’s experts, McFarlane and Lloyd, rejected Koo's models for determining a reasonable royalty, with McFarlane identifying several flaws that rendered Koo’s analysis unreliable. He pointed out that Koo's reliance on the Infocast-Ajaxo agreement as a benchmark failed to account for differences in the nature of the licenses, specifically that Infocast's license was for actual software while E*Trade's would only cover the trade secret. McFarlane noted Koo did not consider included services like maintenance and upgrades in the Infocast agreement. He criticized Koo’s model for not isolating the trade secret and not reflecting the actual negotiations between Ajaxo and E*Trade from 1999, which would have been vital for a reliable royalty assessment. Additionally, McFarlane found flaws in Koo's assumptions regarding the number of concurrent users, arguing that E*Trade would not need separate licenses for every 50 users, contradicting prior agreements Ajaxo had with other companies.

McFarlane criticized Koo's use of the Infocast-Chong Hing agreement, highlighting its incompleteness and the absence of relevant language regarding 50 concurrent users in the license fee section. He pointed out similar flaws in Koo's reliance on the Chong Hing agreement to claim Everypath customers would pay $510,000 for a runtime license, noting Koo's failure to analyze individual contracts or terms of use for Everypath's 92 customers. McFarlane contested Koo's dismissal of transactions between E*Trade and Everypath as infringing, asserting that damage experts typically account for what alleged infringers have paid for the technology. He explained California's head start rule allows for payment of a reasonable royalty only for the duration of prohibited use, arguing Koo overestimated potential damages by neglecting this period, which could limit what E*Trade would prudently pay for the trade secret.

Lloyd's testimony focused on the lack of necessary information to determine a reasonable royalty rate. He identified the absence of a clear definition of the misappropriated trade secret and its economic value as a significant issue, noting conflicting descriptions and the destruction of the source code, which hindered the identification and valuation of the trade secret. Lloyd mentioned he couldn't review crucial financial records to differentiate income sources. He analyzed the Georgia-Pacific factors and concluded that the trade secret held little value based on Ajaxo's transaction history with companies like Infocast and E*Trade, emphasizing that the wireless trading function did not increase E*Trade’s trading volume and was not profitable. Ultimately, he found no evidence of E*Trade's use of the trade secret, asserting that there was insufficient data to ascertain a reasonable royalty. Both parties submitted closing briefs summarizing their arguments for the royalty trial.

Ajaxo claimed entitlement to a reasonable royalty due to E*Trade's direct use of its misappropriated trade secret, advocating for either the enterprise direct use model or the end-user subscription model, and for E*Trade's disclosure to Everypath under the value-added developer distribution model. Ajaxo argued that the Georgia-Pacific factors justified the proposed royalty, asserted that apportionment was unnecessary as the models solely pertained to the licensing of the misappropriated trade secret, and contended that the head start rule did not apply. They emphasized that the stolen blueprints were more valuable than the source code, and that the nature of the trade secret was previously established, supported by a jury verdict in a second trial confirming E*Trade’s use of the trade secret.

In contrast, E*Trade contended that Ajaxo failed to meet the burden of proof and presented incompetent evidence for a reasonable royalty. E*Trade requested the court to disregard Ajaxo’s royalty models, arguing they were based on flawed assumptions and inconsistent with established methodologies, including the head start rule and apportionment. E*Trade reiterated that Ajaxo was not entitled to a royalty due to prior compensation received from a breach of nondisclosure agreement, lack of evidence regarding E*Trade's use of the trade secret, and Ajaxo's alleged destruction of evidence. E*Trade proposed any royalty should be capped at $250,000, offset by previous judgments.

E*Trade also moved to strike portions of Sing Koo’s expert testimony regarding the direct use model’s $41.5 million assessment, the subscription model suggesting royalties of up to $3.33 billion, and Koo’s assertion of Ajaxo's technology’s uniqueness. E*Trade argued that Koo did not disclose these theories adequately before trial, revealing the subscription model only during deposition and the direct use model shortly before the trial. Ajaxo opposed this motion to strike.

E*Trade was accused by Ajaxo of diverting attention from the substantive issues of the case, described as a "David versus Goliath" scenario, by pretending to be prejudiced due to insufficient disclosures. Ajaxo contended that Koo had adequately explained the royalty models during his initial trial testimony and depositions, asserting that E*Trade should have sought further clarification during those proceedings. Ajaxo also defended against E*Trade’s motion to strike testimony on its unique wireless trading solution, claiming that this topic had been previously addressed in the first trial and should not be considered new evidence.

The trial court issued a tentative decision in August 2015, followed by a final statement in September 2015, granting E*Trade's motion to strike expert testimony regarding end-user subscription and enterprise direct use royalty models, and dismissing Ajaxo’s claim for a reasonable royalty. The court made several findings: 

1. Ajaxo failed to demonstrate entitlement to a royalty from E*Trade.
2. If entitlement was assumed, Ajaxo did not prove the amount of a reasonable royalty.
3. The developer distribution royalty model was based on unsubstantiated speculation contrary to evidence.
4. Ajaxo's royalty claims were excessively high and not reasonable given the circumstances.
5. The royalty claim was not connected to E*Trade's trade secret misappropriation as determined in a prior jury trial.
6. The Georgia-Pacific factors indicated no royalty should be awarded.
7. Ajaxo had lost or destroyed pertinent evidence related to the royalty inquiry.
8. Witnesses for Ajaxo provided contradictory testimonies relevant to the royalty entitlement and evidence destruction.
9. Ajaxo acted in bad faith by destroying evidence during litigation and committing other improper acts.

Ultimately, the trial court ruled in favor of E*Trade regarding the reasonable royalty claim and awarded E*Trade its litigation costs. Ajaxo subsequently filed a motion for a new trial and to set aside the judgment, citing three grounds: procedural irregularities that affected trial fairness, challenges to the exclusion of certain royalty models, and claims of inadequate damages. Ajaxo argued that its previous $90 million judgment against Everypath did not require source code examination and that the trial court had overlooked relevant testimony and evidence regarding the trade secret.

Ajaxo sought a new trial on the grounds that the trial court overlooked "substantial, reliable, and persuasive evidence" from the value-added developer distribution model, arguing that the royalty calculation should have been based on E*Trade’s actions rather than Everypath’s. Ajaxo asserted that E*Trade was entitled to a master-developer license fee of $700,000 and 50% of the $510,000 runtime license fee for Everypath’s sublicenses, totaling $24 million. Additionally, Ajaxo claimed that legal errors, including the exclusion of royalty models and misapplication of legal doctrines, deprived it of a fair trial. Ajaxo requested to vacate or amend the judgment due to perceived errors in awarding costs to E*Trade.

E*Trade opposed Ajaxo's motion, providing supporting declarations and excerpts from the trial record. The trial court denied the motion for a new trial, stating Ajaxo failed to show any procedural irregularities or legal errors warranting such a trial. It emphasized that even valid arguments from Ajaxo would not change its conclusion regarding the royalty award. The court confirmed E*Trade's entitlement to costs as the prevailing party, reasoning that Ajaxo's misappropriation claim had been resolved without any recovery for Ajaxo.

Ajaxo subsequently appealed the judgment and challenged E*Trade's costs award, contending that it should be considered the prevailing party based on an earlier jury verdict and prior appeals. Ajaxo argued that E*Trade's defeat on the royalty claim did not affect its prevailing status, and sought to tax certain claimed costs as unreasonable. E*Trade countered that Ajaxo had not been the prevailing party since the final judgment on the breach of contract cause of action, detailing the case's procedural history and asserting the inevitability of multiple final judgments.

Ajaxo litigated a trade secret claim against E*Trade, seeking $302 million in unjust enrichment damages during a second trial, which culminated in a 2008 verdict awarding Ajaxo nothing. The trial court then entered judgment for E*Trade, which included a costs memorandum of $134,080.06, to which Ajaxo did not respond but instead appealed. The appellate court reversed the judgment, allowing the trial court to determine if a reasonable royalty should be awarded to Ajaxo. The appellate decision did not address the costs issue, which Ajaxo did not contest. Following the judgment denying a reasonable royalty in 2015, E*Trade submitted a costs memorandum claiming $221,317.53, reiterating part of the previous costs claimed. E*Trade argued that Ajaxo could not be considered a prevailing party since neither side had recovered relief in subsequent proceedings. Ajaxo contested this by asserting its position had not changed since 2003 and that it should retain prevailing party status due to its successes on liability and one cause of action. The trial court partially granted Ajaxo's motion to tax costs, reducing E*Trade's total award by approximately $8,300, but denied Ajaxo's request for a reasonable royalty, a new trial, and the motion to strike costs. Ajaxo appealed this order. The legal framework for determining a reasonable royalty under the California Uniform Trade Secrets Act (CUTSA) indicates that it is a court-determined fee for the use of misappropriated trade secrets, calculated based on what a hypothetical agreement between the parties would have been at the time of misappropriation. This royalty is limited to the time period during which the use could have been prohibited.

The key measure of damages in trade secret misappropriation cases is the fair market value that the parties would have agreed upon for licensing the use of the trade secret at the time of the misappropriation, as established in University Computing Co. v. Lykes-Youngstown Corp. California's Uniform Trade Secrets Act (CUTSA), derived from the Uniform Trade Secrets Act, allows courts to reference case law from other jurisdictions that interpret similar provisions. Unlike other CUTSA provisions, section 3426.3(b) requires that both actual damages and unjust enrichment must be unprovable before a reasonable royalty can be imposed. 

Courts may adjust the royalty calculation using comparable data, including the Georgia-Pacific factors, which were initially developed for patent infringement cases but are now frequently applied in trade secret contexts. The Georgia-Pacific factors consist of fifteen considerations that aid in determining a reasonable royalty. The trial court in this case acknowledged the relevance of these factors for the royalty analysis related to trade secret misappropriation, indicating a trend of aligning trade secret damages with patent damages due to the complexities involved in evaluating such damages.

The determination of a reasonable royalty in trade secret cases considers several critical factors: 

1. Rates paid by the licensee for comparable trade secrets.
2. The nature and scope of the license, including exclusivity and territorial restrictions.
3. Reasonable royalty calculations are theoretical and lack mathematical precision, serving as a measure when no established royalty exists.
4. The decision rests on the discretion of the fact-finder who must impartially evaluate all evidence.
5. The trade secret owner's policies aimed at maintaining monopoly through specialized licensing conditions.
6. The commercial relationship between the trade secret owner and the licensee, including competition and roles.
7. The impact of the trade secret on promoting the licensee's other products and its value to the owner.
8. The duration of the trade secret's value and the license term.
9. The profitability and commercial success of products made under the trade secret.
10. The advantages of the trade secret over prior methods.
11. The nature of the trade secret and its commercial embodiment.
12. The extent of the infringer's use and its value.
13. Customary profit portions allocated to the trade secret in the industry.
14. The realizable profit attributed to the trade secret versus non-trade secret contributions.
15. Expert opinion testimonies.
16. The hypothetical agreement the parties would have reached at the onset of misappropriation.

Assessing damages aims to ensure fair compensation for losses due to misappropriation, reflecting the policies of trade secret protection. The flexibility in determining reasonable royalties aligns with these policies, especially when no specific guidelines exist. The appellate court's review of the trial court's denial of a royalty involves different approaches from the parties involved.

The appellate court emphasizes the necessity of deference to the trial court's rulings when analyzing the issues raised on appeal, as established by precedent. Ajaxo alleges that the trial court abused its discretion by not adhering to directives from a previous ruling and by failing to adequately consider evidence that could have justified a reasonable royalty. Ajaxo argues that the court's judgment stemmed from an erroneous legal ruling, contending that the presence of substantial evidence does not justify affirmance if the trial court did not fulfill its factfinding responsibilities.

E*Trade counters that Ajaxo has misinterpreted the trial court’s obligations on remand and has misconstrued the applicable standard of review. The appellate court determines that Ajaxo's claims regarding substantial evidence and the trial court's alleged failure to perform its factfinding duties are misguided. The crux of the review process hinges on whether Ajaxo met its burden of proof to demonstrate entitlement to a reasonable royalty, a matter the court does not revisit in terms of evidence sufficiency.

In instances where a party has not met its burden of proof at trial, the appellate review focuses on whether the evidence compels a finding in favor of the appellant as a matter of law. To succeed, Ajaxo must establish that its evidence was uncontradicted, unimpeached, and compelling enough to necessitate a favorable ruling. The appellate court upholds the presumption that the trial court's judgment is correct, with all assumptions favoring its validity.

Furthermore, Ajaxo challenges the trial court's application of legal standards concerning reasonable royalty analysis, including considerations of spoliation and unclean hands, the use of apportionment principles from patent law, and the exclusion of certain royalty models.

Ajaxo asserts that the trial court had sufficient evidence to determine a reasonable royalty, independent of Ajaxo’s royalty models. The court finds no reversible error or abuse of discretion in this assertion. The award of a reasonable royalty under Section 3426.3, subdivision (b) is discretionary. Ajaxo’s argument relies on a previous ruling (Ajaxo II), which concluded that since actual losses or unjust enrichment were not provable, the trial court had the discretion to award a reasonable royalty. Ajaxo misinterprets this ruling by suggesting that the trial court was mandated to award a reasonable royalty upon remand, whereas the ruling merely indicated that the trial court could exercise discretion based on evidence. The statute does not guarantee a royalty in the absence of provable losses or unjust enrichment; it only allows the court to award reasonable royalties at its discretion.

Furthermore, Ajaxo is criticized for failing to accurately represent the record evidence, as it selectively highlights findings that support its position while ignoring evidentiary shortcomings from its recent trial. Ajaxo’s presentation lacks a balanced view of the facts, and it does not adequately address the trial court’s rationale for denying its claim for a reasonable royalty. The opposing party, E*Trade, submitted additional evidence and testimony that Ajaxo did not adequately consider.

The appellant, Ajaxo, has not sufficiently tailored its arguments to meet the appellate review standard. It emphasizes evidence that could support a reasonable royalty but neglects the trial court's reasoning for denying such a royalty. The core issue is whether the evidence necessitated the trial court to award a reasonable royalty, not merely if it could have. The court concluded that it did not. The subsequent sections will address Ajaxo’s claims of error regarding its involvement in evidence spoliation, the application of patent law apportionment principles, the refusal to award a royalty based on available evidence or Ajaxo's distribution model, and the exclusion of two royalty models due to late disclosure. Ajaxo argues that the trial court ignored crucial evidence from earlier trials that could justify a reasonable royalty and imposed irrelevant patent law standards on a trade secret case. It asserts that evidence from negotiations and E*Trade's license payment to Everypath could serve as a basis for determining a fair licensing price. However, the trial court's analysis correctly recognized that establishing a royalty requires modeling a hypothetical negotiation that considers various factors, including industry license agreements, anticipated profits, and the trade secret's market contribution. Ultimately, the trial court identified proof issues that hindered a fair royalty assessment.

E*Trade had the opportunity to acquire comprehensive licensing rights, including access to Ajaxo's trade secrets and software, at a cost between $500,000 and $712,687, depending on the basis for the license fee. However, the trial court noted Ajaxo's destruction of evidence and the unclear definition of its trade secrets hindered the identification and valuation of the trade secrets amidst the more valuable rights discussed in licensing negotiations. The court considered E*Trade's payment of $30,000 per month to Everypath for a comparable wireless trading application, but the destruction of Ajaxo's software precluded any meaningful apportionment of that fee to the Ajaxo trade secret. The court concluded that even if the entire $30,000 were attributed to the trade secret for three years, it would result in a royalty of $1,080,000, which was less than what E*Trade had already paid Ajaxo for a prior breach of contract, leading to the determination that any royalty awarded would offset that amount. Additionally, the court found that "unproven, unprovable, and/or false factual assumptions" prevented a reasonable royalty calculation based on Ajaxo's distribution model and excluded two royalty models proposed by Ajaxo due to late disclosure during expert discovery. Ajaxo contested the trial court's findings and the exclusion of the royalty models, arguing they were based on incorrect legal principles and challenging the court's offset ruling, which Ajaxo raised for the first time in its reply brief. The trial court ruled that Ajaxo did not provide sufficient evidence to define the trade secret or assess its economic value, particularly due to the lost or destroyed evidence that was crucial for a fair evaluation of the trade secret’s worth. The court emphasized that deriving a reasonable royalty would necessitate apportioning the value of the trade secret disclosed to Everypath.

Ajaxo's destruction of evidence, including source code and documentation, impeded the ability to compare Wirelessproxy XO with the Smart Agent toolkit licensed to Infocast and sublicensed to Chong Hing. The court determined that apportionment was necessary to establish a reasonable royalty based on Koo's distribution royalty model, which relied on unproven assumptions regarding Everypath's use of Ajaxo's trade secret. Ajaxo contends that a source code analysis was unnecessary to identify its trade secret, which was established through documentation and expert testimony in the earlier trial, as outlined in Ajaxo I. Ajaxo highlighted the detailed description of its trade secret by expert Earl Rennison, which demonstrated its independent economic value, asserting this evidence was available for the trial court in determining a reasonable royalty.

Ajaxo argued that patent apportionment principles were misapplied, noting the trial court rejected Koo's royalty model for presuming the entire value of the Infocast and Chong Hing agreements was attributable to Ajaxo's trade secret. The trial court indicated that reliable apportionment necessitated evaluating both Ajaxo’s Wirelessproxy XO and Smart Agent software, including their source code, to differentiate the misappropriated trade secret from other intellectual property. However, the court found that Ajaxo assigned the entire $700,000 value of the Infocast contract to the misappropriated trade secret, claiming Ajaxo had lost the necessary evidence for a reliable apportionment. The court referenced established principles from patent disputes, emphasizing the need for solid evidence to separate damages linked to the trade secret from other features. Ajaxo argued that applying these principles was erroneous and inconsistent with the flexible nature of measuring damages in trade secret cases, which is part of the rationale for the reasonable royalty damages under the California Uniform Trade Secrets Act (CUTSA). Ajaxo also claimed that the trial court's reliance on source code analysis for apportionment was unfair, given the known absence of that source code.

E*Trade initially dismissed Ajaxo's Javadoc as irrelevant hearsay, which Ajaxo argues undermines the trial court's understanding of the trade secret despite evidence from prior trials. Ajaxo asserts that the court's use of apportionment principles in assessing reasonable royalty damages is flawed, claiming that such principles should not apply to trade secret cases as outlined in University Computing. However, it is recognized that the measure of damages for trade secret misappropriation is often informed by patent infringement cases, and the reasonable royalty aims to reflect the trade secret's value to the defendant. The Georgia-Pacific framework guides factfinders in evaluating the relative worth of innovations. Ajaxo contends that apportionment conflicts with the flexible approach suggested in University Computing, but the court maintains that apportionment is inherent in reasonable royalty calculations, particularly when demonstrating actual profits is challenging. The trial court's requirement for evidence, including Ajaxo’s source code and Javadoc, to determine a reliable apportionment of damages raises questions about whether it abused its discretion in this factual assessment regarding the trade secret's nature and the evidence's destruction.

Findings were reviewed for substantial evidence, particularly regarding Ajaxo's claim that the trial court was required to determine a reasonable royalty. The trial court concluded that essential evidence related to the trade secret—specifically, software, source code, and documentation—had been destroyed by Ajaxo by 2007. It noted that all printed and electronic copies were completely lost or erased, and held Ajaxo accountable for this destruction, which occurred after the first appeal. The court found Koo's explanations for the loss unconvincing, supported by expert testimony indicating bad faith in destroying the sole remaining hard drive containing crucial source code. 

Ajaxo's argument against considering E*Trade’s claims of "unclean hands" and spoliation was rejected, as these were not effectively resolved in earlier litigation. Although the jury had previously dismissed E*Trade’s unclean hands defense, the trial court appropriately focused on Ajaxo's destruction of evidence post-2003, particularly the server destruction in 2007 and the loss of financial records. The spoliation issue remained relevant and was not fully settled before the 2008 trial.

The court's decision to exclude testimony regarding evidence destruction from the trial on misappropriation damages was based on a determination that missing source code evidence was not relevant to the issue of unjust enrichment. The ruling did not address the substantive effects of any alleged spoliation of evidence. Subsequent proceedings revealed that Koo had communicated with the FBI after unauthorized access to Ajaxo's server, which led to the reformatting of the server's hard drive and the destruction of all electronic files related to the E*Trade application as it existed in 1999. 

Ajaxo's appeal suggests confusion over prior motions and rulings, particularly an April 2008 ruling by a discovery judge, which was incorrectly stated to be related to a motion for terminating litigation based on evidence destruction. In fact, E*Trade had filed a motion for sanctions due to the destruction but was denied, resulting in exclusion of that evidence from the trial. Koo's testimony claimed that the destroyed server did not contain relevant source code. However, the trial court found significant contradictions in Koo's and Chun's testimonies, leading to the inference that the server likely held evidence unfavorable to Ajaxo and potentially beneficial to the defense. 

The court determined that Ajaxo had a duty to prove the value of any claimed royalties, which included an assessment of the available evidence for evaluating that claim. Ultimately, Ajaxo failed to show that the remaining electronic evidence did not have a tendency to prove or disprove relevant facts concerning the case.

Evidence related to Wirelessproxy XO's trade secret features was deemed relevant for comparing Ajaxo's royalty models and other wireless trading solutions. The trial court acted within its discretion by admitting this evidence for reasonable royalty analysis and found that inconsistencies in testimony weakened Ajaxo's credibility, impacting the fairness of the royalty assessment. 

Ajaxo's claim for a royalty based on the definition of "trade secret" was challenged due to the lack of sufficient evidence, independent of its royalty models. Despite asserting that its licensing negotiations with E*Trade could support a royalty valuation, Ajaxo had previously opposed using these negotiations to establish value during the trial. The court highlighted issues with the reliability of the Infocast license as a hypothetical baseline and concluded that prior trial evidence did not adequately define the trade secret for fair evaluation against other software.

Specific features of Wirelessproxy XO were determined not to constitute trade secrets, as they were in the public domain or previously used by Everypath. The trial court found that descriptions of trade secrets from the earlier trial were insufficient for valuation purposes, lacking detail on functionality and competitive advantages. Expert testimony supported the notion that valuing trade secrets in software required access to the source code, which was not available. Overall, the trial court's reasoning regarding the inadequacy of the evidence and the challenges surrounding the valuation of trade secrets was upheld.

Expert testimony indicated that the source code and documentation were crucial for the court to distinguish the trade secret within Wirelessproxy XO from prior technologies owned by KC Multimedia and the SmartAgent Toolkit. The source code would also clarify the extent of the trade secret's application in Everypath software used by E*Trade and its other customers, as well as the duration of its confidentiality against competitors. This information was vital for assessing the value E*Trade gained from Ajaxo and determining a fair licensing price at the time of misappropriation.

The trial court attributed uncertainty in valuation to Ajaxo’s destruction of relevant documentation and electronic evidence, justifiably imposing the burden of proof regarding a reasonable royalty on Ajaxo. Furthermore, the court excluded Ajaxo's royalty theories based on enterprise direct use and end-user subscription models, leaving only the value-added developer distribution model for evaluation. This model proposed a total royalty of $24,160,000, calculated from a $700,000 developer's license and 92 runtime sublicenses at $510,000 each.

The court rejected this model, finding it reliant on numerous unverified assumptions and inappropriate in its time frame and application since it sought royalties for Everypath's use rather than E*Trade's, lacking established joint liability between the parties. Ajaxo only contested certain aspects of this ruling, arguing that the licensing agreements with Infocast and Chong Hing Securities were valid analogues for determining the hypothetical license values used in the model.

The trial court determined that the $700,000 master-developer license to Infocast and the $510,000 sublicense to Chong Hing did not accurately represent the value of the misappropriated trade secret. Evidence showed a distinction between Wirelessproxy XO and the later Smart Agent toolkit, which was described as a more developed product. Testimony from Koo and Chun indicated that Smart Agent, characterized as a “development environment,” included features beyond Wirelessproxy XO and was essentially a new product. Although they later claimed both technologies were the same, the court found their credibility lacking due to inconsistencies in their testimonies. The court concluded that the apportionment model failed to appropriately reflect the trade secret content in the Infocast and Chong Hing agreements, and Ajaxo did not contest these credibility findings. 

Additionally, the Infocast agreement was deemed an unreliable benchmark for establishing a market rate for Ajaxo’s Smart Agent software, as it was a singular licensing agreement with insufficient evidence to support a standard royalty rate. Ajaxo's other licensing agreements for Smart Agent, which generated significantly less revenue and included early terminations, further supported the court's findings. Ajaxo argued that the Infocast and Chong Hing rates could establish a reasonable royalty, but the court found this reliance misplaced, citing that a single license agreement is inadequate for determining a reasonable royalty rate. The court referenced a prior case, University Computing, to support its conclusions but distinguished it based on the specifics of that case involving different circumstances.

The Court of Appeals for the Fifth Circuit upheld a jury verdict for misappropriation, affirming a $220,000 award based on testimony regarding a single, unsuccessful licensing offer for the AIMES III system. Ajaxo incorrectly interprets this ruling as establishing that a single license agreement can determine a reasonable royalty. The court countered the defendants' argument that an unaccepted offer should not be considered as evidence of value, ultimately allowing the testimony's admission due to the case's specific circumstances. However, the court did not resolve whether a single, unaccepted offer establishes a market rate for the misappropriated system.

The trial court found flaws in Ajaxo's value-added developer distribution model, particularly its reliance on unproven assumptions regarding E*Trade's and Everypath's use of the trade secret. The court asserted there was no evidence that the trade secrets disclosed by E*Trade to Everypath were the same as those used by Everypath, nor that E*Trade's disclosure led to Everypath's use of the trade secret. Ajaxo had argued its liability case against Everypath separately from its case against E*Trade, without establishing E*Trade’s liability for Everypath’s independent use. While Ajaxo claimed the trial record demonstrated E*Trade's use of Everypath’s application through misappropriation, the court clarified that the findings pertained to the link between E*Trade's disclosure and Everypath's subsequent actions, not establishing that Everypath utilized the same trade secret in later customer contracts.

The court emphasized that the value-added model's proposed $24 million royalty heavily relied on Everypath's alleged independent use, which lacked evidentiary support. Even if E*Trade's use of Everypath's wireless solution implied its use of the trade secret, there was insufficient evidence to connect E*Trade's disclosure to Everypath’s later application sales. Thus, the role of E*Trade’s alleged use in the value-added distribution model remains ambiguous.

Ajaxo does not dispute the trial court's findings that critical assumptions regarding Everypath's use of Ajaxo's trade secret lacked evidentiary support. The court identified the assumption that Everypath applied the trade secret in 92 customer contracts as "unproven," noting that many of these relationships were incompatible with the trade secret model. For instance, one contract involved Everypath as the customer for services, while others were for short trial periods or involved different services, with charges that did not align with the model's $510,000 figure. Testimony from Everypath's former CEO indicated that most contracts involved software unrelated to wireless trading or online financial services.

Additionally, the court found that Ajaxo failed to demonstrate that the software used by Everypath's alleged customers incorporated the trade secret, especially given significant technological changes at Everypath after the alleged misappropriation. Ajaxo did not provide record evidence to substantiate claims that E*Trade utilized Ajaxo's trade secret through its partnership with Everypath, relying instead on prior court decisions which did not establish E*Trade's use or liability linked to Everypath's actions.

The referenced prior cases, Ajaxo I and Ajaxo II, discussed E*Trade's unjust enrichment from Ajaxo's trade secrets but confirmed that Ajaxo's misappropriation claims were based solely on E*Trade's breach of a nondisclosure agreement (NDA) concerning disclosures to Everypath. The trial court had dismissed all other misappropriation theories unrelated to E*Trade's disclosures, reinforcing that E*Trade's benefits derived from the misappropriated trade secret were tied to its disclosure to Everypath, not direct use. Under the Uniform Trade Secrets Act (UTSA), liability for misappropriation could apply to both the discloser and the acquirer of a trade secret, as stated in the court's findings.

E*Trade was not found legally responsible for Everypath’s misappropriation of trade secrets, primarily due to the actions of former E*Trade employee Dan Baca, who accessed Ajaxo’s system without authorization after moving to Everypath in December 1999. The previous trial compartmentalized liability, attributing E*Trade’s appropriation of trade secrets and disclosure to Everypath separately from Everypath’s use of those secrets for its wireless trading application. The 2008 trial focused solely on damages, as directed by the remittitur from the first trial, and limited the scope regarding E*Trade’s liability, denying Ajaxo’s motion to hold E*Trade jointly liable for Everypath's unjust enrichment. E*Trade had presented evidence that its wireless trading strategy suffered losses, but this was mischaracterized as “use” of the trade secret, which was merely a summary statement. The law of the case doctrine pertains to legal rulings rather than factual determinations, indicating that previous findings on E*Trade's use were not conclusive for the retrial. The trial court found insufficient evidence linking E*Trade’s disclosure of the trade secret to its use in Everypath’s application, supporting its legal conclusions and rejecting the value-added developer distribution model as a basis for determining a reasonable royalty.

Ajaxo provided minimal evidence to challenge the trial court's findings regarding the value of the hypothetical master-developer license for Wirelessproxy XO and the evaluation of runtime sublicenses related to Everypath's use of the trade secret. Consequently, the trial court acted within its discretion by rejecting a reasonable royalty based on the value-added developer distribution model.

Ajaxo also contested the trial court's exclusion of two of the three royalty models presented by expert witness Koo, arguing that E*Trade had sufficient notice of these theories and that their exclusion deprived Ajaxo of a fair trial. The appellate review of this decision is based on the abuse of discretion standard. While acknowledging the importance of liberal discovery rules, Ajaxo's argument is weakened in the context of expert testimony exclusion due to noncompliance with disclosure rules, which are designed to be stringent.

The expert witness disclosure requirements, as outlined in relevant case law, necessitate a detailed declaration that includes a summary of the expert's expected testimony to ensure fair notice. Failure to adequately describe the substance of an expert's testimony can lead to exclusion at trial, as emphasized in Bonds v. Roy, where the court underscored the importance of adhering to disclosure requirements to facilitate effective pretrial preparation.

The trial court conditionally accepted expert testimony from Koo, subject to E*Trade's objections and subsequent motions to strike. It postponed a decision on E*Trade's motion to strike until after phase I of the royalty trial and reopened expert discovery. After phase II, the court determined that Ajaxo failed to timely disclose Koo’s expert opinions regarding enterprise direct use and subscription royalty theories, leading to the granting of E*Trade’s motion to strike this testimony. The court's decision was supported by substantial evidence of incomplete and late disclosures. Koo's expert report detailed a value-added developer distribution model, which he argued was relevant to E*Trade’s use of technology, and calculated a royalty amount of $25,370,000. Koo stated during his deposition that he had no additional opinions beyond what was included in his report. However, he later indicated that his testimony was a continuation from phase I and mentioned reviewing E*Trade’s 10-K statements from 2000 to 2007, though he maintained that all his opinions were encompassed within his report. The court emphasized the importance of Koo's disclosure of all bases for his opinions, which he affirmed were fully contained in his report without additional documentation or calculations.

The report consolidates findings related to the subscription model, initially discussed in phase I, using E*Trade's retail customer data from 10-K statements. Expert Koo admitted he did not include the subscription model in his report and outlined a methodology based on Ajaxo’s charges under a Smart Agent contract with Fidelity, calculated at 50% of $30 per month per user. He acknowledged formulating a royalty estimate mentally but could not provide a written figure. Koo also stated he did not calculate a royalty based on the “enterprise model” because it was not implemented by E*Trade. Despite this, Ajaxo’s trial brief filed just before phase II proposed a $41.5 million royalty using the enterprise model, prompting an additional deposition, where Koo claimed he had not done further work since his last deposition. He asserted that the formula for the $41.5 million was mentally noted during his earlier deposition and criticized E*Trade's attorneys for not probing this aspect.

The court determined that Ajaxo did not fulfill its expert disclosure obligations prior to the phase II trial, countering Ajaxo's claim that E*Trade had prior knowledge of the royalty models. Ajaxo was required to provide the "general substance" of its expert's testimony by the disclosure deadline. The evidence Ajaxo presented to demonstrate compliance was largely generic and did not adequately convey the specifics of the enterprise and subscription models. E*Trade's later deposition inquiries did not remedy the lack of timely disclosures, and the last-minute deposition before trial failed to meet the purpose of expert disclosure, which is to provide fair notice of expert testimony. An expert's opinion that extends beyond previously disclosed testimony may be excluded if the opposing party was not adequately notified. Ajaxo's responses to interrogatories referenced various potential royalty models but lacked coherence regarding the enterprise direct use and subscription models presented at trial.

Koo's February 2012 deposition revealed his reliance on various documents and testimonies to form his opinion for the phase I trial, referencing jury verdicts, appellate opinions, and licenses that Ajaxo issued to multiple parties. The court found that Ajaxo's timing for disclosing end-user subscription and enterprise direct models did not meet the reasonable baseline, impacting the trial's fairness. Although Ajaxo argued the trial court's exclusion of its royalty models was erroneous, it failed to show that this exclusion deprived it of a fair trial or was prejudicial. The court noted that the exclusion was justified by Ajaxo's unreasonable failure to comply with expert witness disclosure rules. Prejudice was inferred from the opposing party's inability to prepare adequately due to late disclosures. Furthermore, any error in excluding testimony regarding the royalty models was deemed non-prejudicial, as those models suffered from similar reliability issues as the value-added developer distribution model, which lacked a viable method for calculating a reasonable royalty. The trial court’s analysis was characterized as lacking abuse of discretion, having used a flexible framework and considered relevant negotiation history and contracts. The court concluded that evidence was insufficient to assess a royalty due to Ajaxo’s unproven assumptions and the destruction of critical documents, undermining Koo's model based on exaggerated claims about the use of trade secrets.

The court exercised its discretion to reject the value-added developer distribution model due to insufficient proof presented by the plaintiff regarding damages. The plaintiff was required to demonstrate misappropriation, commercial use, and provide evidence for jury valuation of the defendant's gains. The court also excluded two other royalty models due to their late disclosure. While a flexible approach is necessary to assess reasonable royalties, the aggrieved party, Ajaxo, still bore the burden of presenting a solid evidentiary basis for its claims. The appellate court's reasoning in Yield Dynamics, Inc. v. TEA Systems Corp. was referenced to illustrate Ajaxo’s flawed argument that the trial court should have determined a reasonable royalty despite the lack of compelling evidence. In Yield Dynamics, the court found that the plaintiff had not proven the independent value of the misappropriated source code necessary to establish a trade secret, leading to a judgment for the defendants. The appellate court rejected the plaintiff’s claim of overwhelming evidence, emphasizing that the trial court had the authority to assess the credibility of witnesses and the probative value of evidence, ultimately determining that Ajaxo's claims were unsubstantiated. Additionally, the trial court's denial of Ajaxo’s motion for a new trial was upheld on two grounds: the application of the Georgia-Pacific factors and the refusal to award any reasonable royalty. The trial court retained the authority to reevaluate evidence and witness credibility, independent of the jury’s findings.

A new trial may be granted by the court only on statutory grounds that materially affect the substantial rights of the aggrieved party, as outlined in Code Civ. Proc. § 657. Ajaxo's motion for a new trial cited several grounds, including irregularities in court proceedings, excessive or inadequate damages, and legal errors during the trial. The review of the denial of a new trial is for abuse of discretion, but an independent determination is made regarding the prejudicial nature of the asserted errors based on the entire record.

Although the order denying a new trial is not directly appealable, it may be reviewed after the final judgment as it significantly affects the parties' rights. Ajaxo argued that the trial court improperly applied the Georgia-Pacific factors for determining a reasonable royalty, claiming errors in 10 of the 15 factors considered. However, many of these claims were unsupported by the record and reiterated earlier points.

Specifically, the first two Georgia-Pacific factors pertain to royalties received by the patent owner and rates paid by comparable licensees. Ajaxo presented evidence suggesting its license fee from Infocast indicated a reasonable royalty rate. However, the trial court found that this evidence did not support the claim for the Wirelessproxy XO rate, and Ajaxo failed to present new arguments. Furthermore, the court determined that the $30,000 monthly rate paid by E*Trade for services from Everypath could not be apportioned to the Ajaxo trade secret without establishing that Everypath had used that secret, which Ajaxo did not prove. Finally, Ajaxo did not successfully challenge the trial court's conclusion that the royalty from the $30,000 fee would be less than what Ajaxo had already recovered for breach of a nondisclosure agreement, thus barring further recovery.

Ajaxo's appeal raises issues regarding the trial court's interpretation of the Georgia-Pacific factors relevant to determining reasonable royalty damages for trade secret misappropriation. The fourth factor, relating to the licensor's efforts to maintain its patent monopoly, was deemed neutral by the court because, despite Ajaxo's protective measures such as nondisclosure agreements, Ajaxo destroyed its only copy of the source code, undermining its efforts to protect the trade secret. 

Regarding the fifth factor, while Ajaxo argued that the trial court failed to consider E*Trade's disclosure of the trade secret to Everypath—Ajaxo's competitor—the court's findings showed that Ajaxo did not demonstrate how this oversight impacted the royalty analysis, given its failure to establish a reasonable royalty.

The seventh factor, concerning the duration of the patent and license, was interpreted by the trial court as the period during which the trade secret retained value, determined to be six months based on E*Trade's capacity to develop a wireless application in that timeframe. Ajaxo contested this finding, asserting there was credible evidence of E*Trade using Everypath's services for five years; however, the trial court's conclusion was supported by substantial evidence and expert testimony regarding the trade secret's short economic life.

Finally, the eighth factor focused on the profitability and success of products developed under the patent. Expert testimonies indicated that the economic viability of Ajaxo's trade secret was limited, as E*Trade could have independently developed its wireless trading capability in six months, further influencing the royalty calculation.

The trial court evaluated the profitability of E*Trade’s wireless trading business and the broader industry failure, concluding that these factors could influence the reasonable royalty determination under the California Uniform Trade Secrets Act (CUTSA). E*Trade contended that the absence of established profits from the trade secret technology should not affect liability for a reasonable royalty, citing precedent that a lack of profit does not bar recovery. Ajaxo argued that the uniqueness of its trade secret rendered profitability irrelevant; however, the court had previously disregarded an opinion asserting this uniqueness. Despite Ajaxo's claims of the unique advantages of its technology over competitors, the court found that these arguments did not alter the relevance of profitability as one of multiple considerations in setting a reasonable royalty. Ultimately, Ajaxo's reliance on past trial findings was deemed insufficient, as it failed to account for substantial evidence indicating that Ajaxo had exaggerated the value of its trade secret.

E*Trade demonstrated the ability to independently create a complete wireless trading system within six months at a cost between $400,000 and $1 million. This development, combined with the emergence of comparable back-end solutions, diminished the value of Ajaxo’s claimed unique front-end solution. The trial court's conclusions were aligned with the 12th and 13th Georgia-Pacific factors, which assess customary pricing in the market for the use of trade secrets and apportionment of profits between trade secret and non-trade secret elements. Ajaxo argued the trial court mistakenly found no evidence of market pricing for the trade secret, citing negotiations with E*Trade suggesting a licensing price between $400,000 and $860,000. Ajaxo also contended that E*Trade’s losses on wireless trading should not factor into reasonable royalty calculations. The trial court acknowledged the relevance of negotiations as a starting point but ultimately determined that Ajaxo's evidence was too disconnected from the claimed trade secret value, as it was based on prices for complete software solutions with additional features. Consequently, the court found Ajaxo had not demonstrated a customary market price for the trade secret. Additionally, Ajaxo failed to justify excluding infringer profitability from the reasonable royalty calculation, as the Georgia-Pacific framework permits consideration of infringing profits. The trial court rightly noted that E*Trade did not generate profits from its wireless trading implementation after appropriating Ajaxo’s trade secret and that reasonable apportionment of realizable profits required proof that Ajaxo had destroyed relevant evidence.

The trial court’s application of the Georgia-Pacific factors was legally sound, with substantial evidence backing its factual findings and inferences. Ajaxo's claim of prejudicial error regarding inadequate damages was dismissed, as the court's denial of a new trial on that basis met the statutory standard. An appellate court's ability to review damage determinations is limited; it can only intervene if the award is egregiously disproportionate to the evidence. The court found Ajaxo had not proven the damages were insufficient and had exercised discretion in denying reasonable royalties for valid reasons outlined in its decision. Ajaxo argued that evidence supported a significant royalty award based on various models; however, the trial court concluded that any royalty determination would be speculative. The appellate review confirmed that the trial court's findings were well-supported, justifying its refusal to award a royalty.

Findings indicate Ajaxo's reliance on unproven assumptions regarding Koo’s distribution model, destruction of trade secret evidence critical for value assessment, and contradictory testimonies from key witnesses. E*Trade asserts that the mere existence of potential evidence for a different conclusion does not necessitate a change in judgment. Ajaxo counters with three arguments: 

1. It references an appellate ruling from a previous trial which found sufficient evidence for a damages award due to misappropriation, claiming the same evidence was presented in the current trial along with additional third-party licensing evidence. This reasoning is criticized as circular and unoriginal.
   
2. Ajaxo disputes the trial court’s offsetting of any potential royalty award by $1.29 million from its breach of contract recovery, claiming this contradicts California's primary right doctrine and prior case holdings. This argument lacks substantial legal authority or analysis and was introduced for the first time in the appellate reply brief, which the court typically does not consider due to fairness concerns.

3. Ajaxo briefly mentions the unsatisfied default judgment against Everypath as irrelevant to offsetting damages against E*Trade, but this was not the basis for the trial court’s ruling on the offset issue. The court emphasizes fairness and the need for timely and well-developed arguments, noting Ajaxo's previous silence on the offset issue during the trial.

The court concludes that Ajaxo's claims regarding the unconscionability of the trial court's decision to deny a reasonable royalty award are unfounded. Ajaxo failed to adequately raise the issue earlier and therefore it will not be addressed further. Ajaxo argues that the decision deprived it of redress for E*Trade’s longstanding misappropriation, punitive damages, and the ability to recover costs, asserting the trial court's ruling was shocking to the conscience and subversive of justice. However, the court clarifies that Ajaxo's expectations were based on a misinterpretation of the remand instructions and that the trial court's role was to exercise discretion under specific statutory provisions. The appellate court finds no abuse of discretion in the trial court's evidentiary rulings or findings regarding Ajaxo's failure to establish a reasonable royalty. Ajaxo had multiple opportunities to present its case and was awarded $1.29 million in damages for breach of contract against E*Trade. The court emphasizes that Ajaxo's inability to demonstrate net damages or entitlement to a reasonable royalty does not equate to unconscionable unfairness, nor does a separate default judgment against Everypath impact the trial court's decision.

Ajaxo was awarded a default judgment of $60 million in compensatory damages against Everypath, primarily attributed to venture capital funding received by Everypath during the relevant period. The court affirmed its denial of Ajaxo’s motion for a new trial under Code of Civil Procedure section 657. Ajaxo contested the trial court's designation of E*Trade as the prevailing party, arguing that despite not obtaining relief on its misappropriation claim, its “net monetary recovery” from E*Trade should qualify it as the prevailing party under Code of Civil Procedure section 1032, subdivision (a)(4). However, the trial court maintained that E*Trade was the prevailing party due to the lack of relief obtained by either party in the misappropriation case. E*Trade contended that Ajaxo’s prior recovery from a breach of contract judgment did not affect its designation as the prevailing party in the current litigation, noting that Ajaxo had not secured any relief from the subsequent decade of litigation. The trial court's decision on the prevailing party and costs was reviewed for abuse of discretion, with the legal question of statutory interpretation evaluated de novo. Ultimately, the court upheld its determination that E*Trade was the prevailing party, as Ajaxo recovered no relief from its remaining claims.

The definition of the "prevailing party" includes a party with a net monetary recovery and a defendant when neither party obtains relief. Ajaxo argues it qualifies as the prevailing party by having received $1.29 million in damages for breach of a nondisclosure agreement, despite the trial court denying recovery for reasonable royalty. Ajaxo asserts that partial recovery entitles it to costs, as established in DeSaulles v. Community Hospital. E*Trade contends that the term "action" refers to the judicial process through to judgment, which is the final resolution of rights, and acknowledges Ajaxo's net monetary recovery but argues that the 2003 judgment became final after a remittitur in 2006. E*Trade claims it is entitled to recover its prejudgment costs incurred post-remittitur and before the 2015 judgment. E*Trade elaborates that the 2003 judgment was fulfilled in full, including all associated costs, and that Ajaxo did not contest the costs awarded to E*Trade after the 2008 trial, maintaining that the 2008 judgment's costs ruling was not challenged on appeal. Ajaxo disputes E*Trade's interpretation of the separate judgments as conclusive.

The document asserts that the case of DeSaulles is critical in determining the prevailing party in legal actions, emphasizing that separate judgments issued at different times should not obscure the overall assessment of the case. E*Trade specifically highlights the complexities arising from a distinct final judgment that was fulfilled, including attorney fees and costs, following a remittitur in 2006. The court seeks to interpret statutes by uncovering their underlying purpose, adhering to the plain meanings of the statutory language, and ensuring that every term contributes to the legislative intent. The entitlement to recover costs is contingent on a party being both a prevailing party and involved in an action or proceeding, as defined in Code of Civil Procedure § 1032. The prevailing party definition is acknowledged as either Ajaxo, which has a net monetary recovery, or E*Trade, which is a defendant with no relief granted to either party. The interpretation of "action or proceeding" is crucial, with Ajaxo's argument aligning with the statutory definition and common legal understanding suggesting that an action refers to the entire judicial process, rather than individual events within it. Recent case law reinforces that "action" is synonymous with a lawsuit as defined in Code Civ. Proc. § 22, and the prevailing party determination must consider the comprehensive nature of the lawsuit rather than isolated occurrences.

The prevailing party in a lawsuit, specifically Ajaxo in this instance, is defined within the context of the judicial action as a whole rather than individual components of the case. The notion that a prior judgment could divide an action into separate parts contradicts the legal interpretation of an "action" as encompassing the entire lawsuit until a final judgment is reached. The case's unique circumstances, especially following a 2006 remittitur and the fulfillment of a prior judgment from Ajaxo I, challenge the broad definition of "action" in relation to mandatory cost recovery when multiple judgments exist with distinct prevailing party determinations. While the term "action" is generally synonymous with a lawsuit and is understood to conclude at judgment, it encompasses all judicial proceedings leading to that judgment. The statutory right to recover costs, according to the California Code of Civil Procedure, arises from the final judgment, which represents the definitive resolution of the parties' rights. The appellate principle that prohibits reviewing intermediate rulings until the case is fully resolved aims to prevent fragmented appeals and unnecessary costs. The complexity in identifying the prevailing party stems from the previous ruling in Ajaxo I, which reversed the nonsuit on damages for trade secret misappropriation but upheld other judgments. Consequently, while the definition of "prevailing party" pertains to the entirety of the action, Ajaxo's claim for such status is complicated by the prior final judgments, particularly since full satisfaction was rendered by the defendant, affecting the determination of prevailing party status under the relevant legal framework.

Automatically extending the “net monetary recovery” benefit to subsequent phases without recovery contradicts the finality intended by a satisfied judgment. In **Gray CPB, LLC v. SCC Acquisitions, Inc.**, the court emphasized the importance of a time limit on motions for attorney fees to prevent a judgment debtor from facing additional fees after believing they have fulfilled their obligations. This aligns with the cost recovery statutory scheme, which aims to impose costs on the losing party, as established in **DeSaulles**. Ajaxo’s approach to cost recovery would require the court to consider overall success while ignoring that it had already recouped incidental damages related to its victory. E*Trade had also compensated for those incidental costs based on Ajaxo's prevailing party status from a prior judgment.

The rationale for awarding costs is rooted in the principle that the party at fault pays the costs incurred by the party without fault. Ajaxo's arguments, likening its case to **DeSaulles**, were found only partially convincing. In **DeSaulles**, an employee's multi-cause lawsuit against her employer led to a settlement and a later amended judgment in favor of the employer. The trial court initially awarded costs to the defendant, but this was reversed on appeal, with the appellate court ruling that the plaintiff, who achieved a net monetary recovery through the settlement, was the prevailing party. The California Supreme Court affirmed this, clarifying that the statutory definition of a prevailing party does not apply to defendants who settle for monetary compensation in exchange for dismissal, focusing instead on the overall outcome of the action.

Ajaxo contends that the case of DeSaulles supports the interpretation of Code of Civil Procedure section 1032, suggesting that when multiple judgments are rendered at different times, the trial court should only assess the net monetary recovery, even if diminished from the original claim. However, a key difference between this situation and DeSaulles is that in DeSaulles, the dismissal of actions for monetary settlement did not create a separate judgment that was later fully satisfied with a cost award. Instead, the amended judgment after settlement explicitly stated that parties would defer seeking costs until after all appeals. While DeSaulles considered the entirety of the action for determining net recovery, it does not provide a framework for calculating recovery beyond a fully satisfied prior judgment.

Ajaxo also argues that awarding costs to E*Trade contradicts the principle that the party at fault pays the costs to the faultless party, especially given a jury verdict against E*Trade for misappropriating Ajaxo's trade secret. However, Ajaxo had already recovered its costs as the prevailing party in the 2003 judgment and failed to secure further recovery in subsequent proceedings, while E*Trade successfully defended against additional damages. Costs are meant to reimburse the successful party for expenses incurred in asserting their rights.

The court concluded that Ajaxo did not achieve a "net monetary recovery" after the remittitur, allowing E*Trade to claim costs as the prevailing party, given that neither party gained relief in the later proceedings. The judgment, including the award of costs to E*Trade, was affirmed, along with E*Trade's entitlement to costs on appeal. There is also a suggestion that the court's determination of E*Trade as the prevailing party under these unique procedural circumstances aligns with the statutory definition of prevailing party in section 1032.